Corporate Compliance Benchmarking Paper
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Corporate Compliance Benchmarking Paper
University of Phoenix
Managing Enterprise Risk MBA/560
The United States corporate governance system must seem to be in terrible shape. The business press has focused relentlessly on the corporate board and governance failures at Enron, WorldCom, Tyco, Adelphia, Global Crossing, and others. Top executive compensation is also routinely criticized as excessive by the press, academics, and even top Federal Reserve officials. These failures and concerns in turn have served as catalysts for legislative changeвЂ” in the form of the Sarbanes-Oxley Act of 2002(SOX) вЂ” and regulatory change, including new governance guidelines from the NYSE and NASDAQ.
The move toward shareholder value and increased capital market influence has also been apparent in the way corporations have reorganized themselves. For example, there has been a broad trend toward decentralization. Large companies have been working hard to become more nimble and to find ways to offer employees higher-powered incentives. At the same time, external capital markets have taken on a larger role in capital reallocation, as evidenced by the large volume of mergers and divestitures throughout the 90s. The corporate governance structures in place before the 1980s gave the managers of large public U.S. corporations little reason to make shareholder interests their primary focus. Since the mid-1980s, the American style of corporate governance has reinvented itself and the rest of the world seems to be following the U.S. lead.
One provision requires the CEO and CFO to disgorge any profits from bonuses and stock sales during the 12-month period that follows a financial report that is subsequently restated because of вЂњmisconduct.вЂќ Shareholder-related provisions include changes in restrictions on insider trading regulation and enhanced financial disclosure. Executives will now have to report sales or purchases of company stock within two days rather than the current 10 days, which will have the effect of making executive shares somewhat less liquid. SOX also requires more detailed disclosure of off-balance-sheet financings and special purpose entities, which should make it more difficult for companies to manipulate their financial statements in a way that boosts the current stock price. Finally, SOX increases the management and boards responsibility for financial reporting and the criminal penalties for misreporting.
Compliance with governmental and industry-based regulations such as the Sarbanes-Oxley Act, Basel II, HIPAA, FDA, and SEC 17a3-4 are presenting major business challenges for companies today. Most companies are realizing that in order to achieve compliance, the cost will be too much and drain valuable IT resources. Many companies realize that requirement for compliance is not going away. To meet the compliance challenge, organizations will need to shift their focus from a вЂњonce and doneвЂќ mindset to one of вЂњsustained complianceвЂќ (Hewlett-Packard Development Company, 2005, p. 3).
HP provides solutions to assist enterprises maintain compliance in a changing regulatory environment while realizing business benefits from their compliance investment. HP sees compliance as a process rather than a project. Compliance is a global, evolving and unavoidable reality that affects all businesses (Hewlett-Packard Development Company, 2005, p. 4). For example, HPвЂ™s Solutions for Sustained Compliance minimize risk, improve control and efficiency, and reduce costs through improvement of business processes and the automated management of people, processes, and technologies.
The Sarbanes-Oxley Act of 2002 (SOX) was passed in the hopes of rebuilding investor confidence after the Enron and WorldCom corporate accounting scandals (Hewlett-Packard Development Company, 2005, p. 3). Although legislation can be complicated and sometimes vague, the main theme is to ensure the integrity of financial reporting for publicly traded companies in the United States. Complying with SOX can be difficult because it was not written specifically with information technology or information security in mind. However, many sections within the act directly