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Sarbanes-Oxley: burden or opportunity?

Mention the Sarbanes-Oxley Act, and immediately most corporations see negative connotations--the imposition of more compliance, disclosure and liability burdens on companies trying to cope with the current economic slump and the struggling financial markets.

While boards of directors are concerned with liability issues and risks to their reputations, and shareholders don't know what to expect, this does not have to be as bad as it may seem. Rather, attention to these governance areas can create benefits that out-weigh the initial burden and may even establish a competitive advantage and create a good governance premium.

Actually, the Act represents a unique opportunity for communication, teamwork and integration. It can be a platform for articulating the corporate mission, values, ethics--and, indirectly, the company's potential.

Fixing the Communication Gaps

Here is an opportunity to get the right message to everyone. There have always been communication gaps between investors and boards of directors, boards and management, within management itself, and management and employees. This communication gap also extends to customers and suppliers, and has been clearly highlighted over the past 18 months between companies and their outside auditing and banking advisors.

Sarbanes-Oxley actually represents an opportunity to reach out to all with the same message. There are common links between the groups mentioned above, and now is the time to find them and utilize this opportunity.

This has to be an integrated approach within the company so that the message is consistent, understood and delivered properly. Every major function has to participate and see this as a joint effort, and every employee has to hear, understand and embrace the message. Only then are you ready to deliver the same message to others.

The mistake would be to look at Sarbanes-Oxley in a vacuum, and with blinders on, as just another set of burdensome requirements. Yes, checks and balances are imposed, but they can be value-driven and intended to showcase the organization.

Leadership at the Top

To be done correctly, the CEO has to set the tone and develop the methodology to reach out to all stakeholders. The message has to be concise, clear and frequently reinforced.

Certain aspects, like the whistle-blower provision, need specific endorsement by the CEO. SEC filings, ethics policies and annual reports can be the means to make this happen.

Setting the Standard

The most appropriate and effective vehicle is probably the Ethics Policy. Why not, for example, distribute the company's ethics booklet to vendors, customers and shareholders (in addition to putting it on the Web site)? This document thus can be the focus; it sets the standard and becomes the stage for action. The board then has to make sure it happens, and establish itself as the court of last resort to all parties, especially employees.

At the core is a commitment to ethical behavior. It is through this commitment that teamwork and integration are driven forward.

For example, financial disclosure isn't and has never been the sole responsibility of the finance department; Sabanes-Oxley just clarifies responsibility for the process. Reporting bad financial practices is everyone's responsibility. Everyone has to feel that they can contribute to the ideals of the Ethics Policy.

The Board's Role

This is where directors start to work together with management and take the necessary steps to verify management's position, and where they establish themselves as the link between shareholders and employees. Now, everyone knows what the company stands for. One further step is for management and the board of directors to welcome questions, feedback and challenges from all constituencies. Lastly, the board should verify that the appropriate actions are taking place, as well as assure its independence by bringing in the necessary third-party help to make this happen. This involves getting independent legal, financial, and communications help to put the final stamp of approval on the message and values the company wants to convey to all stakeholders.

Jack Burns and Ed Musmon are Principals in the Riverpark Group (www.riverparkgroup.com), a Boston-based affiliation of FEI members who offer their collective senior-level experience and expertise on a wide array of financial consulting, outsourcing and project related services.
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Title Annotation:Compliance
Author:Musmon, Ed
Publication:Financial Executive
Geographic Code:1USA
Date:Nov 1, 2003
Words:682
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