Sarbanes-Oxley/Bill 198 – Is the glass half empty or half full?

Many executives look at the US and Canadian security commission compliance rulings (Sarbanes-Oxley in the United States and Bill198 in Canada) as a necessary evil pill that defocuses executives and their teams from driving their respective businesses forward. But, is it? How can a company leverage the digestion of this evil compliance pill into something more palatable? Maybe even do the unthinkable and turn the exercise into one that creates customer, shareholder and employee value!

The content of both acts focus on documenting, testing and evaluating internal and disclosure controls in areas such as accounting transactions, computer systems and the overall corporate governance. Given the magnitude and importance of this exercise and the potential conflict with other business priorities of North American businesses, how can companies leverage this compliance task? Consider the following…

After a company has completed the compliance exercise, their internal controls including corporate governance will have been strengthened, thereby reducing business risk. This is a good thing! Also, remember the hype (and grumbling) around ISO certifications? Suddenly we started to see ISO banners appearing on companies’ buildings. They have become sales and marketing tools for customers, shareholders and employees. Could this be the next big thing for the first wave of Sarbanes-Oxley/Bill 198 compliant companies?

Consider the expense side of your business and what will happen as you streamline processes and enhance the underlying infrastructure. The documentation and enhancement of disclosure and internal controls will assist a business in identifying opportunities for resource realignment, outsourcing/ insourcing, centralizing/decentralizing and process reengineering. Improved and more reliable reporting of financials will provide enhanced management insight into the operations of the business and more efficient quarterly and annual financial audit processes. A comprehensive documentation of financial reporting processes will assist the companies in staff training, will reduce dependency on the undocumented knowledge of key staff and will preserve business continuity, especially for those companies with high staff turnover.

Furthermore, consider how a solid infrastructure underlying your business processes will aid with your future growth/expansion plans. Also, a merger or acquisition and the corresponding integration of two companies will be more likely to succeed with the compliance exercise completed. Perhaps you may want to revamp your due diligence questions to incorporate the tone and content of the compliance requirements.

Any private companies contemplating an initial public offering (IPO) should consider the compliance project as soon as possible. Our discussions with companies moving down the IPO path suggest that CFO’s and other executives are not fully aware of how Sarbanes-Oxley/Bill 198 rules will apply to their companies once the IPO process is complete. In particular, the company will be subject to the same rules as any other public company with limited or no additional grace period. However, on the positive side, even before the commencement of the IPO process, a company can benefit by employing compliance exercise tools to improve their internal controls, become more efficient, increase customer satisfaction, etc. Existing and potential investors, customers and employees will see the finished product as a well managed business, thereby increasing the intrinsic value of the firm. Sarbanes-Oxley/Bill 198 compliance rules are, quite simply, all about doing business in a better way.

Another consideration is to link the timing of the compliance effort with ongoing or upcoming initiatives to maximize the potential benefits and minimize costly re-work. If, for example, a company has decided to purchase a new financial system, significant effort would be required to understand and map existing processes and system requirements. The design and implementation of this work should be done in conjunction with Sarbanes-Oxley/Bill 198 compliance work. This will maximize the cost effectiveness of the combined initiatives and eliminate potential re-work.

As the SEC chairman William Donaldson remarked at the National Press Club in July 2003, “if companies view the new laws as opportunities – opportunities to improve internal controls, improve their performance of the Board and improve their public reporting – they will ultimately be better run, more transparent and therefore more attractive to investors.”

Massood Oroomchi and Alec Moore are the founding partners of FinEx Group providing leadership, execution and training for both public and private firms in Sarbanes-Oxley/Bill 198 compliance. For further information, please fill out our contact form or contact Massood Oroomchi at (519) 574-8691 or Alec Moore at (519) 580-3690.

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