"For Sarbanes, the grumbling was expected...," The Baltimore Sun, July 29, 2003 <p>The Baltimore Sun July 29, 2003 Tuesday <p>July 29, 2003 Tuesday FINAL Edition <br>SECTION: BUSINESS, 1D <br>HEADLINE: For Sarbanes, the grumbling was expected; Author: The Maryland senator is far from upset when corporate types complain how much work the Sarbanes-Oxley act has created for them. <p>BYLINE: Julie Hirschfeld Davis <p>WASHINGTON - Corporate executives and board members are forever telling Maryland's Sen. Paul S. Sarbanes how difficult he's made their lives. <p>"They tell me, 'This is really making us work extra-hard,'" says Sarbanes, a Democrat and the chief author of last year's sweeping corporate reform legislation. <p>But the complaints don't bother him. <p>"They should be working hard," he says of the corporate chieftains, directors and accountants whose jobs were forever changed by the bill, which marks its first anniversary of enactment tomorrow. <p>"There's an effort here to change this culture of being fast and loose with things, and to tighten up the standards, and to recognize the importance of the responsibility that they bear toward the investor," Sarbanes said of the measure in a recent interview. <p>It has been one year since Congress responded to the crisis of investor confidence sparked by such spectacular debacles as Enron and WorldCom with legislation that aimed to better police executives and accountants, and hold them more responsible for misleading shareholders. <p>The effects of that measure, known as the Sarbanes-Oxley Act, are only now beginning to be felt as lawyers and regulators struggle to digest its implications and move to comply with it. <p>Although Sarbanes wrote much of the framework of the legislation, it also bears the name of Ohio Rep. Michael G. Oxley, the Republican chairman of the banking committee, who joined the Marylander in completing it and pushing it to swift enactment. <p>Oxley said he has been surprised that the measure has received so much public attention that it has become, at least in some circles, "almost like a household word." <p>"I haven't talked to one CEO - and I talk to a lot of them - who hasn't said that their businesses have changed significantly because of this," Oxley said last week. "It tends to drive virtually every decision these days." <p>Business groups grouse bitterly about the measure's effects on the corporate world. The Sarbanes-Oxley law, they say, has created a labyrinth of regulation that is confusing and expensive to comply with, and will ultimately hurt individual investors by raising corporate costs. <p>Although many of the law's provisions will not be felt for years, most agree that its enactment has bred new vigilance among corporate executives, directors and auditors about issuing clear, accurate and honest financial information. It has also led to a flurry of activity among lawyers and accountants, many of whom are making a new, full-time occupation of decoding the law's requirements. <p>Under the law, for instance, chief executives and chief financial officers must certify their companies' quarterly financial statements, and pledge that they have in place effective "internal controls" to guard against fraudulent reports. <p>Firms are feeling the effects of that requirement in their pocketbooks, executives say. <p>"It certainly seems to have raised the cost of doing business," at T. Rowe Price, Inc. in Baltimore, the nation's seventh-largest mutual fund company, said Vice Chairman James S. Riepe. <p>The company has not calculated how much the Sarbanes-Oxley law has taken away from its bottom line, but the strain is being felt in the many hours employees spend in meetings preparing for the certifications, and the added personnel it takes to pore through voluminous books that lay out "these very bureaucratic processes," Riepe said. <p>Business surveys over the past year have found that complying with the statute is expensive. The Business Roundtable, a leading association of chief executives, found that member firms were spending between $1 million and $10 million annually as a result of the new law. A study by the business law and consulting firm Foley & Lardner found that the cost of being a publicly traded company has increased by nearly 100 percent as a result of the new compliance requirements. <p>The impact of the year-old law is being felt not only in executive suites but in boardrooms, where directors and auditing committees face new rules that they must be independent and play a direct role in overseeing the company's auditors. As a result, many of them say they are spending more time and effort on their director duties, and approaching the work with more rigor. <p>"It's really been a year of blocking and tackling, where companies are implementing a lot of changes to their governing practices," said John J. Castellani, the president of the Business Roundtable. <p>"Before Sarbanes-Oxley and before Enron, it was cozier," says Gary Gensler, a Clinton administration Treasury Department official who helped draft the law. <p>"The law sort of helps directors, because it's no longer rude to ask the questions," said Gensler, who is on the board of Strayer Education Inc. "Now, it's a matter of law that I have to ask." <p>Accountants, too, feel more free to raise sensitive issues with corporate managers under the new regime, said Chuck Landes, an official with the American Institute of Certified Public Accountants (AICPA). <p>"It was a wake-up call," Landes said of the Sarbanes-Oxley law. "Auditors now get the message that their client is not management, that they are working for the audit committee, and that their client is the public investor." <p>"It provides us the ability to be very frank with the audit committee - not to worry about being fired by" management, Landes added. <p>But that is putting a silver lining on a sizable cloud the new law has cast over the accounting profession. Accounting firms are feeling major tremors in their industry as a result of Sarbanes-Oxley, which for the first time imposed government regulation on corporate auditors. <p>Until last year, the accounting profession, under the auspices of AICPA, policed itself with its own rules and peer reviews. Now, under perhaps the most sweeping innovation of the Sarbanes-Oxley measure, the auditing firms are to be regulated by a new Public Company Accounting Oversight Board, which has come to be known in finance circles as "Peek-a-boo." <p>The board is still in its earliest stages and is years away from its most important job: establishing new standards to ensure independent, accurate and ethically sound audits of publicly traded firms. <p>The board got off to a rough start after its first chairman, former FBI Director William Webster, had to step down in November amid a brouhaha about his service on the audit committee of a company whose chief executive was sued by the government for allegedly defrauding investors. The flap also led to the resignation of then-SEC Chairman Harvey L. Pitt. <p>But the new accounting board chairman, former Federal Reserve official William J. McDonough, has earned praise for moving swiftly -- and firmly -- this year to begin executing the law. In a meeting yesterday, the board proposed rules for investigating and disciplining accounting firms. Today, it is scheduled to hold a discussion on the rules requiring companies to vouch for their internal systems for detecting and rooting out fraud. <p>"For the first time, there's going to be an outside monitor for the accountants, instead of just doing it by self-regulation," Sarbanes said. "There will be a sense that there are real standards here, and I hope they're followed." <p>Some corporate leaders and lawmakers worry that as the law's implications sink in, its requirements will weigh down corporate America. <p>Oxley said his biggest concern is "the dampening of risk-taking" that has resulted from the law. <p>"We still have these difficult decisions of trying to regulate and oversee, but not to the extent that it becomes a negative and a drag on the economy," Oxley said.