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November 2007

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Is Sarbanes-Oxley in Your Future?


by Glen Emerson Morris
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For those not familiar with the Sarbanes-Oxley law, it was passed in the hopes of preventing more cases like Enron, where the books were so badly cooked that shareholders couldn’t accurately evaluate the company’s financial situation, or even notice that the company’s management was stealing the company blind.

Sarbanes-Oxley, or SOX as it’s commonly referred to, was designed to force a degree of honesty in corporations. SOX was targeted at large publicly traded companies, but as with many laws initially targeted at just a small percentage of businesses, it may wind up affecting nearly all non-privately owned companies.

Though largely denounced by big business, much of what SOX requires makes sense. For one thing it requires a segregation of duties that would prohibit the person ordering purchases from also being the person who wrote the check to pay for them, or also being the person who checked the purchases in at the loading dock. SOX also requires that senior management set up a system of financial controls within the organization, that must be reviewed yearly and signed-off by the two top officers in the corporation.

While this doesn’t sound like too much of a burden, estimates are that it will cost most companies that implement it about four million dollars the first year, and somewhat less every year after that just to maintain it. For a company like AT&T, this is pocket change. For a smaller company, the cost would have a noticeable impact on profits.

The fact that applying SOX to every non-privately owned company in the US would do little, if anything, to protect the American consumer, there’s still a real possibility this could happen. The Democrats are quite possibly set to regain the presidency and keep both sides of congress, just as a backlash against big business is hitting major proportions with the general public.

At his point in time it’s not hard to see why the public has had it with big business. After decades of constant erosion of consumer rights by both political parties and the courts, one has to go back to the 1900s to find a time when large corporations had as much power as they do now, or were less subject to rule of law.

A good example of how successfully corporations have currently placed themselves beyond can be found in many terms of sale agreements. Over the past 15 years many major companies have a included a clause in their sales contracts that require the buyers to agree to submit to compulsory arbitration, thus giving up the right to sue the company in court. This strategy has worked so well for the large corporations that Business Week ran an article in fall of 2007 pointing out that so few legal matters were being settled I court that businesses no longer could businesses refer to current case law to see what the legal precedent was for new situations.

Other terms increasingly common in sales contracts, particularly in telecoms, stipulate that the company reserves the right to terminate a customers service if they do anything that damages the reputation of the company. So if you write a letter to the editor about poor phone service from AT&T for instance, you may find your phone service disconnected.

Nowhere do egregious terms of sale go further than with software licenses. Many software licenses, including Microsoft’s, have a provision prohibiting reviews from releasing performance figures for its products. Those publications and individuals that do report problems may receive a cease and desist demand from a company lawyer that includes a claim that the cease and desist letter itself is copyrighted, and the receiver is prohibited from making the letter public, like posting it on the Internet. In reality, only letters actually registered with the government can have copyrights enforced, but the letter has been enough to silence many magazines and consumers.

In this kind of climate, the danger is that if big business can’t stop reform legislation, it will use its influence to ensure that whatever reform is passed will be far more costly for SMBs than for big business. And there’s no doubt they have the clout to do this.

The special interest’s control of Washington has gotten so strong that many bills allegedly designed to regulate specific industries are frequently written by the industry’s lobbyists themselves, and are often passed without ever having been read by the politicians who vote on them. One consumer group has been trying to get a law passed that would require congressmen to read bills before they vote on them. Called the read the bills act, it’s not making much headway because, among other things, few in business are supporting it, and this is far from surprising.

SMBs have stood silent on the sidelines for years as the large corporations gradually eroded rights once taken for granted in this country. This silence may have been a mistake. In the long run, SMBs aren’t going to fare much better than consumers do.

There are no easy solutions to the current situation, but it wouldn’t hurt if SMBs started organizing and sending their own lobbyists to Washington. One would think that with all of the new communications technologies available it might be possible for SMBs to use the new technologies to team up with other SMBs and to begin to exercise long overdue clout in Washington and in state capitols. And to help consumers understand that SMBs are not the culprits in this situation, and SMBs do not deserve to be subjected to laws like Sarbanes Oxley.

It’s only fair. SMBs rarely have the clout to flagrantly get away with abusing customers, nor do they often want to, because SMBs live with the certain knowledge that their customers will leave if the competition offers a better deal. This is how it should be with all businesses.


Glen Emerson Morris is currently a senior QA Consultant for SAP working on a new product to help automate compliance with the Sarbanes-Oxley law, an attempt to make large corporations at least somewhat accountable to stockholders and the law. He has worked as a technology consultant for Yahoo!, Ariba, WebMD, Inktomi, Adobe, Apple and Radius.





Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved


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