CEOs spreading the word of corporate accountability - East Valley Tribune: Business

CEOs spreading the word of corporate accountability

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Posted: Sunday, July 27, 2003 3:03 am | Updated: 1:08 pm, Thu Oct 6, 2011.

NEW YORK - With all its sweeping governance changes and litany of new requirements, the watershed corporate reform legislation known as the Sarbanes-Oxley Act really boils down to just one thing: Bolstering accountability.

Too bad that’s easier said than done.

Integrating the ideals of corporate responsibility into everyday business practices is proving to be something of a tricky task. That’s because the letter of this law only goes so far — and then the spirit of the law has to take over.

No one knows that better than the leaders of America’s public companies. Sarbanes-Oxley has thrust them into the accountability hot seat.

For instance, the year-old legislation requires them to swear to the accuracy of their companies’ financial statements, and starting next summer, they will be held responsible for maintaining adequate internal controls within their companies.

So if they sign off on something fraudulent, the penalties are steep, including big fines and possibly years of jail time.

But they can’t certify financial results without backup.

They need to know that the people working for them — up and down the corporate ranks — uphold certain standards and understand the implications if they don’t follow them.

It’s tough, though, to get everyone to buy in. There’s no legislation directing these efforts, and it takes a whole lot more than just sending out a memo to the work force.

In fact, a new survey by PricewaterhouseCoopers found that only 68 percent of respondents, which included 136 chief financial officers and managing directors at multinational companies, were confident that their entire company was in compliance with Sarbanes-Oxley.

That means there is lots of work to do.

Just ask Sempra Energy CEO Stephen Baum. His San Diego-based company set up an ethical accounting course that was offered to 400 employees with some accounting responsibilities. Another course, on financial literacy and accounting, is required for board members.

In addition, its 12,000 workers had to go through ethics training, which required them to take quizzes on covered subject matter and to sign a code of conduct.

‘‘Everyone needs to understand the processes and what are behind them,’’ Baum said. ‘‘We won’t tolerate misreporting.’’

At Universal Health Services, CEO Alan Miller is taking a hands-on approach by doing more in-depth evaluations of his business’ processes. At least for the short-term, that’s forced him to shift some of this time away from bigpicture issues that normally fill his day — something he knows can’t continue for long.

‘‘If I am going to be involved in the internal controls, auditing, financial statements, who is going to do the other stuff?’’ Miller said.

Some companies are also demanding that managers below the top brass take some personal responsibility for their divisional reports.

The business leaders surveyed by PricewaterhouseCoopers said they expect an average of about 23 executives will be required to give sub-certifications of financial reports before they reach the chief executive and chief financial officers.

Going forward, the challenge for companies is to keep the accountability issue at the forefront of their employees’ minds. It has to be integrated into the corporate culture.

‘‘Everyone needs to talk the talk and walk the walk,’’ said Robert Howell, professor of business administration at Dartmouth College’s Tuck School of Business. ‘‘It needs to be a companywide responsibility.’’

One group he points to as still being remiss is the board of directors. While regulation requires greater director independence, there is still plenty of room for interpretation. That’s where the spirit of the law has to come into play.

Directors should know enough to cut any personal or business links with the companies they serve. Not doing so creates potential conflicts of interest that could cloud their judgment.

Sarbanes-Oxley has managed to redefine the standards of accountability at the highest corporate levels. To be truly effective, companies have to spread the message to the masses.

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