Is Sarbanes-Oxley killing creativity, risk-taking? 632



  • Compliance vs. committment - does the pressure of meeting SOX standards and deadlines distract a company from its customers, products or services? What do you think? Thanks.



  • Like many things a SOX project can be a major distraction and the impact of it will vary from organisation to organisation.
    SOX may have a negative impact on some companies in the areas you mention, but it need not. So I guess my anser is - it depends 😉



  • For the most part, meeting SOX standards and deadlines should not be a distraction beyond year one. The first year was filled with everyone trying to understand what it was that they needed to do in order to get their external auditor happy that internal controls were in place and working effectively. Documentation of the processes and related controls were the big distraction.
    Going forward, the process of executing good controls should be a part of everyone’s day-today life (as it always should have been). companies with weak controls or those who took shortcuts in the past will feel some pain going forward as they change processes or add resources in order to ensure that controls remain effective.
    I am definitely not a proponent of the depth to which SOX documentation and testing of controls premeated the organization but, I am a believer in good internal controls and feel that there are a lot of positives coming out of this.



  • Compliance vs. committment - does the pressure of meeting SOX standards and deadlines distract a company from its customers, products or services? What do you think? Thanks.
    I believe that after year one SOX will become a standard, even a marketing tool or a component of the ‘marketing mix’ of a company.



  • I do not even pretend to be an expert here, but the type of question you are asking is directly relevant to my dissertation, based on how SOX is affecting UK project management risk.
    On the whole, from my studies so far, I would argue that it is situational, but companies who were run well beforehand have had far less of a job of it than those who weren’t. There is an argument for companies that have lower resource levels, that the money they have, has had to plough into ensuring they are SOX compliant has created an opportunity cost of that same money being invested in gaining competitive advantage. On the other hand, surely being SOX compliant gains you competitive advantage overall anyway ?
    I am undecided, and I think it depends on the industry more than anything else. However, I will certainly bow to superior wisdom on this .



  • On the other hand, surely being SOX compliant gains you competitive advantage overall anyway ?

    I am not sure I agree with that assertion. Having an advantage against your competitors surely has to do with things like the quality of your products or services, the price of those products, etc. Being SOX compliant may help improve your internal controls and thus your financial reporting, but a competetive advantage it is not. Try telling your customers something like this: ‘Sure, our products are not that great, and they may be over-priced, but at least we’re SOX compliant’. I doubt that they will be impressed.



  • Might depend on what kind of business you’re into.
    Its goal is to make sure that we do not get a new Enron / Worldcom / etc. scandal.
    Do you think their customers would have bought services from them if they knew they were going bankrupt in a few weeks? Or investors invest?
    A company like mine that do not bother with contracts for less than USD USD10,000,000, this is a very important aspect, as noone would by services from us if they weren’t not sure that they can be delivered within the time frame and the cost in the contract.
    That is why we also see being SOx compliant as a big advantage.
    Or… not being compliant would be a big disadvantage for us when all the other competitors are.



  • We should look at a company under the different interests of the stakeholders.
    Yes, indeed SOXA will not help in improving the product quality against its competitors neither will help to reduce its costs (eventually it is the other way around). For this objective, we have the 6 sigma or Lean programs and ISO certifications. These certifications will satisfy the potential client.
    On the other hand, the company needs capital at the lower cost to invest (as it does with other kind of ressources). Shareholders and possibly banks are ready to buy in, but they want other guarantees than the strategy and 5 years business plan (how to make sure these are correct?). The laws in place before 2002 where showns incomplete. Now, SOXA can be an additional guarantee to potential capital clients. Still under experimental period… we agree.



  • An argument that could be added on here is that there are short term opportunity costs with SOX however.
    As an example, I have a product and some profit to invest. Along comes SOX. The money I am now spending on SOX could have been used for R-and-D or product development rather than paying auditors to check procedures to satify bureaucracy.
    I agree with IrquiM that it depends on what business area you work in, but I think on the whole, it’s a short term/long term tradeoff.


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