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Lawyers of public companies have been wrestling with the Sarbanes-Oxley Act since its adoption last summer. Now, attorneys at privately held businesses are discovering they may not be able to dodge the act either. Though aimed primarily at big businesses, the revolutionary piece of legislation actually applies to a broad spectrum of companies, including privately held entities. For instance, the act’s criminal provisions cover all federally regulated businesses. The act governs private businesses that deal with federal agencies, including the Environmental Protection Agency, the Federal Communication Commission, the Federal Trade Commission, and others. Companies involved in federal bankruptcies or subject to federal employment and workplace safety statutes also come within its jurisdiction. Moreover, many tax-exempt organizations, such as universities, hospitals, and health care providers are considered “public” private companies for disclosure purposes. But even if your organization is outside the direct firing range of Sarbanes-Oxley, there are compelling reasons for implementing some of the new governance standards. Here are some of the major provisions that you might consider adopting: ?Whistle-blowing. Emphasize to employees that they can report alleged wrongdoing without reprisals. This is particularly critical if the alleged violations involve federal law. Employers face criminal charges if they retaliate against employees who blow the whistle on federal offenses. ?Documents and records. Immediately adopt (and stick by) a document destruction and records retention policy. This will allow the company to show that any destruction of documents has been consistent with established policy rather than part of an effort to impede federal investigation. Remember, under Sarbanes-Oxley, it is a criminal offense to intentionally destroy, alter, or conceal documents. Hence, the existence of a document and record policy will help the company rebut the charge that its actions were intentional. However, once company officials know that a federal investigation is occurring or is imminent, or once the business becomes involved in a bankruptcy proceeding, all document destruction must stop � even if it’s allowable by company policy. ?Corporate compliance and ethics. Adopt a code of ethics similar to that mandated by Sarbanes-Oxley. Under the act, public companies must have an ethics policy for their chief executive officer or chief financial officer, or publicly disclose that they lack such policy. But given the tight management structure of many privately held companies, it may be prudent to extend the ethics code to all top personnel. There are a number of key benefits to having an ethics policy in place. For starters, it could help reduce fines and jail time for corporate criminal offenses. (Federal sentencing guidelines favor companies with programs that prevent or detect criminal conduct � even if the violation still occurs.) Moreover, institutional investors will likely require that companies adopt an ethics policy. How to structure the policy: – -Appoint a high-level person to be in charge; – -Communicate the program’s requirements to all employees; – -Set up monitoring systems to detect criminal conduct; – -Encourage employees to report potential misconduct; – -Provide penalties for failure to adhere to code; – -Respond appropriately to criminal activities; and – -Tailor the policy to the company’s particular business to highlight the most likely violations (the policy cannot be generic). ?Internal financial reporting controls. Adopt an open-door policy that allows employees to make confidential and anonymous complaints, without fear of retaliation, about corporate fraud. Encourage employees to report transactions that may not be properly authorized or recorded, or any unauthorized or improper use of company assets. Keep in mind that unlike the corporate compliance program, which deals with violations of law, this policy enables an employee to make a report of corporate irregularities. Finally, adopting a strong financial reporting disclosure policy may be critical to a company’s long-term growth. For a company that needs to raise funds, modeling a program based on the Sarbanes-Oxley Act will give comfort to lenders, venture capitalists, and other outside investors � and that could make a big difference to the company’s future. Bradley S. Rodos is a corporate partner at Philadelphia’s Fox Rothschild O’Brien & Frankel. E-mail:

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