SOX Just Might Be Worth It

As government mandates go, Sarbanes-Oxley is about as onerous and burdensome as they get, costing millions of dollars per publicly traded company to implement.

The surprise is that it might be worth all the cost and headaches, at least for investors, and perhaps for publicly traded companies too.

Compliance Week teamed up with Raisch Financial Information Services to create a scorecard for tracking the SOX performance of the Russell 3000 public companies. The survey, released today, found that 7.7 percent of the internal financial control assessments filed this proxy season have been given “failing grades” by the companies’ external auditor, and the number could climb higher as more reports are filed.

The industries with the highest number of “adverse opinions” provided by auditors were computer hardware and software (18.2 percent); metals and mining (17.2 percent), and consumer services (16.7 percent).

The scorecard likely has a high margin of error, but it’s alarming to note that roughly 1 in 13 public companies has financial controls that its auditor finds shaky. So while SOX might be burdensome and expensive, it appears to be a necessary evil in enough cases that the exercise is worth it for boosting investor confidence, which in turn will boost companies’ market capitalization (it is worth noting that the S&P 500 is about 50% higher than when the law passed in 2002).

In time, SOX compliance will likely become easier and less costly. Until then, there will be enough examples of companies with questionable financial controls to remind us that the exercise is worth tolerating.

Stocks turned steep losses into strong gains Tuesday after Federal Reserve meeting minutes contained benign comments about inflation.

The Nasdaq rose 13 to 2005, the S&P 500 gained 6 to 1181, and the Dow climbed 59 to 10,507. Volume surged to 1.98 billion shares on the NYSE, and 1.9 billion on the Nasdaq. Advancers led 20-12 on the NYSE, and 16-13 on the Nasdaq. Upside volume was 64% on the NYSE, and 70% on the Nasdaq. New highs-new lows were 63-88 on the NYSE, and 30-141 on the Nasdaq.

CA climbed 1.5% after raising guidance, while Travelzoo plunged 19% after revenues came in light.

BMC edged higher despite warning, while Open Text fell 10% on its warning.

Ameritrade climbed 4% on its results.

TiVo and Check Point jumped on upgrades.

Mamma.com lost 11% on news of an SEC trading investigation.