Most recent research and press reports on Sarbanes-Oxley have focused on large,
dual-listed companies as well as on UK-based subsidiaries of US companies that have
to comply with the regulation. Often, these companies have big compliance budgets and
have been at the vanguard of Sarbanes-Oxley compliance in the UK. The key aims of this
paper are to not only estimate the current number of UK companies that have to be
Sarbanes-Oxley compliant, but also how that number will grow over the coming
decades, particularly given the impact of the supply chain. The wider impact of
Sarbanes-Oxley through the supply chain is a key issue, that many UK businesses will have to deal
with, many of whom will not have realized the implications to date given their status as
partners or suppliers of compliant companies. These supplier companies will need to
reengineer their internal processes to provide data to meet the compliant companies'
Sarbanes-Oxley reporting requirements. This paper also examines UK organizations that will need
to comply with Sarbanes-Oxley as a cost of doing business, raising capital or for
general corporate governance best practice. The focus of this study is on UK companies,
employing between 50 and 1,000+ people.
The Sarbanes-Oxley Act was implemented as a direct result of serious
financial misconduct by business leaders in the late 1990s and early 2000s, that hurt both large
and small investors. In retrospect, much of the abuse that occurred was simply forgetting
or ignoring basic ethics and common sense. So to whom does Sarbanes-Oxley apply?
Any company whose securities are registered are required to file reports under
Section 15(d) of the Exchange Act. In essence, this means any publicly traded company. The
key to this report documentation is that the Act does not provide a definition of
`relevant' or `material' and each company must determine what is relevant or appropriate
material based on each circumstance. An important element of Sarbanes-Oxley will be how
it affects businesses not now under its umbrella, namely, smaller and
medium-sized businesses and supplier organizations that are not publicly held, yet seriously seeking
to grow. These companies typically are growing large or fast enough to be interested in
equity injections that require outside audits, yet remain too small to afford the fees of
large accounting or consulting firms. Institutional investors are themselves required to
provide relevant, accurate and timely disclosures as a prerequisite for financing third
party investments. Consequently, the Sarbanes-Oxley requirements are becoming relevant
to second tier companies' ability to finance growth investment strategies.