NEW YORK, January 10, 2006 Although most CEOs of fast-growing private companies agree that fewer government regulations are better, more than one in four is borrowing “best practices” from the Sarbanes-Oxley compliance experience of public companies—often to make their business more attractive for public financing or as an acquisition candidate. Many remain concerned however that regulatory compliance, whether voluntary or mandated, is overly costly.

Learning from others’ experience. CEOs of fast-growing privately-held businesses are more positive than negative in their assessment of how the Sarbanes-Oxley Act has affected corporate governance and transparency in the public company sector. And although one in four of these private businesses have voluntarily adopted Sarbanes “best practices,” three in four are opposed to mandating of these principles across-the-board:

• Thirty-seven percent say Sarbanes-Oxley has done a good to fair job of improving governance and transparency for public companies, while another 34 percent have mixed feelings, and only 17 percent believe it has done a bad job overall. The remaining 12 percent are on the fence or did not report.

• One-fourth (27 percent) of those surveyed say their company has adopted Sarbanes-Oxley “best practices.” Among these, 30 percent have applied its principles in governance, 26 percent in transparency, and another 43 percent in both areas. Adopters tend to be from larger businesses, averaging $74.2 million in revenues (51 percent above the average). They have grown faster over the past five years, and expect 25 percent higher revenue growth over the next 12 months.

• However, 73 percent of those surveyed oppose any future federal or state regulations that would impose provisions of Sarbanes-Oxley upon other than publicly-traded companies—saying this would be regulatory overkill (62 percent) or a bad precedent (11 percent). Only five percent say such regulations would be a good way to improve transparency across-the-board, while 19 percent say this may be a good idea for some, but on a case-by-case basis.

“Private companies that have adopted Sarbanes-Oxley principles generally are bigger and on a faster track than those that have not taken the plunge. By voluntarily embracing aspects of mandated behavior for public companies, they are using regulation and oversight as a means to an end, better positioning themselves for a future IPO or to be acquired by a public company,” said Michael Petrecca, a PricewaterhouseCoopers Private Company Services partner based in Columbus. “These companies are advancing their business strategy and do not advocate this same course for others that may not share their aggressive growth strategies or other business objectives,” he added.

Are fewer regulations better? More than a third (38 percent) of surveyed CEOs believes that private companies enjoy a competitive advantage over publicly-traded companies because private entities are not required to comply with the same level of regulations. But 30 percent take a mixed view of this, and another 28 percent feel that regulations have no bearing on competitiveness.

Certainly, regulations can be seen as a roadblock:

• Two-thirds (64 percent) report that regulatory concerns could potentially derail any plans to merge with, or become subsidiaries of public companies. Only 27 percent disagree; five percent are not certain; and four percent did not report.

• Two-thirds (67 percent) of those considering eventually going public say the cost of compliance with Sarbanes-Oxley and other SEC-imposed restrictions is a potential barrier.

But will these costs really trump opportunity? Of the 54 percent of “Trendsetter” companies considering becoming an acquisition candidate or seeking public financing in the future, nearly two-thirds (40 percent) do not see regulation or the cost of compliance as too expensive for their company; only one-third (14 percent) disagrees.

“CEOs of fast-growing privately-held businesses often see regulations as an impediment to profitable growth, and view companies that are not subject to certain regulations as having a competitive advantage over those companies that must comply,” said Dick Kilgust, Managing Partner, Global Public Policy and Regulatory, for PricewaterhouseCoopers. “There are, however, some private companies that may find it beneficial to voluntarily adopt ‘best practices’ from the

Sarbanes-Oxley compliance experiences of public companies. For example, if a private company aspires to an initial public offering, registering for public debt, or one day being acquired by a public company, then it is to the benefit of that private company to be able to demonstrate good management practices and sound internal controls. When the company seeks additional means of funding, it behooves the company to be able to show that it has adopted best practices. In this way companies may find that voluntarily adopting Sarbanes-Oxley principles can actually be helpful.”

“Death by a thousand stings.” Surveyed CEOs report that their company is affected in numerous ways by regulations, most often by a need to hire outside experts (cited by 53 percent), and a related drain on long-term profit growth (50 percent). All factors cited below are consistent across industry sectors:

Need for outside experts	53%
Long-term profit growth	50%
Risk management	38%
Expansion into new geographic areas	38%
New hiring/recruitment	28%
Capital requirements	20%
Expansion into new industries	16%

“Privately-held companies are impacted by regulations in a variety of ways,” said Petrecca. “It is not difficult to understand why some may see them as governmental intrusion in a free market economy.”

A growing issue. The majority (53 percent) of fast-growth CEOs say their company’s time and cost of complying with federal and state regulations has increased over the past two years. None say it has decreased, and 44 percent say it is unchanged. Those citing an increase report an average jump of 20.8 percent, which translates to an eleven percent increase in time and cost across-the-board.

Federal and state regulations are seen as equally burdensome:

More burdensome:
Federal	30%
State	27%
About the same	41%

And there is a sense that regulations from both sources have increased equally over the past two years:

Growing faster:
Federal	26%
State	30%
About the same	40%

“When we think of regulations, we tend to think first of federal compliance,” said Kilgust. “However, these business owners find state requirements, like state unemployment, healthcare, and labor laws, to be just as burdensome.”

PricewaterhouseCoopers’ “Trendsetter Barometer” is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 144 countries work collaboratively using connected thinking to develop fresh perspectives and practical advice.

“PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

If you have a question about this “Trendsetter Barometer” survey, please contact Pete Collins, survey director and publisher, at 646-471-4496 or e-mail to: pete.collins@us.pwc.com

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