Sarbanes-Oxley (SOX) and Corporate Governance

What is the Sarbox Act or Sarbanes-Oxley Act ?

Sarbanes-Oxley is a US law passed in 2002 to strengthen Corporate governance and restore investor confidence. Act was sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley.

Sarbanes-Oxley law passed in response to a number of major corporate and accounting scandals involving prominent companies in the United States. These scandals resulted in a loss of public trust in accounting and reporting practices.

Legislation is wide ranging and establishes new or enhanced standards for all US public company Boards, Management, and public accounting firms.

Sarbanes-Oxley law contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties. Requires Security and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law.

What does Sarbanes Oxley Address?

• Establishes new standards for Corporate Boards and Audit Committees
• Establishes new accountability standards and criminal penalties for Corporate Management
• Establishes new independence standards for External Auditors
• Establishes a Public Company Accounting Oversight Board (PCAOB) under the Security and Exchange Commission (SEC) to oversee public accounting firms and issue accounting standards

Click here for more details on SOX Survial.

Governance vs Management

What is clear is that governance has little to do with management although this often comes as a surprise to directors. It is not a hands-on activity that can be learned then put into action easily. It is a whole-board activity and not something that can be delegated to the company secretary or the chairperson only. Whilst it will always be helpful to consider the views of a number of commentators and of the issues arising within the current governance debate, the real location for the creation of good governance is the boardroom and within each and every board member who is on it.

Whilst management operates within a hierarchy of delegated responsibility and authority, the members of a board are all jointly and individually responsible with equal rights and duties. Bob Tricker, a well known commentator on governance, depicts the board as a circle superimposed on the pyramid of hierarchical management. The board is concerned with governance and the management organization with managing. Some of the senior management at the top of the hierarchy will also sit on the board. This is the reason the system of governance in the United Kingdom is called the 'unitary' board system rather than the European, 'two-tier' board system or 'supervisory' board where the board is completely separate from the management hierarchy.

The practice of governing is certainly different from managing: It is not about managing companies but ensuring they are well run. It is less about doing and taking action than reflecting and learning. The key principles are that of prudence, acting in good faith, stewardship, duty, openness, transparency and integrity. These are the real building-blocks of excellence in corporate governance and the binding actions for an effective board.

Issues in Corporate Governance

• The field of research into corporate governance has grown in the wake of the corporate failures and public excesses of the 1980's and 1990's -although corporate failure and excess is nothing new
• Corporate governance is the system by which these incorporated companies and Trusts ought to be controlled and directed
• At the heart of the governance system is the concept of accountability to others, which is similar to a journey in which accountability before God is our ultimate destination
• Governing is not the same as running or managing an organization - it requires a completely different set of skills and often the wisdom of Solomon!
• One aspect of the corporate governance story is the continuing struggle to regulate corporations from the outside, often in opposition to them

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Business Planning ...2

Structure of a Business Plan

Section 1: The Business Idea

1. Type of business proposed and services to be offered
2. Method of operation
3. Location and operating area
4. Outline of market and customers
5. Statement of viability

Section 2: The proprietors of the business

1. Details of key personnel
2. Your reasons for the choice of business
3. Personal skills and experience relevant to the proposed business
4. Appraisal of available skills, and identified development needs

Section 3: The resources required

1. Inventory of required plant, equipment and materials
2. Schedule of available resources
3. Premises requirements, availability, necessary modifications, etc.
4. Transport requirements
5. Personal requirements
6. Insurance requirements

Section 4: Financial Plans

1. Budgetary plans and cash flow forecasts
2. Explanation of the basis for planned budgets
3. Breakeven analysis and profit forecast
4. Value of available capital and resources
5. Futher finance required and potential sources of funds
6. Choosen sources of finance and sources of choice

Section 5: Marketing

1. Target market and operational area
2. Market research - completed and planned
3. Identification of any special market influences
4. Analyss of competitors' products and services
5. The marketing plan
6. Unique features of your products or services
7. Schedule of fees and charges
8. Samples of advertising materials, leaflets, business cards, etc.
9. Statement of quality standards and policy

Section 6: The implementation of the proposals

1. Chosen means of operation and justification for choice
2. Relevant legislation
3. Timetable and phasing of business start-up
4. Key stages of implementation

Section 7: Monitoring and control systems

1. Plans for monitoring the quality of goods and services
2. Budgetary control
3. Financial control systems
4. Customer records
5. Feedback from customers
6. Measurement of business success

Section 8: Summary

Business Plan is as simple as planning as per the above guidelines (if only it was as simple).

Business Planning

We have all asked "why do we need a business plan", although "I" know what and how to do the business. To answer that question in one line - "If you fail to plan, you plan to fail".

The business plan is just a plan - to produce profitable or prosperous business. Having a plan is not sufficient to achieve the objectives stated. It provides as a driver to achieve the objectives stated. The onyl way to see if it really works is to monitor its progress at regular intervals, so that you can respond to any potential problems which may arise and then change or modify your business strategy as necessary.

The busines plan is a very efficient tool for Organizations to focus their ideas, asses their own ability to organize and run the business. Organizations must use the business plan as a yardstick to measure their progress and achievements.

Business Planning is an ongoing activity. Business Plan must be updated perdiocally (usually once a year), the financial budgets and forecasts must be reviewed once a month and the plan must be updated to reflect the outcome of the review.

What is Corporate Governance?

Before we get started with the business, lets understand what does the term "Corporate Governance" mean.

Corporate Governance refers to the manner in which a corporation is directed. The laws and customs affecting that direction.

It includes the laws governing the formation of firms, the bylaws established by the firm itself, and the structure of the firm. The corporate governance structure specifies the relations, and the distribution of rights and responsibilities, among primarily three groups of participants -

• Board of directors
• Managers
• Shareholders

This system spells out the rules and procedures for making decisions on corporate affairs, it also provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectives.

The fundamental concern of corporate governance is to ensure the conditions whereby a firm's directors and managers act in the interests of the firm and its shareholders, and to ensure the means by which managers are held accountable to capital providers for the use of assets. Issues of fiduciary duty and accountability are often discussed within the framework of corporate governance.