More Unintended Effects of Sarbanes-Oxley

Startups that want to go public may feel pressure to comply with Sarbanes-Oxley, thus distracting management from the important task of building a business.

Sarbanes-Oxley adds legal, accounting, and recruitment costs to the startup equation far earlier than previously required. Dotting all of those bureaucratic i's can distract management from other pressing tasks. And finding independent board members as required by the law in a clubby place like Silicon Valley can be a formidable task.

"Corporate governance rules make it much more difficult to go public," says Mark Medearis, a partner at Heller Ehrman White & McAuliffe, and a founder of Venture Law Group, which recently merged with Heller Ehrman. "It increases the costs and time spent with accountants and lawyers. It fundamentally makes the exit strategy harder."

Don't misunderstand me. I am not saying that startups shouldn't care about accounting controls or corporate governance. I am simply saying that in the early stages of the game, management is concerned enough with survival. They don't need a checklist of regulations to worry about too. I believe in good governance and conservative accounting, but companies can have those things regardless of whether or not they comply with Sarbanes-Oxley. I still don't like this bill. I think it is a patch that treats the symptoms, and not the underlying cause of the disease.

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