‘Sarboxed’ into a corner?

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Wright Express Corp. (www.wrightexpress.com) introduced the Wright Express Business Card, which offers the traditional benefits of a fleet card while also providing reward points redeemable for travel, entertainment and retail purchases; and access to online pre-employment screening services, criminal history reports, drug-screen administration services and motor vehicle reports.

GE Commercial Finance Fleet Services (www.gefleet.com) has launched my.Dashboard, a Web-based reporting and analysis product designed to help monitor, manage and optimize fleet performance. my.Dashboard offers instant visibility to more than 50 key indicators and alerts to track how a fleet is performing against its set targets.

PGT Trucking received a financial package totaling $635,150 from the state of Pennsylvania to help it expand its Monaca, Pa., headquarters and operations facility. The financial package includes a $292,500 loan through the Machinery and Equipment Loan Fund (MELF); a $154,000 Opportunity Grant; $154,000 in Job Creation Tax Credits; and $34,650 in Job Training Assistance.

Udeen Trucking, a small trucking and excavating operation based in Superior, Wis., is receiving a $40,000 rural economic development loan from the Wisconsin Department of Commerce to help finance construction and purchase of equipment.

Chief financial officers and boards of directors have new roles in the aftermath of Sarbanes-Oxley. “Sarbox,” as the accountability rules reform laws commonly are called, officially affects only companies whose shares are traded on public stock exchanges. But in my opinion, the intended – and unintended – consequences of Sarbox already have affected many private companies and increasingly will in the future, as the changes ripple across Corporate America and filter down toward them.

A new report, “Sarbanes-Oxley and the Boardroom,” published by CFO Research Services in collaboration with performance management software provider Geac, provides in-depth insight into these changes, and the implications for CFOs and audit committees of boards of active, growth-oriented companies. Every activist CFO at a privately-owned company who sees himself as a growth navigator, execution maestro, turnaround surgeon or business model transformer should be aware of these changes in the relationship between the board and the finance function.

Among the findings in the report, which is based on a survey of almost 200 CFOs, are the perceptions of onerous cost of compliance with the “Section 404” regulations and the related anger many company executives have with the law. But innovative CFOs and their chief executive officers are seeing long-term developments that, if captured and nurtured, will have a positive impact on company financial performance for years to come.

In reality, many private companies do not have formal boards of directors, or even a private advisory board that meets periodically. All companies should at least establish an advisory board and compensate the directors. The benefits of outside review more than offset any costs.

More often in many companies, the president/CEO of the business has a working relationship with the CFO, who might be a CPA or hold the title of controller. Still, this report has tremendous implications for the relationship between the shareholders, directors and owners of businesses on one hand and the financial officers working for them on the other. And the report presents a good model of how these relationships can be improved. Here are a few of the key findings:

Expectations are higher for finance teams in light of Sarbanes-Oxley. As a result of the law, there is tremendously more board interaction with the company’s finance team – often independent of the relationship with the CEO or other management. And the skill of each officer is expected to improve. For example, some boards assert that the CFO should be more involved in the strategic direction of the business. He or she must intimately know not just finance, but also the business and how it works. At the same time, CEOs are expected to learn many of the intricacies of finance.

Coming technological changes will help meet the boards’ sharply increasing appetite for information. Gone are the days when the board showed up and were handed reports. Many now expect extensive advance reading and more frequent updates. Within two years, the survey responses indicate that 90 percent of companies expect to provide board members with more electronic documents, board-specific key metric or performance data dashboards and other online financial reporting tools. Many companies now have secure portals on company websites exclusively for board members. Of course, many still prefer the convenience of paper documents, but there is undoubtedly a trend toward more and more frequent information.

Audit committees are busier than ever. On larger boards, serving on the audit or finance committee has in the past been a ho-hum task. No more. There are more frequent and much longer meetings, and the nature of the work has changed. There is increased focus on internal control and business processes, documentation and details behind the control systems of the business. No longer is the hiring of outside professionals just a formality. The selection, compensating and managing of the independent auditors and related advisors are very serious tasks in this new world of accountability. Some in management complain that audit committees are confusing their role with management’s. I suppose fear for increased personal liability does cause potential for overreaction.

Teamsters, USF Corp. settle International Brotherhood of Teamsters announced a tentative $7 million settlement with USF Corp. over the company’s closure of USF Red Star in May 2004. The pact will result in payments to almost 1,600 union members who lost their jobs when USF Corp. abruptly shut down its Red Star unit following a labor dispute. Yellow Roadway Corp. currently owns the remaining USF operating companies – USF Holland, USF Reddaway, USF Bestway and USF Glen Moore.

More CFOs are providing financial expertise and literacy for board members. Accounting and tax rules are so complex that they challenge CFOs and controllers. Some boards are even polling themselves to see if all members are financially literate enough to serve. So more time is being spent selecting board members with demonstrated financial skills and providing and upgrading those skills in other directors.

These are just a few trends to watch from the consequences of Sarbox. Your company’s financial officers have many new hats to wear and bigger shoes to fill. Times certainly have changed, and there’s more to come.

Download a copy of “Sarbanes-Oxley and the Boardroom” at this site.