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Oh, the joys of being a general counsel at a private company. No need to worry about all those laws and rules governing public corporations. In particular, no need to think about the most onerous law of all, the Sarbanes-Oxley Act. Indeed, some businesses are going private just to escape SOX. But a growing number of private companies are headed in the opposite direction. Even some that have no intention of going public are voluntarily implementing many SOX requirements. Which raises the inevitable question: Are they nuts? Not at all, according to the GCs at several SOX-compliant private businesses. They say that Sarbanes-Oxley has become so pervasive that their companies can’t afford to ignore it. Pressure to conform has come from just about everyone � customers, competitors, bankers, suppliers, insurers, and auditors. So far, however, the private companies that have decided to follow SOX are only going with features that are relatively cheap and easy to implement. For now they’re skipping the more costly and time-consuming reforms, like the notorious audit of internal controls required by the law’s section 404. Cargill, Incorporated, the biggest private company in the U.S., has adopted several Sarbanes-Oxley provisions since the law was enacted three years ago, says GC Steven Euller. “We wanted to be seen as having appropriate governance practices and be seen as out ahead,” Euller explains. Some of the SOX-inspired changes that Cargill has put in place: providing greater detail in its financial reports, strengthening the code of conduct for its lawyers, and prohibiting most company loans to its officers. The Gallup Organization has also done some things that it didn’t have to, says GC Steve O’Brien, such as adding another independent director and enhancing its internal audit committee. According to O’Brien, many private companies are thinking about what steps to take. “Everyone’s question is, ‘Are we doing enough?’” He even predicts that premiums for director and officer insurance will someday be tied to a company’s SOX compliance. “I can see it coming,” he maintains. Cargill and Gallup aren’t alone in deciding to toe the Sarbanes-Oxley line. Nearly 80 percent of the private companies and not-for-profit organizations that participated in a recent survey by Foley & Lardner reported that they’ve willingly adopted some SOX reforms. Foley, a Milwaukee-based law firm, released the results in March. Paul Broude, a corporate partner at Foley who coauthored the study, says that SOX is a subject that many private companies “tend to not want to talk about.” Indeed, only 68 businesses and nonprofits responded to Foley’s survey. (Likewise, many GCs contacted for this article declined to comment.) Still, Broude says that “most private companies feel the pressure to do something.” That pressure is coming from all over, according to the Foley study. About half of the respondents said they were being urged to comply with SOX by their board members. A third said auditors were also turning up the heat. Others reported being pressured by their customers and insurers. A small percentage said that they had taken action because of their equity investors (or, in the case of nonprofits, their donors). Though Cargill is closely held by its employees and several founding families, Euller says that it has long acted like a publicly traded business. So when the New York Stock Exchange and Nasdaq began to require their listed companies to publish governance guidelines, Cargill followed suit. The Minneapolis-based grain trader and food processor also discloses these guidelines to its auditors, insurance companies, and credit-rating agencies, all of whom are “interested in our governance,” says GC Euller. Another way in which Cargill already acted like a public company was by holding conference calls and meetings for its shareholders, and distributing quarterly and yearly statements. These practices have gotten a SOX-spurred upgrade, Euller says. Cargill now discloses off � balance sheet transactions (required by Sarbanes-Oxley) and critical accounting practices in its annual audited financial statements. Gallup, the Washington, D.C. � based polling and consulting firm, has also taken several steps to strengthen its corporate governance, says GC O’Brien. These moves include beefing up its internal audit function, recruiting another independent director to its board, and increasing the board’s oversight of accounting policies. Gallup’s “biggest change in light of Sarbanes-Oxley,” according to O’Brien, “was to put in force [an internal] audit committee.” This three-employee panel reports to an independent director and has been given “carte blanche to investigate anything in the company,” O’Brien says. The one Sarbanes-Oxley reform that practically all private companies are avoiding is the same one that’s bedeviled their public counterparts this year. That’s the outside audit of internal controls, mandated by SOX’s section 404. Not only is the audit a pain, it’s expensive. None of the private companies in Foley’s study said that they were complying with 404. However, 57 percent said they were considering it. Cargill GC Euller says that at his company, “there’s a lot of attention being paid to 404-type controls.” The CEO and CFO now sign off on the financial reports that Cargill gives to its auditors, but the company hasn’t solicited an outside audit of controls. That’s because it has yet to conclude that the benefits of doing a full-blown 404 audit justify the cost. “Unlike public companies,” Euller explains, “we continue to have the luxury to be pragmatic.”

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