By now, enough ink has been spilled over the
Sarbanes-Oxley Act that the legislation has essentially become
synonymous with corporate governance reform. As companies hustle to
meet the first Sarbanes-Oxley deadline in the U.S. in November, two
trends have become clear: first, the mandate for good governance and
systematic internal controls stretches well beyond Sarbanes-Oxley and
U.S. shores; second, it is a mandate that affects companies not listed
on any stock exchange. Global companies, especially those with global
aspirations can use the resultant visibility, control and efficiency
to focus on Corporate Performance Management.
While regulatory, legal compliance typically
applies to public companies, many private firms now view compliance as
a considerable benefit -- if not a requirement to stay competitive.
Companies with plans to go public or those looking to be acquired need
to preemptively establish and articulate internal controls and
financial reporting practices. Even companies that rely on lenders or
venture capital must now demonstrate effective governance practices
and financial transparency in order to gain funding. Beyond this, many
private and non-profit companies have established compliance programs
simply because they see it as good business.
CLEARING COUNTRY COMPLIANCE
First, global companies need to understand what's
facing them. Apart from Sarbanes-Oxley there are several country and
region specific compliance regulations - the EU's Action Plan for
Company Law and March 17 2004 Anti-Fraud Directive proposal, Germany's
Cromme Kodex, Britain's Cadbury-Turnbull, Australia's AIX Code, and
Italy's Borsa Italiana Code, just to name a few. EU countries alone
collectively have over 35 regulatory codes.
While that may sound overwhelming, there are
fundamental similarities between these laws that make compliance a
less "nuanced" process. All of them essentially require
managements to be accountable to stakeholders. All require companies
to establish a reliable information system that allows them to report
using international standards from all of their operations and comply
with local legislation and good neighbor practices. And all, to one
degree or another, require company management to articulate internal
controls and manage the risks of financial reporting error and loss.
When a company faces regulatory compliance code, it
is essential to go beyond the "checklist" of regional
reporting mandates. Those that will benefit from compliance will do so
by creating a pervasive and permanent "culture of
compliance" throughout the organization. From the top down,
companies must set the tone and "play by the rules." This
means taking measures to ensure the sales force doesn't come under
unreasonable pressure to augment the numbers. It means making sure the
accountants don't view "cutting edge" accounting as a
euphemism for outfoxing the standard setters. And it means assuring
managers that they will never be asked to pressure an employee,
customer, or supplier to bend the rules.
To traverse from mere compliance to active
Corporate Performance Management businesses need to focus on
- strategic goal setting and alignment,
- planning, budgeting, forecasting and modeling,
- operational analytics, reporting and
Corporate Performance Management helps companies
regain control of their businesses, increase organizational
credibility and remove barriers throughout the enterprise.
SOUND CONTROLS IMPROVE BUSINESS PRACTICES
Although compliance may no longer be a choice for
many companies, it can be a two-way street - one that boosts investor
confidence while fostering leaner, more agile business processes and
more profitable operations. Companies can leverage the rules of
Corporate Performance Management as a benchmark to articulate and
consciously redesign the way they do business.
Business executives who look at the broad picture
of what regulations are designed to do often recognize best business
practices. The new focus on control and visibility opens up avenues
for business process improvement several ways. Documenting business
processes creates a body of easily shared and enforced organizational
knowledge. Visibility and transparency in reporting brings timely,
accurate information - moving companies toward a "daily
close" - that lets executives manage with today's facts rather
than last month's information. Visibility also helps identify
non-compliance and break downs in processes.
INTEGRITY OF IT OPERATIONS ESSENTIAL FOR COMPLIANCE
AND CORPORATE PERFORMANCE MANAGEMENT
The toughest part of the compliance challenge for
most organizations is not in finance - it's in technology systems. A
recent study by Ernst & Young found that virtually all of
companies surveyed placed significant reliance on controls in some or
all parts of their businesses to reduce the risk of inaccurate
If the systems supporting the company's daily
transactions aren't controlled properly, a distorted picture of the
company's performance results. Many companies today operate in
environments that make this distortion of reality all too easy. For
instance, companies often operate varying systems to support different
parts of the business - from Customer Relationship Management (CRM) to
financials to manufacturing. Inaccuracies can result from data that is
poorly managed as it passes through these multiple applications.
Establishing a compliant environment by unifying IT
operations with integrated application suites improves control,
reduces overall cost and increases the assurance of data quality.
Further, with a unified technology model, companies gain an accurate
and timely picture of business data, enabling better decisions and
faster response to change.
Regulatory compliance is no longer a choice for
companies conducting business on a global scale. Further, Corporate
Governance and Corporate Performance Management will stay in the
spotlight for the foreseeable future. However, embracing the spirit of
these requirements - ethical corporate governance and reliable, timely
reporting - can ultimately prove less expensive than grudgingly
complying with the letter of the law. In fact, it can deliver
measurable bottom-line results leading to sound Corporate Performance
Management. Strategic companies will distinguish themselves by
transforming regulatory compliance into corporate excellence - the
excellence of success.
The author is the Regional Business Manager,
Financial Services Industry, SAGE West, Oracle Corporation