The 2006 article in Financial Executive by Jeffrey Marshall discusses the cost-benefit analysis of Sarbanes-Oxley Section 404 for non-U.S. issuers. The article lists the benefits of being listed in U.S. exchanges for international companies, the costs of SOX regulations for these companies, and the reasons why companies choose not to go public in U.S.
After witnessing the huge scandals regarding internal control and corporate governance issues and the enormous impacts of these scandals, I believe SOX is a very important protective measure that should not be negotiated about. These protective measures are important not only for internal control, but also for other processes such as risk management.
During the 2001 economic crisis in Turkey, approximately 1 in every 4 banks went bankrupt. This massive fall was based on various reasons. The most important reasons were the lack of effective company management, the lack of the reserved capitals of the banks, and the lack of effective internal controls. After the crisis, the government put several regulations in action and made the banks’ lives miserable during the transition process. Although each player in the market was complaining about the burden and negative aspects of the new regulations, during the 2008 global recession Turkey was one of the few countries where the banking system was not affected terribly.
The takeaway of this recent example is the importance of strengthening the control and risk management processes. Both U.S. companies and non-U.S. companies should perceive the SOX measures as a seatbelt and/or an airbag for a possible accident coming up.
The article mentions two large Chinese companies that chose to be listed in the Hong Kong exchange as a cheaper and less burdensome way (compared to be listed in U.S.). I hope that these companies do not learn to comply with the strict rules of SOX through a much harder and costly way.