Executives fretting over governance are wrestling not only with corporate image but with something new and threatening -- more layers of compliance. Last year's Sarbanes-Oxley Act has set up a series of mandates and potential penalties that have sent shudders of agitation and confusion coursing through corporate suites. Two articles in this section discuss establishing a meaningful code of conduct and creating a framework for complying with Section 404 of Sarbanes-Oxley, which requires a company's management to present an internal control assessment in the company's annual report.

 

This compliance effort is costing finance professionals time, money and peace of mind, says Parson Consulting, a financial management consultancy, but few financial executives expect it will bring fewer corporate accounting scandals. The firm found that harried senior finance executives are adding three hours, on average, to an already stretched workweek to comply with and make sense of the law.

 

"To meet new reporting requirements and assume personal responsibility for the accuracy of financial results, finance executives are streamlining processes and dealing with more stress daily," says Rick Fumo, senior vice president of national practices at Parson Consulting.

 

More than half of the study's respondents said that complying with Sarbanes-Oxley has swollen their finance budgets by up to 20 percent. Twenty percent maintain that compliance represents "one of the greatest challenges my department is facing right now," and more than 25 percent deemed the law "very confusing."

 

Less than one-third (29 percent) of respondents reported their companies currently are in full compliance with Sarbanes-Oxley, and although 44 percent expect to be in full compliance within the next year, 5 percent say they will need more than a year.

 

Yet corporate governance experts and activists are talking about companies providing more disclosure -- and some even hint of still more regulation. "It has been many years since top executives have been so distrusted by investors and employees," says Bruce R. Ellig, author of The Complete Guide to Executive Compensation and advisor to corporate boards. "This is the time to err on the side of more, not less, disclosure." Furthermore, he warns, "Unless there is dramatic improvement in the next year, companies should not be surprised if there are new laws and regulations to 'help them' with the process."

 

Meanwhile, a myriad of high-technology vendors have jumped into the fray, claiming that their systems will help companies gain more visibility into their finances and improve their corporate reporting. While the clamor may be distracting to executives, it's hard to dismiss the idea that highly evolved financial accounting systems would help some companies that don't have them.

 

"I wonder how many chief executives have sat down with their chief information officer and actually looked at the nuts and bolts of how their company's financial data is produced," says Steve Miranda, a vice president at Oracle Corp. "If they haven't, it's about time they did, because it is highly likely that the new emphasis on fast and accurate disclosure will require an overhaul of old or badly designed financial systems that cannot keep up with today's requirements for corporate governance."

 

Jim Morlan, CFO of ViewSonic Corp. in Walnut, Calif., a $1 billion-plus maker of CRT and LCD screens, projectors and related visual technology, isn't worried about Sarbanes-Oxley quite yet, since the company is still private. But he lauds a recent "single instance" implementation, an upgrade of Oracle Financials that replaces an old system that had four different releases and differing implementations, for creating a financial overview that facilitates the reporting side of corporate governance.

 

"We moved to single instance about a year ago, which automatically creates the opportunity for better corporate worldwide control," Morlan says. "We're getting uniformity, and a single chart of accounts. There's a single set of password controls and responsibility profiles for each of our users worldwide." He calls the relationship with an enterprise resource planning (ERP) vendor -- like Oracle, PeopleSoft or SAP -- "virtually as key as with the outside auditors."

 

Separately, audit committees are under more pressure than ever, and recruitment of current and former CFOs and retired audit partners to serve on audit panels has accelerated. Board expert Ralph Ward believes that "audit committees need to have their own budgets and perhaps have someone dedicated to them on staff" (see the interview on the following pages), but isn't sure that internal audit -- which reports to management -- is the appropriate resource.

 

"You, as a member of the audit committee, have a right to call on any support group you want," says Roger Kenny, managing partner of Boardroom Consultants in New York. Kenny believes that audit committees meetings are more meaningful and tense than ever, but that "the tenseness is a positive. We're also seeing greater evidence of real internal audit -- these things are being verified."

 

Verification is a key component of compliance, yet even widespread compliance isn't seen as a panacea: Just 6 percent of those surveyed by Parson agree that "Sarbanes-Oxley will ensure that there will be fewer corporate scandals based on accounting practices in the future." That may be a way of saying that it's impossible to legislate morality -- or that human nature being what it is, some people, often those under duress, will look for a way to sidestep the rules for their own gain.