In 2002, a high profile client asked the company I was involved with what our position/compliance was on ISO17799. The managing director called me up and asked if I could “put something together for him” by the next day.
So I put something to him. Two words to be exact. “Non compliant”.
The irony was that I had actually been trying to win support for adopting *some* ISO17799 principles as a yardstick to measure ourselves, knowing full well that at some point we were going to be asked. But I never was able to get any management behind the idea. Why? Because it was seen as not particularly critical to the business.
Then, they were asked by a client, and heaven forbid, it has to be done by the next day!
What this highlights to me is the general disinterest among many in business of things that are seen as ‘getting in the way’. These days I’m better at appreciating why this is the case and I’m better at providing quantifiable explanation/justification, but it is still disheartening nonetheless.
So I was thinking to myself whether the attitude I experienced was similar at all to the current subprime victim in the news, Bear Stearns.
Being Australian, I am not as familiar with US securities regulation, but just for a laugh I went to the Bear Stearns investor relations web site and there on the second last page of their 2007 10K report is the “CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 (Corporate Responsibility for Financial Reports) OF THE SARBANES-OXLEY ACT OF 2002”
Maybe it’s my warped sense of humour, but there is probably plenty of good people at that organisation who were part of the compliance effort. Some would have been “true believers”. I wonder if senior management who sign these things have ever read their compliance material?
Will there be prosecution? If you believe uncle google, there will. Since my last post on the intent of SOX and its relevance to the current fear and panic in financial markets, a few more interesting articles have popped up drawing a similar conclusion to mine. The best of them with some choice quotes I have linked here with a reference to their articles:
This first article looks at the collapse of New Century Financial, the company that is argued as the trigger of the subprime issue. It notes the actions of the auditor, KPMG were ominously similar Arthur Anderson’s actions during the Enron debacle.
A United States Justice Department investigation into the failure of mortgage lender New Century Financial last year has found that accountants could be to blame.
The Justice Department investigation suggests that the auditor, KPMG, allowed New Century Financial to engage in “significant improper and imprudent practices. Contributing to KPMG’s implication in the mortgage lender’s collapse is a series of e-mails in which practitioners raised issues to KPMG partners. In order to preserve the relationship, the concerns were ignored
The next article digs deeper into what I suspect will happen in relation to the onerous compliance issue. Any argument on reducing the regulatory overhead (however well made) will be very unlikely to succeed for a long time in the current political and social climate.
“An increasing appreciation for the internal controls is emerging,” Jim Turley, chief executive of accounting firm Ernst & Young, said at the Chamber conference, where many of the pro-business speakers said there may be a need for more regulation
In fact, the Sarbanes-Oxley disclosure requirements should have helped clarify one of the fundamental questions in the credit market meltdown: When did executives know the value of subprime mortgage-backed securities were actually much lower than what appeared on their companies’ books?
This is interesting because it is an interview with Michael Oxley and Paul Sarbanes themselves. I have read opinion out there that believes this whole mess makes a mockery of Sarbanes-Oxley. So it’s interesting to hear from the architects of the law.
“One of the tenets of our Act was transparency. Clearly, one of the problems with the subprime mortgage crisis is the lack of transparency in the secondary market. These are somewhat parallel problems to the lack of transparency going back to Enron and WorldCom. There is consensus on some of the areas and others are pretty controversial
This article focuses more on the applicability of Sarbanes Oxley to the US mortgage side of things.
If the industry comes to the conclusion that Sarbanes-Oxley applies, it would mean that all direct lenders of subprime loans would be accountable for section 404 of Sarbox. In other words, they will have to establish, document and maintain internal controls for financial reporting just like a publicly-traded company
And finally the politicians. (I think you can guess what they are saying…)
In Congress, at the White House and, increasingly, on the presidential campaign trail, calls for newer and tougher regulation and more government intervention have become almost a daily mantra because of threatened home foreclosures, poor mortgage-underwriting practices, troubled mortgage-backed securities that no one wants to hold and a Wall Street bailout engineered by the Federal Reserve Bank
Anyone care to put a wager on how long issues like this will take to appear on the PowerPoint presentations of product salesmen? 🙁