The Sarbanes-Oxley Act

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Article source: http://www.corporatenarc.com/. Used with author's permission.

The Sarbanes-Oxley Act Was created on July 30th 2002, by Senator Paul Sarbanes and Representative Michael Oxley, who drafted the bill. It followed a series of high profile scandals. Its objective is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws.

The Sarbanes-Oxley Act is mandatory every organization small and large must comply.

Sarbanes-Oxley is a direct result of Enron, WorldCom and various other accounting scandals of the 1990's.

In essence, Sarbanes-Oxley gives corporate boards far less flexibility than they once had while simultaneously leaving executives with far fewer reasons to want to be a board member. If you are a successful executive late in your career, the benefits of lending your considerable expertise as a board member no longer outweigh the risks to your net worth.

Without a doubt, the intent of Sarbanes-Oxley is admirable, and sorely needed. However, the practical functioning of this legislation leaves much to be desired.

In far too many companies, the board of directors consists of "yes" men and woman who parrot the will of the Chairman and CEO. Most board members have been in their positions for considerable periods of time, and forums do not exist that encourage both an active participation in the business matters of the firm and the investigation and questioning of critical risk management processes.

The Sarbanes-Oxley Act is split in to a number of sections each highlighting the different rules and regulations each organization must implement.

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