Most large market-cap public companies would like to forget Nov. 15, 2004--the day that "accelerated filers" had to begin submitting year-end audits under Section 404 of the Sarbanes-Oxley Act. According to many reports, there wasn't much holiday cheer among the employees charged with meeting that deadline. The folks stuck with paying the consulting and auditing bills relating to 404 weren't exactly oozing with Christmas spirit either.
"[Section 404] has taken tremendous man-hours away from running this company ... and it has cost a lot of money," said Scott Royster, CFO of Radio One during a July 2004 earnings conference call.
"When regulators realize their existing compliance requirements are not effective, their reaction is to clamp down even harder by imposing more restrictions," said Bruce Ortwine, general counsel of The Sumitomo Trust & Banking Co. "As a result, the regulatory bar is constantly getting higher."
Once they've raised the bar, regulators often are slow to give companies guidance on how to respond to new regulatory measures, leaving in-house lawyers, auditors and consultants scrambling to develop what they hope are appropriate compliance measures. This problem was particularly acute when it came to section 404 compliance. Because the Public Company Accounting Oversight Board (PCAOB) was slow to release any guidelines to assist outside auditors with the implementation of Section 404, auditors took a very a conservative approach and often changed the advice they were giving clients from week to week. That created a lot of tension between external auditors and their clients.
Although participants spent a good portion of the forum discussing the role of external auditors in compliance, they also talked at length about the legal department's role in ensuring employees are complying with all the new regulations. Obviously training is key. And although online training seems to be the preferred method of reaching employees these days, it shouldn't be used in every circumstance. Most participants agreed that online training can teach employees about general corporate and HR issues, such as sexual harassment, but it can't replace face-to-face training in more complex compliance issues.
The worst thing a company and its board can do is view a compliance program as simply a "to-do" list. Executives need to see compliance programs as a tool that can benefit the company's bottom line and its reputation in the market.
"We live and die by our brands," Shakalis said. "So we welcome and approach compliance and Sarbanes as a way to further protect our brands, corporate image and reputation."