April 29, 2005 4:00 AM PDT
Perspective: Sarbanes-Oxley: Tech's big complaint of 2005
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But few are bold enough to go on the record when the subject turns to Uncle Sam's fumbling--real or imagined.
Not so, when the issue is the Sarbanes-Oxley Act.
SOX became law nearly two-and-a-half years ago, in the wake of a string of corporate financial scandals that nearly wrecked public confidence. The idea was to force companies to eliminate "creative accounting" and accurately report what was going on. SOX also carried the threat of penalties if the folks at the top of the company--the chief executive, the chief financial officer and the board of directors--failed to certify that the numbers were accurate and that they had reviewed internal controls, identifying any concerns they might have come across.
Straight shooting, honesty and full disclosure--that's right up there with motherhood and apple pie. Who could argue against? For all the good intentions, however, you don't find many CEOs giving glowing testimonials about the wonders of SOX.
The reason: The law is making them miserable.
I know--who has sympathy after all the shenanigans uncovered the last few years? But it's not as if these guys pine for the days when corporate crooks looted their own companies with impunity. Nobody of sane mind is itching to spend quality time with Bernie Ebbers in Cellblock 27. They simply worry that the law has everyone looking over their shoulders.
Typical corporate whining? Some surely is. But this groundswell is more than the predictable backlash against heavier government regulation.
In the tech industry, SOX is viewed as something on the order of the Curse of the Cat People. CEOs can't imagine the bill's supporters ever thought SOX compliance would cost this much time and expense. If they did, then it would be right to storm the halls of Congress.
"We spent $1.6 million on Sarbanes-Oxley and got, maybe, $1.60 in value," recalled a frustrated Harold Hughes, the chief executive of Rambus.
I feel the guy's pain, but he got off easy. Another CEO at a much larger tech company told me his quarterly spending on SOX amounted to several times that amount.
"It's costing us a fortune," said the executive, who asked to remain unidentified. "I'm spending a lot of time on things where my attention would usually be focusing what the shareholders want me to do--which is running the business."
Spreading pain
The resentment extends to the venture capitalist community, though that was to be expected. After all, this is a red-meat constituency that still pines for the go-go days of the late 1990s. (Hey, greed dies hard.)
SOX also has reached beyond the confines of the VC world. For instance, it's not now unusual to see IPOs get delayed by a quarter--or longer--because of the scramble to meet SOX compliance rules. What's more, money that might otherwise get invested in infrastructure or sales instead gets earmarked for meeting regulatory requirements.
"This is a heavy ongoing burden," said Christopher Lochhead, chief marketing officer at business technology optimization company Mercury Interactive. "It's not like Y2K. There's no finish line. It's kind of like the gift that keeps on giving."
Some gift. Lochhead offers the example of what might happen when there's a new government stipulation. To comply with the change, companies will need to modify their own business processes--and that's guaranteed to become an expensive headache. Most sophisticated compliance systems are already automated, so this inevitably becomes a major IT project. Leave the aspirin bottle close by.
Get used to it, because SOX is not going away. So what about the future? Most companies got through SOX 1.0 with chicken wire, tape, lawyers, money and lots of prayers. That won't cut it next time around. They'll need to find ways to build systems that are scalable and auditable.
The silver lining here is that practice makes perfect. In time, companies should be able to get their systems into shape without needing to turn the place upside down. They really don't have much choice. More than ever, they understand that the acceptable risk of getting things wrong is zero.
Face it: It's a new world.
Biography
Charles Cooper is CNET News.com's executive editor of commentary.
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We're to the point that it takes about a day to produce the various change documentation for a one line code change. And the "QA" department says that we are being told by third party auditors that we have to be this inneficient in order to be in compliance with SOX.
And it's not like these rules are only being applied on systems that maintain the companies financial data, it's being applied accross the company. Why does SOX care if I widen the description field on the product table allowing them to have a 5 character longer style name for a pair of shoes?
Talk about throwing out the baby with the bathwater. But it does get great headlines and get attorneys general elected to even more powerful posts. Bernie Ebber's "fraud" also included putting together the majority of Internet pathways in the nation -- but the stock tanked and the dude's going to be rooming with Bubba! And Verizon is laughing all the way to the bank.
It's absolutely ridiculous that I need to wait two weeks for a change control to go through a commitee just to make a single change in /etc/system or /etc/services for no reason other than that system contains financial data. Commenting out TELNET or adding POP or increasing shared memory space has zero to do with any financial shenanigans of the higher-ups.
Once again, another feel good, "hey, let's look like we're doing something" law is making life hell for everyone -- except the lawmakers. It must be good to be the king, or kings in this case.
"We spent $1.6 billion on Sarbanes-Oxley and got, maybe, $1.60 in value," recalled a frustrated Harold Hughes, the chief executive of Rambus.
I feel the guy's pain, but he got off easy. Another CEO at a much larger tech company told me his quarterly spending on SOX amounted to several times that amount.
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Yet you link to another cnet article about how total SOX spending was estimated to be 5.5 Billion in 2004. Those CEO's are plainly lying to you Charles.
The term SNAFU comes to mind. I have seen this repeatedly in corporate IT. Executives look at each requirement as a "new" system instead of looking at how they can bring the existing system into compliance.
Most moern companies had little trouble with SOA. Corporate lawyers and accountants set the rules and IT provided the adjustments to the accounting work stream and, as Emeril would say, "Bang! Another notch!"
This saves honest tax payers a lot of money.
Trails and fancy jails are payed for by honest tax payers.
Enron stock holders are crying for them also,may be thay can get some help from them to repeal SOX.
Look at it this way. If I know 1+1=2, what value is it for me to write Principia Mathematica to show to an auditor so that they know we know that 1+1=2?
These are the people who wind up in middle and thus upper management. These are the people who outsource jobs overseas to save bucks this quarter and lose customers by the millions.
No, not every manager is like this, but a significant percentage is, otherwise you wouldn't be thinking of that person or persons you've had to work under who fit my above description.
These are the people made miserable by SOX. They now have something to occupy their time and so pencils are laid on desks every which way and shirt tails are coming dangerously close to hanging out of waistbands. THE WORLD AS THEY KNOW IT IS UNDER THREAT! Of course they would be upset. They have something they are now responsible for getting done and handing in at a set time. Something they can't slough off on an already over-worked underling. THE HORROR!
Let's face it. Companies run better when managers have to stop nit-picking their underlings work habits and let them be productive, getting done the actual product and service of the company. Since the only people who seem to believe they are doing real work are the boys in the suits who don't contribute a damn thing to productive work time then who gives a rat's behind if they are inconvenienced?