March 03, 2006
Is Investor Trust Increased with Sarbanes-Oxley?
There is obviously much debate on the topic of Investor Trust and Sarbanes-Oxley. From my experience in listening to hours and hours of testimony at SEC public meetings over the past year, I believe that investor trust is increased.
When companies are forced to take a hard look at their controls and increase transparency, this is good. When investors have more information about investment choices, this is also good. Just because a share price is not increased when they deliver poor results but have great governance does not diminish the importance of this legislation.
No one can argue that lack of transparency and foggy information increases trust. Companies must still perform well to increase returns for shareholders. This is obvious.
There is no turning back the clock on this one. It would be a big mistake to take information away. Just watch what that does to investor trust.
An excerpt from an article on this topic is here:
"Can Sarbanes-Oxley influence investors' trust?
New Research
By Shula Neuman
March 1, 2006 -- What is a 'fair' price for fairness? New research from Washington University's Olin School of Business reveals that a just system of governance may not enhance trust when returns do not meet investors' expectations. This is sobering news for businesses that have spent countless hours and large amounts of money complying with the Sarbanes-Oxley Act (SOX) in the hopes of building stronger corporate governance.
Ron King, the Myron Northrop Professor of Accounting in the Olin School of Business conducted research on how trust is created under different combinations of procedural justice and payout fairness. King makes the following observations based on his research:
Fairness might be a trade-off for smaller returns.
SOX proponents argue that the extra compliance costs can be justified because these costs are offset by the benefits of increased investors' trust and reduced investors' skittishness. "The central question raised by this policy issue relates to how people make tradeoffs between a fairer system and a smaller pool of resources (because the fairer system is costly)," King says. "That is, this is an issue of procedural and distributive justice." For the complete article, click here.
If your company needs assistance on effective and rapid internal controls documentation and ongoing compliance management, see www.issuescentral.com to learn more about the Compliance PlaybookTMm) and if your company is based in Canada, see www.compliancepartner.ca to learn more about Compliance PartnerTMm) from Thomson-Carswell, the worlds largest financial publisher.
When companies are forced to take a hard look at their controls and increase transparency, this is good. When investors have more information about investment choices, this is also good. Just because a share price is not increased when they deliver poor results but have great governance does not diminish the importance of this legislation.
No one can argue that lack of transparency and foggy information increases trust. Companies must still perform well to increase returns for shareholders. This is obvious.
There is no turning back the clock on this one. It would be a big mistake to take information away. Just watch what that does to investor trust.
An excerpt from an article on this topic is here:
"Can Sarbanes-Oxley influence investors' trust?
New Research
By Shula Neuman
March 1, 2006 -- What is a 'fair' price for fairness? New research from Washington University's Olin School of Business reveals that a just system of governance may not enhance trust when returns do not meet investors' expectations. This is sobering news for businesses that have spent countless hours and large amounts of money complying with the Sarbanes-Oxley Act (SOX) in the hopes of building stronger corporate governance.
Ron King, the Myron Northrop Professor of Accounting in the Olin School of Business conducted research on how trust is created under different combinations of procedural justice and payout fairness. King makes the following observations based on his research:
Fairness might be a trade-off for smaller returns.
SOX proponents argue that the extra compliance costs can be justified because these costs are offset by the benefits of increased investors' trust and reduced investors' skittishness. "The central question raised by this policy issue relates to how people make tradeoffs between a fairer system and a smaller pool of resources (because the fairer system is costly)," King says. "That is, this is an issue of procedural and distributive justice." For the complete article, click here.
If your company needs assistance on effective and rapid internal controls documentation and ongoing compliance management, see www.issuescentral.com to learn more about the Compliance PlaybookTMm) and if your company is based in Canada, see www.compliancepartner.ca to learn more about Compliance PartnerTMm) from Thomson-Carswell, the worlds largest financial publisher.
