SarbOx Sustainability

Raleigh, NC

This installment of our series on SOX Sustainability concerns the “Cultural Issue.” 

SOX sustainability is an organization-wide issue.  This means that the organizational culture will be impacted by new requirements related to the compliance initiative.  Conversely, it means that the culture will influence or determine how to efficiently fulfill the new requirements of the compliance initiative.  Discussions on how to achieve efficient sustainability must begin with a discussion about organizational culture.

For our purpose, culture may be described as a combination of several core elements (among others):

1. Uniquely talented and uniquely biased employees and contractors

2. Ethical and moral predispositions and preferences of those same persons

3. Entrepreneurial and/or bureaucratic tendencies

4. Team-orientation and/or self-orientation

5. Innate Technology-focus (pro or con)

6. Behavior and policy flexibility

7. Willingness and adaptability to change; faith in the future

8. Reward systems (monetary and psychological)

9. Organizational pride and cohesiveness

10. Sense of urgency to move forward

 Based on this mix of variables, any given organizational culture requires a custom-tailored approach to compliance at a point in time.  Even COSO and the PCAOB recognize that internal control systems are not one size fits all.   They are unique to the entity and the particular moment in time.  Incentives, tools, and processes that are effectively employed by one culture could be wasted by another:  Give a bandsaw to a carpenter and get beautiful cabinetry;  Give the same bandsaw to someone else and get a boat anchor.

 Approaching SOX sustainability requires a critical assessment of the (existing) organizational culture, its capabilities and limitations.  This assessment should be conducted in context of intrinsic (existing, inherent) capabilities and talents, and extrinsic (external, environmental) needs and support.  This may include internal strengths such as Internal Audit and external needs such as outsourced HR or I/T and web-hosting services.  Organizations that have strong Internal Audit functions will assimilate compliance processes differently than organizations that didn’t know about internal control systems until the PCAOB told them they had to have one.  It should not come as a surprise that these two extremes warrant two different sustainability plans.  Some organizations can support built-in compliance efficiencies; other organizations must outsource or bolt-on new functions to establish a foundation for sustainability going forward.  There is no one-size fits all approach to corporate culture and sustainable business practice.

 Cultural impediments to sustainability must be addressed to limit distractions and to focus the organization on its new implementation challenges.  Nay-sayers and empire-builders that didn’t get religion in the initial compliance effort needs to get it for future efforts.  A rogue VP or director who interferes with, derails or delays organizational momentum toward a new sustainability model is a very real risk to achieving the goal.  For that matter, an indecisive or uncommitted CEO is every bit as damaging, maybe more so.  SOX represents a business evolution challenge.  Either the culture is up to it or it isn’t.  This includes the leadership and chemistry.  Tailoring an organization-specific plan requires identification and reduction of organizational roadblocks.  The alternative is to perpetually work-around the personnel roadblock(s) until the detour is well worn.  The detour becomes the critical path for affected control processes.   Notably, detours are seldom the most efficient paths to take.

 Cultural capabilities and adaptability must be played up and the intrinsic functions challenged to identify and assimilate new structures and tools that will help the organization achieve sustainability more effectively, and with less recurring effort.  It is a natural tendency of people to seek shortcuts to achieve their goals and rewards.  This predisposition should be tapped to identify efficient pathways toward more effective operations that are inherently compliant.  That is, challenge the entity to help design the house it will live in.  But the initiatives and changes must be managed to mitigate introduction of new control deficiencies that are inevitable with change.  Left to their own devices, people will tend to sub-optimize their respective areas to improve their own lots, even if such sub-optimization comes at the expense of the entity.  In the SOX world, such sub-optimization begets entity control deficiencies and disconnected operations.  Achieving effective sustainability requires entity-level optimization and enforcement of policies and protocols across the culture, across divisions, departments, and oceans.  Optimizing for entity-wide compliance must overcome departmental sub-optimization. Incentive and compensation systems should be re-evaluated to support an entity-wide plan.

 The Culture/organization must be incented to learn from past mistakes and to develop key capabilities and talents going forward.  A brilliant engineer or salesperson who also happens to understand control requirements for financial reporting is a stronger employee in the SOX world than an “ostrich” employee who knows nothing of it.  Control audits and practices will evolve substantially over the next few years, notably in the I/T audit and information technology areas.  This reality will tend to reward cultures that broadly understand and support compliance goals and principles, and will penalize cultures that vest compliance knowledge with a select few.  Requirements for cultural evolution of the entity including training and education should be a strategic element of a tailored sustainability plan.  What additional talents, capabilities and/or skills does the entity need within and without, going forward?

To review earlier articles in the series please visit Visage’s website at the URL below.

VisageSolutions is a group of experienced operational executives focused on providing efficient, repeatable complinace (including Sarbanes-Oxley) solutions. By working carefully with their clients VisageSolutions provides customized solutions that focus on reducing the “operational cost” of sustained compliance through an optimum combination of existing and new technologies and tools, and business process integration.  See www.visagesolutions.com for more information and related links.