Analysis: High Speed Compliance - ' The Looking Glass '

The Looking Glass

Once equipped with all this financial information technology, the Sarbanes-Oxley-compliant company will symbolize a huge cultural shift among U.S. businesses: After years of frequently being stingy about providing information, companies will become much more transparent. Hiding data in corners of balance sheets under obscure headings, and retrofitting numbers to meet sales and profit goals will be virtually impossible, because the new technology will ensure that the information is freely and comprehensively available to top executives, and a lengthy list of approvals will be required before information is altered.

Some experts argue that these new levels of visibility would have occurred naturally, even if the recent round of financial scandals had not transpired and no legislation had been passed. As they see it, the combination of increasingly open, worldwide markets, spreading communications technology, aggressive 24-hour media coverage, activist consumers and unforgiving shareholders has conspired to make corporate transparency not only a business advantage but a critical priority. Shoppers are more loyal, suppliers are more willing to share data, prospective partners are more keen to sign agreements, and investors are more eager to provide capital to companies that can demonstrate honesty and integrity and that disclose material information, good and bad.

"Sarbanes-Oxley is not the cause of better behavior, it's a symptom of it," says Don Tapscott, author of The Naked Corporation. "Sociopolitical, demographic and technological factors are increasingly leading to companies being scrutinized closely by their stakeholders. It's the death agony of the old model, of the insular, opaque corporation that lacked integrity."

That may be so, but for many companies the data visibility they've gained as a result of Sarbanes-Oxley initiatives—and not market forces—has provided the first hints of the operational efficiencies and productivity improvements that can be gleaned from heightened transparency. Although a large number of company executives initially balked at Sarbanes-Oxley regulations, claiming that a few dishonest corporations were forcing onerous rules on all public businesses, a February 2004 survey by META Group found that 41 percent of companies agreed that their efforts as a result of the law would make them more competitive.

It's tempting to compare the Y2K scare to Sarbanes-Oxley. Like Y2K, compliance with the act will depend on technology fixes to overhaul old, inefficient and potentially deleterious systems. But there's also a big difference between the two. Y2K had a drop-dead date, whereas the profound changes in systems, operations, processes, controls and technology brought about by Sarbanes-Oxley will evolve over an indefinite period.

"Sarbanes-Oxley is Y2K without end," says Wes Rehm, SAS Institute Inc. strategist for financial intelligence and Sarbanes-Oxley compliance. "Companies are even more afraid to fail than they were four years ago. Failure would not only harm a company's reputation and its pocketbook, but it would put it a step behind the competition at a time when every advantage is an absolute necessity."

Jeffrey Rothfeder writes frequently about business, security, environmental and technology issues.