Public companies across Europe and the US are devoting a substantial amount of energy and resources to comply with Sarbanes-Oxley, a ruling which forces CEOs and FDs to sign off accounts personally and makes them criminally liable for any misstatements in those accounts.
According to Ian Russell, CEO of Scottish Power, which is listed in both London and New York, his US peers should not look at the regulation as undiluted bad news.
There are undoubtedly specific steps that companies will have to take to ensure there is no opacity in their operating procedures that could give rise to a material misstatement to investors and shareholders. The upside is that reporting procedures should improve, with greater transparency.
With any luck, companies will also find that under Sarbanes-Oxley they will have moved to a position where they have a greater fluency and brevity in their data gathering and consolidation processes, says Russell.
He argues that as they work through the task of carrying out a comprehensive documentation of the organisation’s key processes and internal controls, companies will find they are able to streamline or automate a number of activities through the implementation of new or bolt-on financial software systems. This, in turn, will lead to further efficiency savings, all of which can have a positive impact on the bottom line.
According to Russell, companies will not lose by implementing good governance procedures as they can lead to better decision-making by providing improved business information.
Half the trick in getting Sarbanes-Oxley right, Russell suggests, is to devote sufficient resources to implementing it. Scottish Power brought together key personnel from its legal, financial, compliance, internal audit and HR divisions for the job. The emphasis throughout the Sarbanes-Oxley preparation phase has been on getting verifiable data to back up the sign-off process at each stage of the financial reporting cycle. Russell says he ensured that both he and David Nish, Scottish Power’s group FD, had access to legal counsel’s advice. But beyond this, he says, he hammered home the message of ensuring there was “clearly defined accountability throughout the company”. People had to know what they were responsible for in the data gathering process.
Scottish Power now has an enterprise Sarbanes-Oxley steering committee to go along with similar steering committees on US and UK governance issues. It uses several financial software systems: SAP in its US operations, Cedar eFinancials for compliance, and compiles consolidated accounts using Hyperion.