January 12, 2006

News & Opinion: Our Translation of Sarbanes Oxley

By: 800-CEO-READ @ 5:21 PM – Filed under: Current Events & Public Affairs

If you step back for a moment from the specifics of Sarbanes Oxley (fondly also known as Sarbox or just SOX) and look at the big picture, the goal of the law is financial transparency. Financial transparency is the exact opposite of what Enron, Worldcom and others did. They hid the actual performance of their company from the public. Financial transparency, on the other hand, means that a reasonable investor, shareholder, and employee can review the financial statements of a business and really know what is going on. A financially transparent company wants all those interested to understand their financial position because they believe that making things clear in the financial statements leads to a stronger business. And managers and leaders in today's organizations are on the front line of creating financial transparency. It supports good business decisions and it is good business practice.
But financial transparency isn't just about numbers. It is also about ethics and accountability, and about communication and education. Financial transparency helps to address these two key issues inside a company:
  • Employees must trust that management is telling them the truth, and

  • There must be a common language used throughout the organization to talk about the business.

Effective corporate financial transparency can help to transform an organization around these issues. When employees, managers and leaders understand how the company makes money, how it measures financial success, and its current results and goals, trust increases and communication improves. Employees see that their work makes a difference, and managers and leaders have the opportunities to talk about the current situation and how their department or area of responsibility can make a difference in improving the results. Financial transparency, which consists of educating everyone about the numbers and then sharing the numbers on a regular basis, creates a trusting environment and a common language.
We believe that financial transparency truly does mean there is less likelihood of another Enron. It is interesting to note that virtually all of the corporate scandals were uncovered by an employee inside the company, someone who understood finance and accounting, saw that something was wrong, and spoke up.
Here is an example of a frontline employee understanding the policies of the company, and speaking up.
And here is just a little bit of background on the person who "blew the whistle" at Enron.