Firms Feel the Sarbanes Slam

Whatever they are, companies will likely have to continue to bear the costs and problems for the foreseeable future. Despite the complaints of business groups, Congress is unlikely to re-open Sarbanes-Oxley anytime soon, analysts say. With the trials of figures such as Bernie Ebbers keeping the accounting scandals that led to the law still in the news, there's little appetite on Capitol Hill to touch it.

"At this point, it's just too early in the cycle to go back and address it," said Jaret Seiberg, a financial services policy analyst at Stanford Washington Research Group. "It hasn't reached the point where someone [in Congress] says, 'There must be something wrong.' I think we're a long way from that point."

For their part, investors seem to be taking the problems in stride. Some companies, such as Cray, have seen their stocks hammered after reporting problems in complying with the Sarbanes-Oxley provision. But that seems to be the exception, not the rule. A survey of companies that reported material weaknesses in their internal controls indicated that in the five days following their reports, their stocks underperformed the market by just 2.9%, according to the CEB.

"That's a pretty mild market reaction," said CEB's Armstrong, suggesting that investors may be giving companies "a hall pass for the first year."

And despite the complaints of companies and their backers, many analysts feel the exercise has been worth it. That so many companies have had to report problems with their internal controls illustrates that Sarbanes-Oxley is "doing its job," said Charles Mulford, professor of accounting at Georgia Tech's college of management.

"It's helping uncover weaknesses that were either unknown or being ignored to potential peril of the company and its investors," he said.

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