For senior communications executives dealing with Sarbanes-Oxley, it may be time to break out the industrial-strength bottle of Tylenol. The clock has officially started to
tick on the legislation, which expands the disclosure laws in financial reporting among publicly traded companies. While the deadline for full compliance is December 31, 2004,
many companies are still well behind the eight ball.
"Once they dig down deep and find out what the legislation is about [companies] are going to see it's going to be very onerous, costly and time-consuming," says Jim Lindsey, a
managing partner in the Towson, Md.-based CPA firm Lindsey & Associates LLC, who estimates that SOX could add 1% to 2% to a company's total cost structure, equaling millions
of dollars.
Lindsey, a 25-year veteran of accounting trench warfare, says small- to mid-size publicly traded firms are most vulnerable. Regardless of the size of their company, however,
senior PR execs have their work cut out for them next year. "Other disciplines (media relations, employee relations) will suffer and increasing amounts of their budgets will go
toward compliance," Lindsey says, adding that PR execs will get "some massive migraine headaches" trying to get their hands around Sarbanes-Oxley.
PR NEWS contributor and veteran financial communications consultant Peter Brinch, principal with Baltimore, Md.-based Business Communications LLC, spoke with attorneys and
accountants, including Lindsey, to understand the role PR pros should take in shaping the dialogue in the brave new world of financial reporting and corporate governance.
Although it was difficult to know at the time, "The Next BIG Thing" for corporate communications professionals began on July 30, 2002, when President Bush put his John Hancock
on the sixty six-page HR3763.
Formally known as the "Public Company Accounting Reform and Investor Protection Act," the Sarbanes-Oxley Act, or S0X, sailed through Congress with only three nay votes in both
houses. It is the single most important piece of legislation affecting corporations since the US securities laws enacted during the Depression--and it's only the beginning.
From a practical standpoint, corporate governance is the purview of boards of directors, who represent owners, to manage firms in their best interests. This involves monitoring
CEOs and top management teams that pursue their own personal interests (such as greed) rather than the interests of the shareholders.
Lindsey, a strong proponent of reform, says, "Sarbanes-Oxley was designed to correct these ills by imposing greater visibility and accountability on publicly traded companies,
but a close reading of the law (especially US dollars 302 and US dollars 404) will yield the understanding that Congress intended S0X as a framework, that is, as the skeleton of
reform. The next step is for the SEC and other regulatory oversight organizations to add meat and muscle to the skeleton."
Marc Sherman, managing director of the Washington D.C, office of The Huron Consulting Group adds, "It's the proverbial rock and a hard place scenario. In their heart, companies
know it is in their long-term economic interest to endorse strong governance reforms. However, their brain tells them that the compliance costs in the short-term are going to be
enormous."
Its carpe diem time for communicators so seize the high ground by:
- Becoming champions of change, but know that S0X has spawned a cottage industry of consultants which is defined as people who'll borrow your watch to tell you what time it
is. As the Knight in "The Last Crusade" told Indiana Jones, "Choose wisely." - Listening to your accountants when they tell you that internal controls must be designed from an audit perspective so that financial disclosure information can be "mined" from
them. - Taking a holistic approach toward compliance education and be prepared to quickly resolve emerging ambiguities to all constituencies with clear concise communications in the
appropriate media.
Contact: Peter Brinch can be reached at 410.308.0184; [email protected]