Sarbanes Oxley - Section 404

The hand ringing by corporate chieftans has been constant since the day that SOX became law. It has been clear to all in corporate America that SOX was too expensive and it should never have been imposed on the system. Public company CFO’s have been complaining about the costs and gave projects of the death of public company ability to raise capital because of the extreme costs.

Clearly, these costs should never have been mandated to be incurred in one year, but the FCPC Act required the system of internal controls to be implemented. It is clear that 25 years later, companies were finally required to implement, and the CFO’s complained. Sorry, they spent al that time, not doing what the law required, and then they were mandaqed, or they would go to jail. It is amazing what sanctions can accomplish.

Well today it was reported that the costs of 404 are going down. My answer is…of course they are. Once controls become routine, they work, and they cost less. My prediction is that, some day in the future, CFOs will assert that 404 was the best thing they could have done to focus attention on cost effective controls.

What is Governance?

What governance is is the oversight of an enterprise, normally from a level above that of management. Perhaps the most important thing to say is that governance is not management. Today, the single greatest challenge that managements have is to maintain their ability to guide and drive an organization while recognizing the critical role and intense concern of the board of directors.

I work with as many as a hundred of boards each year and the single most vexing challenge that these boards have is to know how and when to govern vs. when if ever, to manage. Boards clearly need to manage themselves and their activities as a board, they cannot find themselves in a position where they are effectively behaving as if they were managing the enterprise. yet, although this may be clear and true, “keeping the nose in and the fingers out” is a huge challenge for boards in the post-Sarbanes-Oxley era. The challenge is for boards to know when engagement turns into meddling; when inquiry turns into inquisition and when challenging turns into distrust and even rejection. The line between these is not always clear, and yet boards are constantly faced with the decision to either stay at 50,000 feet or to fly at 1,000 feet. Flying at 1,000 feet can be necessary at times, but it will never represent the state of activity of a board that is “governing” a well functioning organization.