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Monday, November 14, 2005
Learning To Love Sarbanes-Oxley: A few companies have discovered that compliance actually helps to cut costs
Ask any CEO: Section 404 of the Sarbanes-Oxley Act is the corporate equivalent of root canal. Big public companies spent thousands of hours and an average of $4.4 million apiece last year to make sure that someone was looking over the shoulder of key accounting personnel at every step of every business process, according to Financial Executives International (FEI). Designed to nip accounting problems in the bud before they blossom into fraud, Section 404 is a core provision of the 2002 corporate-reform law. The number of companies that disclosed serious chinks in their internal accounting controls jumped to 586 in the first four months of 2005, compared with 313 for all of 2004, according to Glass, Lewis & Co., a financial research firm. But that's a tiny fraction of all public companies, leaving most CEOs griping about an exercise that seems to be all pain, no gain.
Most CEOs -- but not all. A few companies are discovering, to their surprise, that taking stock of internal controls can help beyond just unmasking accounting problems. By forcing executives to dig deep into how their companies get work done, Section 404 is enabling businesses to cut costs and boost productivity. "There truly is a silver lining" in 404, says Gary Moran, managing director of Alvarez & Marsal Business Consulting LLC. His firm and CFO Research Services sponsored a report that discusses the unexpected benefits that 404 yielded at Cisco Systems, Genentech, and other companies.
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