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Sarbanes-Oxley, Transparency & Your Business (General Thoughts)

January 20, 2005

The Sarbanes-Oxley act was put into place to help protect shareholders in public traded companies after the multitude of corporate scandals in the last few years.  Even though the act applies only to large, publicly traded companies there are some aspects that will make any company run better.  A key thing that many people are focusing on is the issue of "Transparency."  James Goodnight, CEO of SAS defines part of this as "The need for defined business processes and procedures as well as dissemination of an enterprise wide compliance strategy within an organization..." in an opinion piece from the Sarbanes-Oxley Compliance Journal. 

The general guidelines require that a business have the ability to get accurate, detailed financial and other information from all areas of a business that relates to the health and operations of that area and the overall business in near real-time.  It additionally requires that processes be put in place, documented and audited which will guarantee the accuracy of this information. 

To some companies this seems like an incredible burden - to the best companies they already have most of these systems in place and are using the regulation as an opportunity to build even better systems.  Whether a company does $1 Million in business or $100 Billion in revenue the same dynamics apply.  The need for information does not change.  The cost of not having accurate, real-time information is just as high (potentially fatal). 

John Chambers, CEO of Cisco explains that a business is like a ship sailing through the ocean.  It is off-course most of the time and without land in sight the ability to know where you are at and make course corrections is difficult.  Years ago captains could only get accurate information at night when the stars were out so sailing across the ocean took a very long time because the ship could become seriously off-course and require huge course corrections each day.  Today ships are guided by a computer that automatically checks locations by GPS satellite many times each minute.  The course corrections are automatic and very minor giving the appearance of an almost perfectly straight line which also provides the fastest and cheapest route between any two points. 

How often do you get feedback information in your business regarding talent, marketing efforts, financial results and progress on key strategic goals?  Do you even have regular, detailed, monthly financial statements?  Can you see an accurate financial status of your business at any given point in time?  How often do you have the opportunity to make course corrections?  How far off-course is it possible for you to get before you realize that something has to be done? 

This leads to another very critical insight provided by John Chamber's comparison to a ship.  In years past the captain (business leader/owner) was the person who had to identify the destination (corporate goal/vision/mission), chart the course (strategy/operational plan), check every night to see if they were on course (review the financials, jobs, etc.) and then make order the crew to implement the required course corrections.  Today the captain figures out the destination, sets the course and then systems on the ship automatically check position and make adjustments directly to rudder, throttle, etc.  This allows the captain to spend a lot more time focused on other aspects of running the ship such as planning a more efficient course, a different destination or improving the systems.  In years past the captain had to literally work day and night just to stay roughly on course (sound familiar?). 

Just like technology provided a better way to sail it can also provide a lot of better ways to run a business.  Technology alone is not the answer but using the right technology and aligning it with your financial systems, customers and organizational chart can have fantastic effects on your business.  To learn more review the Solutions / Process Improvement and Resources / IT Systems sections of this website. 

For more information about transparency in organizations see author Dan Tapscott at www.ageoftransparency.com and the series of articles and thought pieces he has written for Intelligent Enterprise magazine (www.intelligententerprise.com).  Dan's archives are located at: www.intelligentinterprise.com
Posted by David Brown at 10:34 PM|Permalink | TrackBacks (0)

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