Discuss how the Sarbanes–Oxley Act has changed corporate culture. A transcript of the podcast is also available through the URL.
Expand on how the Sarbanes–Oxley Act impacts organizational culture and why federal oversight like this is needed.
Additionally, Linda Thomsen mentions in the podcast that she expects further misconduct to occur. Why do you think this type of misconduct continues despite these regulatory laws?
Guided Response:
Review several of your classmates’ postings. Respond to at least two classmates by posing a question or adding insight regarding the likelihood and reasons behind continuation of misconduct. Support your views with evidence from the textbook or at least one article from the Ashford Library or another scholarly source.
TRANSCRIPT
STEVE INSKEEP, host:
The people who now have to sign off on their companies’ financial forms include Keith Sherin, the chief financial officer of General Electric. He has to personally approve the accuracy of the disclosures for the world’s largest company by market value, the company that makes everything from aircraft engines to nuclear plants. And if he’s wrong, Sherin, like Richard Scrushy, can face criminal prosecution.
Mr. KEITH SHERIN (CFO, General Electric): I’d say we take it very seriously. And the way that you get confident about putting your signature on that paper is you have to make sure the processes have rigor in a company like ours to give confidence about signing those certifications.
INSKEEP: General Electric expects to spend more than $30 million per year complying with the Sarbanes-Oxley law, mapping out the flow of money, checking information technology systems and much more. The company says it is worth that trouble to reassure investors. Somewhat smaller firms take a different view, that the cost is simply too painful.
Ms. JANET DOLAN (CEO, Tennant Corporation): This is not inside baseball for business. Thirty-five billion dollars coming out of the American economy is important to everybody.
INSKEEP: Janet Dolan is CEO of Tennant Corporation, which makes cleaning machines from floor buffers to street sweepers. She’s also on a panel that is advising the Securities and Exchange Commission about the law. The figure she gives is an estimate of what companies are spending to comply.
Ms. DOLAN: I, as a CEO and I know our board members, we are spending significantly more time on this compliance process, too much time spent on chasing a certification, as opposed to really focusing on strategy and running the business.
INSKEEP: Joining us now is Linda Thomsen. She is director of enforcement at the Securities and Exchange Commission, which means that people under her charge look for violations of the Sarbanes-Oxley law, among other laws.
Welcome.
Ms. LINDA THOMSEN (Director of Enforcement, SEC): Thank you. I’m glad to be here.
INSKEEP: So what kind of violations have you been seeing of this law?
Ms. THOMSEN: Well, I think the violations of the securities laws that we see are the same types of violations that we have seen since we started policing the securities world in the ’30s. We see financial fraud, we see financial misstatement. I think the Sarbanes-Oxley law has given us some new tools which are terrific. Among other things, it has allowed us to return more money to investors. Perhaps the best use of Sarbanes-Oxley is that it may avoid problems. They may put themselves in a position where they don’t get into problems, and that’s good for the companies and it’s good for investors.
INSKEEP: Do you think this is serving as a deterrent, that companies are actually behaving differently?
Ms. THOMSEN: I think it is serving as a deterrent, and I think it’s serving to make financial statements and make conduct better. I heard someone talking about the cost of Sarbanes-Oxley, and I think the commissioner’s been quite mindful of the cost of compliance. But it’s–that has to be weighed against the enormous cost of the kind of conduct we saw before Sarbanes-Oxley, and I think almost anyone would say they’d rather spend a little more on compliance if they could avoid the sort of catastrophes of an Enron or a WorldCom, and that is what we hope will be the result of a greater attention on compliance.
INSKEEP: I’d like to play a little bit more of our interview with Janet Dolan of the Tennant Corporation, who argues here that it’s not just a matter of the dollar cost but the matter of attention, of brain power that gets drained away because of this act, in her view.
(Soundbite of interview)
Ms. DOLAN: When we look at acquisitions, we ask ourselves, `How will this impact our financial reporting and meet our certification requirements?’
INSKEEP: Maybe that’s a good thing. I mean, all these mergers in some other industries in recent years led to scandal.
Ms. DOLAN: Some did and…
INSKEEP: Some didn’t.
Ms. DOLAN: …some didn’t. And the other factor is, we’re living with requirements that our global competitors are not living with. That means every one of us has to look at everything. That makes it more difficult for us to compete with our global competitor.
INSKEEP: That’s Janet Dolan of the Tennant Corporation.
Linda Thomsen of the SEC has been listening in. And, Ms. Thomsen, is Janet Dolan responding the way that you want people to respond?
Ms. THOMSEN: Well, at a certain level, absolutely. If you think about business from the perspective of `How is it going to sort of advance our business purposes, but also can we integrate this business and comply with the requirements of law and be honest in our financial statements?’ that’s a total package and that’s what businesses should be doing.
INSKEEP: Although, the other part of that is just a diversion of time, a diversion of thought.
Ms. THOMSEN: Well, to a certain extent, that is true. But the investment and compliance at the front end pays off in the back end.
INSKEEP: What about the last point that Janet Dolan made there, that she now faces requirements that a competitor in China or India would not face necessarily?
Ms. THOMSEN: Well, the issue of global markets is a thorny issue that we’re all struggling with, and we are all struggling with trying to make our markets a more integrated marketplace. We do have to struggle with jurisdictional issues, but we work very, very hard to make sure that people who come into our markets all play by the same rules and on the same field. One of the things about Sarbanes-Oxley which we haven’t talked about is that it’s still quite new, and I think there’s a little time to see how things settle in and what the long-term results are.
INSKEEP: Do you think Richard Scrushy is going to be the last big-name CEO to be prosecuted under this law?
Ms. THOMSEN: I expect that we will continue to see that misconduct along the way will manifest itself in different ways. I hope as a result of our efforts, of Sarbanes-Oxley that the occurrences are fewer, they’re less severe and they’re further apart because that’s good for investors and it’s good for the markets.
INSKEEP: Linda Thomsen, of the Securities and Exchange Commission, thanks very much.
Ms. THOMSEN: Thank you.
INSKEEP: This is MORNING EDITION from NPR News.
END
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Federal Compliance Law was first posted on October 19, 2020 at 4:10 pm.
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