Price of Regulatory Compliance Skyrockets, According to Board Directors Worldwide

Business Press Releases Tuesday November 23, 2004 14:27
NEW YORK--(BUSINESS WIRE)--Nov. 22, 2004
  • Complying with Sarbanes-Oxley Costs U.S. Companies an Average
of $5.1 Million, According to Korn/Ferry International's
31st Annual Board of Directors Study -

Complying with the Sarbanes-Oxley Act and other corporategovernance legislation has come at a significant cost -- both monetaryand otherwise -- to companies worldwide, according to the 31st AnnualBoard of Directors Study, released today by Korn/Ferry International(NYSE:KFY), the premier provider of executive search and leadershipdevelopment solutions.

The most comprehensive, longest-running survey of its kind in theworld, the Board of Directors Study examines opinions and practicesfound in boardrooms of major corporations throughout the world. Thefindings are based on the responses of nearly 1,000 board members from14 nations in the Americas, Asia Pacific, and Europe. This year, thesurvey population was expanded to include directors of South Africancompanies.

Highlights of this year's study include:
--   Compliance Costs. Virtually all (99 percent) of the U.S.
respondents said their boards have complied with
Sarbanes-Oxley at an average implementation cost of $5.1
million. Four out of five UK boards (81 percent) reported
meeting the general independence rules of the Higgs and Smiths
Reports, at an average cost of $1.5 million. Similarly, 81
percent of French companies have spent an average of $910,000
to meet the recommendations of the Bouton Report.
--   Director Risk. The percentage of the Americas respondents
declining board invitations due to increased liability has
doubled since Sarbanes-Oxley became law, from 13 percent in
2002 to 29 percent this year. Almost one-third (31 percent) of
directors of German boards refused a directorship invitation
on this basis, nearly triple the 11 percent who did so last
year.
--   Executive Sessions. Ninety-three percent of Americas
respondents said they hold executive sessions during regular
meetings that do not include the company's chief executive, an
increase from just 41 percent two years ago. Though less
common in Europe and Asia Pacific, the percentage of Japanese
boards that now meet without the chief executive increased
from four percent in 2003 to 27 percent this year. In Germany,
the percentage climbed from seven to 24 during the same
timeframe, and in France, the percentage went from seven to 19
percent.
--   Lead Director. Since enactment of Sarbanes-Oxley, the
percentage of respondents in the Americas reporting their
board has formalized the lead director role has more than
doubled, from 32 percent to 80 percent this year.
Three-fourths (78 percent) of respondents serving on
Australia/New Zealand boards said composition includes a lead
director.

"It is clear that the majority of FORTUNE 1000 boards were quickto embrace and implement the requirements of Sarbanes-Oxley," saidCharles King, head of Korn/Ferry's Global Board Services Practice."What is surprising, however, is just how significant the cost ofSarbanes-Oxley has been. When you consider that our respondentsreported that ongoing compliance will average another $3.7 million --this has been an expensive proposition."

This year's study also examined trends in director compensationand stock ownership. The average annual retainer and per meeting feefor full-board service awarded to directors of FORTUNE 1000organizations was $56,970, 22 percent above 2003's $46,640 and 32percent more than the $43,306 reported in 2002, the year of theSarbanes-Oxley Act. The Audit Chair received $10,317, 27 percent morethan awarded last year, while committee members were given an averageretainer of $7,914, a one-year increase of 16 percent.

Requiring directors to own stock is a practice with limitedsupport outside of the Americas and France. Four of five (81 percent)respondents serving on French company boards are required to do so, asare two-thirds (65 percent) of their counterparts in the Americas. Ofthose Americas respondents experiencing a change in directorcompensation this year, 37 percent stated that restricted stock wasadded or increased while 10 percent reported stock options wereeliminated from the overall package award. The cash componentincreased for a majority (52 percent).

"As the demands put upon directors have risen dramatically overthe past few years, it follows suit that compensation would also riseproportionally," said King. "Keep in mind, most directors do not takea board seat for the money -- they take it to make a difference."

Methodology

Korn/Ferry International retained PeopleMetrics, Inc., a leadingmarketing research firm, for survey preparation and data analysis,providing continuity of methodology for this global study. Boardmembers in the Americas, Asia Pacific, Europe and, for the first time,South Africa, were invited to participate. Nearly 1,000 directors from14 nations returned a completed questionnaire.

About Korn/Ferry International

Korn/Ferry International, with more than 70 offices in 35countries, is the premier provider of executive search and leadershipdevelopment solutions. Based in Los Angeles, the firm partners withclients worldwide to deliver unparalleled senior-level search,management assessment, coaching and development and middle managementrecruitment services through its Futurestep subsidiary. For moreinformation, visit the Korn/Ferry International Web site atwww.kornferry.com or the Futurestep Web site at www.futurestep.com.

CONTACT: Korn/Ferry International
Marta Grutka, + 65 6231 6215
Asia/Pacific
email: marta.grutka@kornferry.com
or
Michael Distefano, + 1 310 843 4199
Europe
email: michael.distefano@kornferry.com
or
Anneli Ballard, + 1 212 984 9350
The Americas
email: anneli.ballard@kornferry.com
Source: Business Wire Press Release

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