Sarbanes-Oxley: From Compliance Nightmare to Valuable Insights

A Shift in Perspective

In the wake of a series of gross corporate abuses around the turn of the century, Congress passed Sarbanes-Oxley, which was intended to make corporate governance more rigorous, financial practices more transparent, and management criminally liable for lapses. The first year of implementation was costly and onerous, far more so than companies had been led to expect. In the view of a few open-minded firms, however, the second year of compliance turned out to be not only less costly and less onerous (as doing something for the second time usually turns out to be), but a source of valuable insights into operations, which management has translated into improved efficiencies and cost savings.

Areas of Improvement

The areas of improvement go well beyond technical statutory compliance. They include:

A Strengthened Control Environment

* More reliable documentation
* Increased audit committee involvement
* Better, less burdensome compliance with other statutory regimes

Process Standardization

* More standardized processes for IT and other functions
* Reduced complexity of organizational processes

Internal Controls

* Better internal controls within partner companies
* More effective use of both automated and manual controls

From Fear to Value

More than a year since the first deadline arrived, Sarbanes-Oxley still inspires fear—of enforcement actions, of the stock market’s reaction to a deficiency, and of personal liability. Fear can be a powerful generator of upstanding conduct. But businesses run on discovering and creating value. Companies need to start viewing Sarbanes-Oxley as an ally in that effort.

Conclusion

The passage of Sarbanes-Oxley was intended to improve corporate governance and transparency, and while the first year of implementation was challenging, many companies have since found that it has led to valuable insights and improvements in operations. By viewing Sarbanes-Oxley as an opportunity rather than a burden, companies can unlock even greater value and enhance shareholder protection.

FAQs

* What is Sarbanes-Oxley?
+ Sarbanes-Oxley is a federal law passed in 2002 to improve corporate governance and transparency.
* What are the main goals of Sarbanes-Oxley?
+ The main goals of Sarbanes-Oxley are to make corporate governance more rigorous, financial practices more transparent, and management criminally liable for lapses.
* How has Sarbanes-Oxley affected companies?
+ The first year of implementation was costly and onerous, but many companies have since found that it has led to valuable insights and improvements in operations.