The cost to comply with the Sarbanes-Oxley Act fell slightly in 2005 - but not enough to deter some public companies from going private.

Fed up with the SOX cost burden, 21% of companies that responded to law firm Foley & Lardner's latest study say they are considering going private. Other options respondents are considering include selling the company (10%) and merging with another company (8%).

In 2005, costs associated with corporate governance reform dropped 16% for companies with less than $1 billion revenue and 6% for companies with more than $1 billion revenue, reports Foley & Lardner in its fourth annual SOX study, released last week.

The savings stem from decreased productivity losses, legal fees and initial setup costs. However, audit fees increased, as did the cost of board compensation and liability insurance for directors and officers.

Many industry watchers expected audit fees would drop during public companies' second year of complying with SOX Section 404, which requires companies to attest to the effectiveness of controls put in place to protect financial reporting systems and processes. But instead they in_creased: Audit fees rose 22% for small companies, 6% for midsize companies and 4% for large companies (as defined by Standard & Poor's indexes).

"The increase is disproportionately impacting smaller companies," said Tom Hartman, corporate governance study director and business law partner at Foley & Lardner, in a teleconference.

The fees companies pay their directors also have climbed considerably since the enactment of SOX, because directors put in more time and have greater accountability for compliance. Overall annual director fees have increased an average of 71% for small companies, 64% for midsize companies, and 58% for large companies between 2001 and 2005.

For companies of all sizes, audit fees represent the biggest portion of those expenses, followed by the cost of lost productivity. While down from 2004 levels, lost productivity nonetheless cost each small company $563,000 last year and each large company $2.46 million, on average, Hartman said.

Many companies polled think the SOX legislation is overkill. Eighty-two percent said corporate governance and public disclosure reforms are too strict. For the first time in four years, not a single respondent said the reforms are not strict enough, Hartman said.