If you are in any way involved with the issues of corporate governance or financial reporting in your company, then burn the name Sarbanes-Oxley into your consciousness.
This unwieldy name refers to the Bill passed into law in the US last year, a piece of legislation designed to redress the wrongs caused by the extraordinary abuse of the system by some of the largest organisations in the US.
These companies became notorious legends overnight and perfect ammunition for stand-up comedians who likened the status of executive management and auditors to that of second-hand car salesmen. Enron, WorldCom, Global Crossing, Peregrine Systems ... these were just some of the giant companies which, together with their auditors, shocked the entire system of capitalism and its support structures as the extent of their mismanagement and reporting became clear.
In terms of Sarbanes-Oxley, executives can go to jail for a long time (20 years) if they fudge their quarterly or annual regulatory reports.
Marc Scheepbouwer, CEO of GBI, the business intelligence division in the Global Technology group
Life was never going to be the same: not when George Dubya Bush himself gets involved, tearing a strip off executives and committing the US to a clean and transparent economy.
This is where Sarbanes-Oxley comes in. Named after the two senators who drafted and pushed the legislation into existence, Sarbanes-Oxley has as its core premise a requirement for publicly traded companies to operate transparently and with full answerability. Management is required to operate in a different way, and with full accountability for its actions.
Not surprisingly, it also requires accountants, auditors and lawyers to behave differently. But the US lawmakers do not trust management, accountants, auditors or lawyers to do the right thing (too many haven`t!), so there is now spectacular and costly duplication of resources and effort:
* The auditors, who are supposed to check the work of the accountants, now have their own independent auditors to check their work.
* The internal legal teams now have their work checked by an external legal team.
* The activities of these two legal teams are in turn monitored by a third, external legal team on the phone.
Understand that in terms of Sarbanes-Oxley, executives can go to jail for a long time (20 years) if they fudge their quarterly or annual regulatory reports. Executives do not want to go to jail, so it is highly likely that they are going to implement policies, frameworks and structures to ensure compliance.
This will have a real knock-on in terms of companies` ability to manage their business in a customer-centric way. Simply put, as management strives to ensure compliance, it will have less bandwidth for customers, who are after all the lifeblood of their businesses.
Secondly, the cost of running a business will rise astronomically. The second set of auditors and the additional legal teams, along with the need for extra anti-litigation insurance premiums, will drive up the cost of running a business quite spectacularly: on average $3 million a year. This could easily push some marginal companies over the edge. Otherwise, they will have to pass on the cost to their customers.
There is much more to Sarbanes-Oxley. For instance, companies need to report within 35 days of closure of each quarter.
Knock-on impact
This legislation is expected to have a dramatic impact on US markets. It will also have a knock-on effect into our markets. Any company with a dual listing will have to report in line with the requirements of Sarbanes-Oxley (examples of such companies are Telkom, Sasol, Sappi and Anglo American). In addition, finance minister Trevor Manuel has hinted that SA will be guided by international best practice in its approach to corporate governance locally; and we are not squeaky clean as a country...
The answer, I believe, is to follow the principles of business performance management (BPM), which coordinate all key business activities against a single view of the truth. BPM links strategic planning to budgeting and forecasting; integrates query and analysis; monitoring; analysis; and the balanced scorecard, all against a single, credible, undisputed, multidimensional view of the truth.
Gartner concurs with this assessment: it sees the requirements of Sarbanes-Oxley as a key driver behind the rapid adoption of BPM worldwide, and in a down IT market it tips BPM to be a fundamental market force, with exceptional growth in the next four years.
We have seen the first signs of take-up of BPM in SA, with more than seven of our largest corporate companies stepping up from disparate, discrete financial applications into integrated financial management applications, making this one of the most advanced markets in the world. Integrated financial management allows a company to drive many of its critical business activities through one, strategic lifecycle, and lays the foundation for BPM, which is the logical next step. Given the visionary nature of many of our CIOs, and the unique pressures faced by South African-headquartered multinationals, my bet is we`ll stay at the forefront of BPM over the next few years as it becomes a standard way of doing business.
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