SOX and Senator Dodd: Time to Apply Section 404 to All Public Companies

Yesterday (July 31) Chairman Cox testified before the Senate Committee on Banking, Housing and Urban Affairs on, among other things, the shareholder access proposal.  The relatively descriptive written testimony is here.  The hearings themselves (a video can be found here) were more interesting.  We will, over the next few days, discuss some interesting matters raised at the hearing.

In this week of the 5th anniversary of SOX, the implementation of Section 404 has been delayed with respect to smaller public companies.  We note that further delays may soon come to an end.  Senator Dodd, Chairman of the Committee, was unequivocal:  No more delay.  As he stated at the Hearing: 

• "Public companies which have not yet begun to comply with this new law, this law rather, which was passed five years ago should begin to do so now in my view.  American securities markets should not list companies that in effect abide by two different standards regarding their financial controls.  Surveys of market participants including CEOs of major corporations conclude that Sarbanes Oxley is sound in achieving its goals of  improving financial reporting, strengthening corporate governance and and enhancing the integrity of analyst recommendations.  The performance of the market since Sarbanes Oxley's enactment five years ago underscores the fact that this new law is strengthening our nation's economy in my view."

For those hoping for a repeal of all or some of SOX, this must be disheartening.  The emphasis is not on repeal but on universal application to all public companies.   

Comments

[Dr. Patricia Harned]

A study just completed by the Ethics Resource Center (of which I am President) among employees at publicly traded companies points to interesting challenges among smaller public companies -- the ones not yet reached by SOx.

Overall among public companies, 70 pct. of respondents gave their employers an “A” or “B” grade for encouraging ethical conduct. Still, 1 in 7 gave a below-average or failing grade -- with the lowest marks most likely at companies with fewer than 100 employees.

Overall, 22 pct. said results are rewarded by their employers even at the expense of unethical practices – and 37 pct. said that at the smallest companies.

Also overall, 20 pct. said their job conflicts with their personal values “sometimes or always” – and that answer came from 30 pct. where there were fewer than 100 employees.

More about the survey is on our Web site -- www.ethics.org

[Dr. Patricia Harned]

As SOx begins to filter down to smaller operations, there are interesting findings in a survey that the Ethics Resource Center (of which I am President) just completed among employees at publicly traded companies. It points to interesting challenges among smaller operations.

Overall, 70 pct. of employees at public companies gave their employers an “A” or “B” grade for encouraging ethical conduct. Still, 1 in 7 gave a below-average or failing grade -- with the lowest marks most likely at companies with fewer than 100 employees.

Overall, 22 pct. said results are rewarded by their employers even at the expense of unethical practices – but 37 pct. said that at the smallest companies.

Also overall, 20 pct said their job conflicts with their personal values “sometimes or always” – but that answer came from 30 pct. where there were fewer than 100 employees.

Clearly, some of the greatest challenges ahead are at the smallest public companies, where the requirements of Sarbanes-Oxley have not yet been applied.

More about the survey is on our Web site -- www.ethics.org