At the heart of these massive corporate scandals was a miserable failure of leadership, integrity, and morality on all levels, which eventually led to a complete breakdown of investor confidence. These events triggered a move toward more robust compliance, namely the Sarbanes-Oxley Act (SOX) of 2002, which required much-improved internal controls and changed the nature of conducting business in several fundamental ways.
The Sarbanes-Oxley Act was passed by the US Congress to protect investors from the possibility of fraudulent accounting activities ''by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.''
This act is the latest in a long progression of regulatory reforms aimed at rectifying corporate misdeeds that has its roots in the Great Depression, which began in 1929 and lasted for almost a decade, distinguishing itself as the deepest economic slump to ever affect the United States.
The implementation of SOX best practices can serve as the beginning of a sea change within an organization. Some of these practices include:
- Board independence and accountability
- Implementing strict auditor regulation and control by forming auditing committees, inspecting accounting firms, and upgrading the financial literacy of the board
- Heightened corporate responsibility for any fraudulent actions taken
- Adoption of a conflict of interest policy and a code of ethics that facilitate greater focus on good decision making
- Stricter disclosure within company financial statements and the adoption of ethical guidelines to which senior financial officers must adhere
- Use of internal controls, particularly as they relate to financial operations, and compliance with all laws and regulations at the federal, state, and local levels
Although hindsight is indeed 20/20, compliance with SOX could have had a mitigating effect on the severity of the crises mentioned earlier. The adoption of SOX best practices by the quality compliance manager will serve to strengthen his or her organization’s infrastructure and ensure that its boards are awake, alert, and, most importantly, accountable. By implementing the best practices that have emerged from SOX provisions and standards, the quality compliance manager builds the framework for a transparent organization.
Marchetti, Anne M. Beyond Sarbanes-Oxley Compliance: Effective Enterprise Risk Management. Hoboken, NJ: John Wiley & Sons Publishing, 2005.
Tarantino, Anthony. Manager’s Guide to Compliance. Hoboken, NJ: John Wiley & Sons Publishing, 2006.