I had lunch with a friend of mine yesterday who is an officer with a public technology company. As we started discussing his business, one of the topics of conversation was Sarbanes Oxley. His company just went through an expensive Sarbox audit to get into compliance and while his company passed with flying colors on most of the important issues, his company failed the audit. Why? Here is the short story. One of his sales reps was hosting a client meeting and bought $15 worth of donuts. The rep got a signature and approval from the CFO on the purchase. Why did they fail? The accountants said that the rep needed to get 2 signatures, one from the VP Sales and one from the CFO. If the rep could buy $15 worth of donuts with only one signature, then think about what else he could buy. That too me is quite inane and ridiculous. There has to be some threshold, for example, on when 2 signatures are necessary for an expense report. This is a perfect example of why Sarbox is expensive for public companies. While I believe that Sarbox is a good thing and better and more stringent accounting is necessary, I also think that there is alot of waste ineherent in the regulations and that it needs to be reexamined.
This brings me to another point. I had the opportunity to speak on a panel the other day hosted by Venture Scene New York. The panel focused on exits or liquidity events and how VCs thought about them. The clear trend that I am seeing is that companies really have second thoughts about going public these days due to the costs and requirements of Sarbox. That obviously is not the sole reason many companies that can go public choose to be acquired but it is one of the top few. In addition, it is no surprise that you see many public companies, particularly smaller ones, looking to go private as well. Something has to be done to make Sarbox more relevant and less onerous, particularly for smaller companies.