Exploring Corporate Governance Around the World

By Allison Garrett, Senior Vice President for Academic Affairs at Oklahoma Christian University

Tuesday, April 25, 2006

SOX: Unintended Consequences

CFO.com has an article on the website today about whether SOX is driving small companies overseas. The article discusses the SEC's committee reviewing whether section 404 -- the internal controls provision -- should apply to small companies. Small businesses are arguing that they should be exempt from section 404. Some are speculating that costs of complying with SOX will cause some companies to list on foreign exchanges rather than the U.S. exchanges.

This could be the case, but with all of the convergence occurring and other nations passing laws similar to SOX, why would companies list abroad? Isn't it far simpler to find a few eager venture capitalists? It seems that for some small companies, this would be a much easier way to access capital. The companies can avoid all of the costs and headaches associated with SOX compliance and also the costs and headaches associated with listing standards.

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