As we move into the end of the year for company financial reporting, corporate executives are wrestling with the implications of the newly passed Sarbanes-Oxley Act of 2002. The Act is named after Paul S. Sarbanes, senator from the State of Maryland, chairman of the Senate Banking Committee, and member of the Housing and Urban Affairs Committee, and Michael G Oxley, 10-term congressional representative from the State of Ohio who is chairman of the House Committee on Financial Services. Each of these individuals is responsible for passing legislation in their respective governing body and combining it into this important Act. The Sarbanes-Oxley Act of 2002 is the sweeping legislation that tightens the noose around corporate CEOs and others responsible for public companies reporting to shareholders. It is 66 pages long and deals with subjects ranging from duties of the board, public accounting firms’ accountability, responsibility for corporate reporting, forfeiture of bonuses, and penalties—as in jail terms.
Most employees will not be affected by all this activity, but it is a perfect opportunity for corporate leaders and senior managers to look at the whole subject of governance, ethics, and how we ensure that our organizations are living up to the idea behind this legislation. Some might argue that the legislation is only applicable to public companies (which is technically correct), but those executives who turn their backs to the spirit of the legislation are setting themselves up for an ultimate fall. Eventually they will be caught and all the employees who followed their lead will be hurt in the calamity. As leaders, we have responsibility for all those stakeholders that our organization impacts.
So how should corporate executives face this challenge? Will specific scrutiny of the fine points and implementation of all the regulations do the job or do leaders need to look inside themselves and do what is right, implementing the spirit of the legislation? Those leaders who are ethically in compliance will dictate policy that implements the fine points of all the rules and regulations, but more importantly, they will agree to a periodic review of the intended rules since they are earnestly trying to work within the regulations. Many times in our lives, we become so focused on the fine points of a set of laws or rules that we fail to see what they are trying to accomplish. We need to step back and ask, “Are we doing what is expected of us?”
What are five actions that senior leaders can do to ensure the highest probability of a successful implementation of the Sarbanes-Oxley Act?
- Be sure your audit committee chairperson understands the importance of this legislation and feels comfortable with the responsibilities of his/her position.
- Develop corporate collateral about ethics and be sure that communication of it to all employees is wide, deep, and often. Expecting people to behave in a certain way is like building a brand. It takes a sustained effort and a long time.
- Conduct focus groups of employees to engage them in a dialogue around corporate ethics. Individuals learn more effectively if they participate in the learning process as opposed to just listening to the “corporate word.”
- The CEO should often refer to the behaviors expected of all and use his or her position to illustrate these behaviors. After all, leaders need to walk their talk.
- Provide a mechanism whereby whistle blowers are permitted to activate their concerns without threats of reprisal. If the culture of the organization is such that individuals feel comfortable to come forward under circumstances that are in the best interest of the company, then they will do so. But they need assurance that there will not be reprisal against them. One possibility is to have the audit committee chairperson be the point of contact for whistle blowers.
Senior leaders need to figure out what works for them. There is no cookie cutter approach to these efforts. It’s not how it is done, but rather it’s the results that matter.
Is this something you’re comfortable with? If not, seek help from your professional advisors, whether they are your attorney, accountant, or another independent observer of corporate behavior.
Now ask yourself…am I a leader?