The Sarbanes-Oxley Scapegoat

Lora Bentley

Small companies are losing revenue because Sarbanes-Oxley compliance costs too much. Wall Street is losing listings to foreign exchanges because Sarbanes-Oxley's requirements are too burdensome. Honest companies that could go public are choosing not to to avoid the hassle of compliance. Hmm... We think we see a pattern here.

 

The latest is a Liberum Research study released last month revealing that the number of CEOs and VPs that changed jobs in the first six months of the year is more than double the number that moved around in the same period last year. Why? A consultant quoted in this Bloomberg piece we saw this morning blames the increasing burden of compliance with regulations like Sarbanes-Oxley.

 

We know Sarbox has its problems, but it also seems to be the scapegoat for a whole lot in business today. It's such a hot-button issue that the ensuing "discussion" once it's brought up just might distract decision makers from the real issues.

 

Could be that some processes aren't what they should be, or someone in management is making poor decisions.

 

And even if Sarbox compliance is part of the problem, the requirements aren't going anywhere for the time being, so they will have to be addressed.



Add Comment      Leave a comment on this blog post
Aug 29, 2006 2:17 AM Dick Weisinger Dick Weisinger  says:
I agree with you Laura.  Sarbanes-Oxley requirements can in many ways be onerous to comply with, but on the other hand, complying with SOX often results with companies adopting better overall business policies.Dick Weisinger http://www.formtek.com/blog/ Reply
Sep 2, 2006 8:47 AM Robert D Robert D  says:
In the wake of scnadals the size of Enron's or Worldcom's, the business community has to expect heavy accounting regulation. The fact that megacorporations like these can go belly up through dishonesty--like that seen at Enron or Worldcom--causing the loss of tens (or, heaven forbid, hundreds) of thousands of jobs means that companies have to take very seriously their commitment to more than just their shareholders. Reply
Sep 4, 2006 8:43 AM Kelvin J. Arcelay Kelvin J. Arcelay  says:
I would propose that one can find a direct relationship between the cost of compliance and the lack of cultural or enterprise discipline around execution in accordance to industry best practices.  Compliance is not a new thing; we can find them all around us in the EPA, COSO, ISO9000, QS9000, SAS70, SAS94, FRAG 21/94 and many others. The actual challenge is that for whatever reason these efforts are performed in silos and do not take a holistic approach to incorporating the required elements into the company culture and then transform the operations. In the case of Sarbanes, for those thinking that going private or will solve listing in foreign countries will solve the problem, one needs to realize that this move only assures a short term solution to a problem that you will be facing as soon as you go to a bank to ask for a business loan.  Why?  Well, I am sure no bank will lend money to an institution that does not have certified financial books.  And, what is the first rule of identifying fraud in a financial audit?  Significant accounts, internal controls and effective separations of duties execution. For those saying that CEO turnover has increased because of the compliance requirements, shouldn't we be concerned with professionals that a) do not believe in the long term viability and culture of the firm they leave?; and, b) do not want to be held accountable for the financial promises of the institutions that they lead?  In conclusion, no matter which regulation(s) applies to your company the key to attaining savings is a solid tone at the top, a tuned enterprise compliance effort and compliance programs that take into account associated risks, effectiveness of risk mitigation strategies, internal controls and transactional transparency.  Reply
Sep 5, 2006 1:33 AM Richard Jacovitz Richard Jacovitz  says:
After reviewing the above piece, I felt the need to respond.  Yes, I do believe Sarbannes Oxley has been a contributing factor in increased C-suite turnover. I do not, however, contend this is a bad thing.  In fact, in many situations it has been beneficial to the companies the markets and shareholders.   Reply

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