Upfront: Coming to Terms With Compliance

A survey shows that senior executives are becoming more accepting of Sarbanes-Oxley.

Senior corporate managers have, for the most part, overcome their initial misgivings about the administrative and financial requirements of compliance with Sarbanes-Oxley and other recent regulations, according to Hill & Knowlton Inc.'s "Corporate Reputation Watch 2004," a survey of top executives from large companies in North America, Europe and Asia. Only 8 percent of respondents said they believe that the task of meeting new financial disclosure and governance standards poses a real challenge to running a competitive business. Forty-five percent described the compliance burden as heavy but manageable, and 48 percent claimed it is reasonable.

"Moving from the denial stage to the acceptance stage, senior corporate leaders accept the recent wave of corporate governance reform measures and are now focusing their efforts on making substantive, sustainable changes to their governance profile," reports Harlan R. Teller, president of Hill & Knowlton's worldwide corporate practice and chief client officer in Chicago. "Their goal is to encourage long-term investor and customer confidence." Nevertheless, Teller says, executives see a downside to the changes.

The survey's respondents cited added administrative complexity and diversion of management time as the two top drawbacks, and 21 percent admitted that the age of accountability has resulted in an increased aversion to risk-taking.

That aversion may be grounded in executives' preoccupation with the threat of lawsuits. Among respondents from North American companies, 46 percent reported that they have recently faced litigation. Seventy percent of all respondents said litigation is a serious or growing concern.

"Executives are still split on whether the governance reform movement is justified or whether it is an outgrowth of just a few highly publicized corporate scandals," Teller adds. "Yet there is a consensus that the spirit of reform is here to stay -- and that enlightened corporations actually welcome it and embrace it as a means of reinvigorating stakeholder confidence."