Could Too Much Focus On Compliance Leave Companies Open To Fraud?
from the another-problem dept
In his first public speech since resigning from HP's board, Tom Perkins outlined what he sees as wrong with corporate boards. As Perkins sees it, in the post-Enron era, boards are filled with what he calls "compliance directors", individuals that are mainly concerned with things like Sarbanes-Oxley requirements and other governance issues. The problem is that these directors don't really know much about the actual business (via Valleywag), and so, ironically, aren't in a position to prevent another Enron from playing out. This makes a lot of sense. In order to know if management is engaging in fraud, you really need to have a solid understanding of what the company does. If your expertise is simply in governance, it may be easy to miss what's going on right in front of you. Ideally, a company should probably have a mix of directors, some of whom really know the business and the industry, with others more knowledgeable on compliance issues. But, if Perkins' assessment is correct, Sarbanes-Oxley has caused companies to put an overemphasis on the latter group, potentially causing problems down the road. Of course, this would hardly be the first perverse consequence of this legislation.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Reader Comments
Subscribe: RSS
View by: Time | Thread
keep your SOX on
Besides, cynically speaking, it is a big earner for IT practicioners and developers, probaly more of a cash cow than Y2K was. :)
[ link to this | view in chronology ]
Re: keep your SOX on
The road to hell is paved with good intentions.
We just have to accept that it's a cost of doing business these days and factor that into any model.
Right, no point trying to enact changes for the betterment of our society now. That was so 60's...
Bad legislation is bad legislation. We don't just have to accept it. We just have to get it fixed. (And yes, blogging about their deficiencies is one way to obtain the influence of those that can actually fix it, so Mike, Blog on!)
[ link to this | view in chronology ]
Re: Re: keep your SOX on
what they are BOF.
Thing is, from where I stand, and what I read more generally, SOX is a much needed and long overdue attempt to limit the corruption of big corps by introducing a little accountability. I take that as positive change for the betterment of society, something I'm all about.
Mike/Joe - Maybe what's needed is an idiots point by point simple breakdown of why SOX is dangerous and/or may be misused. I've no doubt it has some faults, but let's have them spelled out. Cheers.
[ link to this | view in chronology ]
Too bad they weren't in compliance
Too bad those "compliance directors" didn't tell HP not to go around spying on reporters... But I guess criminal law is not as important in business as securities regulations... ah, priorities, priorities...
[ link to this | view in chronology ]
Are you really that stupid?
Don't you understand how things work? Compliance departments are created to insulate senior management. Its not there to ensure compliance, its there to keep senior leadership from going to jail.
Regulators know this, so they had to come up with something to hold those responsible for the fraud responsible. Fine, we know we can't prove that you commited fraud, so we will just toast you for failure to provide proper oversight.
Oh, and I really loved your quote "In order to know if management is engaging in fraud, you really need to have a solid understanding of what the company does." Maybe I am misunderstanding your intention, but should a director of the company understand what the company does? Do you understand that the director of a company is there to protect shareholder interests?
[ link to this | view in chronology ]
SOX isn't the problem
In the environment of GAAP and various tax laws, SOX is a great benefit to investors who actually own the company. Managers and senior executive can bitch all they want, but INVESTORS OWN THE COMPANY, and unless you focus the talk about SOX from the point of view of the real owners, then you'll always be slightly off base. Post after post we get executives complaining, but I have yet to see real owners complain as they are the beneficiaries of SOX regulation. And still, the only way to get rid of SOX is to fix the underlying problems with the overall system, so maybe it's time you start complaining about the things that should be illegal, but aren't, under systems like GAAP.
[ link to this | view in chronology ]
Directors
[ link to this | view in chronology ]
ignorace is profitable
Does anyone seriously think that Warren Buffett really knows what's going on in the 44 unrelated subsidiaries of Berkshire Hathaway? (see http://www.berkshirehathaway.com/subs/sublinks.html) What he does do is trust the assurances that he gets from people that they're doing the right thing.
SOX, as written, simply raises the penalties for lying to owners. The fact that the Public Company Accounting Oversight Board and auditing companies have taken this as a blank check to impose unrealistic controls is an entirely different problem. The fix doesn't lie in eliminating accountability, it lies in changing the definition of acceptable risk that the PCAOB imposes on auditors.
[ link to this | view in chronology ]
ignorace is profitable by Jeff
Do you think the crap that Enron pulled was done by middle management? Do you think all the backdating was done by middle management? Do you think that (take a pick at the latest fraud) was commited by middle management?
Its the senior management that commits the fraud. That is why SOX was started. Hell, when middle management goes to jail or gets canned, its because usually senior management worked it that way.
Think middle management at accounting companies decided to defraud its clients with the travel scandal? Think again.
[ link to this | view in chronology ]