Is SOX Gonna Hang You out to Dry?

The US Securities and Exchange Commission announced Friday that starting in nine months, it will require the smallest public companies to provide the auditor assessments of internal controls over financial reporting that are required by the Sarbanes-Oxley Act of 2002.

Under Section 404 of Sarbox, public companies and their independent auditors are each required to report to the public on the effectiveness of the companies' internal controls. Companies with a public float below $75 million have been given extra time to design, implement, and document their controls before their auditors must attest to the controls' effectiveness.

That extension will cease starting with the 10-K reports of companies with fiscal years ending on or after June 15, 2010. Formerly, that deadline was for fiscal years ending on or after December 15, 2009. The extension was granted so that the SEC's Office of Economic Analysis could complete a study of whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance.

Because the study was published in September, less than three months before the December 15 deadline, the SEC decided that adding more time was "appropriate and reasonable so that small public companies and their auditors can better plan for the required auditor attestation," according to the SEC.

While the largest U.S. publicly traded companies are in their fifth year of complying with Section 404, smaller companies have yet to fully comply. It was only last year that nonaccelerated filers — defined by the SEC as those with a market capitalization of below $75 million — began filing management's assessments of internal controls with their 10-Ks. Now, such companies that have fiscal years ending June 15 of next year will have to get their auditors' signoff on their internal controls, also known as 404(b) reports, for the first time.

"Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance," SEC chairman Mary Schapiro said in a release.

The controversial Sarbox provision has long drawn the ire of companies — particularly small public issuers — because of its allegedly high cost of compliance. The act, passed following the wave of corporate accounting scandals that included Enron and WorldCom, requires the SEC to mandate that corporate internal-controls reports state management's responsibility for setting up and maintaining an adequate internal-controls structure and procedures for financial reporting. It also must contain an assessment of the effectiveness of the company's controls structure and procedures for financial reporting, as of the end of the company's most-recent fiscal year.

The part of Section 404 related to the SEC's current action requires a company's auditors to attest to and report on the internal-controls assessments made by the management of the companies the accountants audit.

While the reporting and auditor attestation grew out of the 2002 law passed by Congress, all U.S. public companies have been required to maintain internal-accounting controls since 1977.

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Collaborative Consultants - a rare breed?

Companies who are more cynical about the use of business consultants should consider making a fundamental shift in the way they think about management consulting.


The current preference is for expert-based “knowledge,” meaning that consultants present themselves as acting as trusted advisors to clients, providing outside diagnoses of problems.

Unfortunately, in many cases, these consultants’ suggestions are based on a well-defined body of academic and third-party research, but not necessarily on firsthand experience with the challenges faced.

The consulting approach of “knowing” is more hands-on, involving close cooperation with the client company. One of the advantages of this method, is that information about a given business, industry sector, or project is not merely transferred from consultants to clients, but rather created or learned, during a process of mutually beneficial or active collaboration.

When problems crop up the collaborators have a mutual incentive to solve them — an approach that ultimately spreads more information, accountability, and knowledge throughout the entire team.

Conclusion
Organisations will experience greater benefits if management consultants shift their focus away from the traditional expert-driven, learn-as-u-go approach and instead explore more collaborative and mutually beneficial, client–consultant projects.

The Glass Cage excludes female, cultural minorities and aging employees

Are you aware of the term "glass cage"? No, well that probably means it does not apply to you or is apparently protecting you.

The 'Glass Cage' refers to a discriminatory process within organisations that deliberately and systematically construct organisational structures, job limitations, and discrimination that prevent women, cultural minorities and aging employees, from advancing and moving into management positions.

It also restricts the 'type' and 'style' of management found and blocks collaboration and co-operative efforts throughout the organisation.

Breaking into or even cracking that cage, involves radically changing the structure of the organisation's work itself. Reducing, softening or removing boundaries and increasing collaborative teamwork, can give women, cultural minority and aging employees the visibility, leadership experience, and strategic ties they need to develop and build, repeatable success.

Start by looking at the effectiveness of self-directed work teams, defined as; groups of employees pulled from diverse functional groups who met regularly to develop new ideas or tackle specific tasks. If you are extra cautious, first establish an experimental task force and monitor.

In addition to and in alignment with this, examine cross-training programs for employees, in which they learn about and experience what it is like to work in different positions and taking various roles, throughout the company. Monitor the effectiveness these efforts have on the employees’ potential for advancement to management-level jobs.

When managers get to know and trust the previously excluded; female, cultural minority and aging employees, through these team assignments and cross-training initiatives, they will be better able and more motivated to act as mentors and references for future job openings.

Therefore, when employers and organisations restructure their operations in favour of small, responsive, employee-directed teams, they greatly increase the collaboration efforts across departments and, in turn, greatly improve their management-level diversity.

Conclusion
When employers examine their prejudices closely, they will find little benefit in retaining these views and greater advantages in radically changing them. The first step is to blur the lines and responsibilities between employees and their roles. Soften the boundaries and encourage self-directed, collaborative, work teams, they can revolutionise and greatly increase your efficiency and diversity in management-level positions.

Setting Deadlines = Completing Tasks

How often have you found yourself sitting late at the office, answering e-mails whilst on the phone, or setting up a second meeting to discuss everything that didn’t get decided in the first? More than once, I guess!

Managers have too many tasks to complete. All of them competing urgently for their close attention, and switching between them or worrying about one while working on another can often lead to inefficiencies and mistakes.

At the risk of stating the obvious, completing one task makes it easier to focus on the next one, but it would appear that most managers only enjoy this advantage if they complete the first task on a tight deadline. Hmm!

US studies that required people to simultaneously, complete a word puzzle and appraise a candidate’s resume, whilst giving different individual participants different deadlines, produced very strange results.

In the first instance, they found that finishing a task did not necessarily cause people to disengage from the initial job and move on to the next one. Instead, when people had no time pressure or constraints, they tended to have more “attention residue,” meaning that thoughts about how they performed on the first task affected their performance on the second.

In the second instance, when people were given a deadline in which to finish a job and did so, meeting the deadline, it gave them more confidence and a better sense of closure. They were also better able to disengage from the first task and shift their attention to the next.

Conclusion
Task-by-task performance improves when employees can quickly and clearly stop thinking about the last task they performed. Adding constraints and time pressures to task completion greatly helps people in shifting their attention and focus. Moving them on constructively and effectively.

Employees Breaking the Chain of Command - Need to be Heard

Employees sometimes feel the need to go over their boss’s head and take their problem higher up the chain of command. Understanding why this happens can help leaders address underlying organisational problems.

The three main reasons that employees go around their boss are very clear.

You're not listening to me!
The greatest number of cases involve unresponsiveness; supervisor or managerial inaction. When an employee questions or expresses dissent to a manager, it was either dismissed, ignored or re-buffed with an unfulfilled promise.

You have no idea what you're doing!
The second driving force was a manager’s apparent incompetence or low performance. Employees regularly report concerns about how their boss is performing; mismanaged tasks, scheduling vacations, managing workflow processes, conducting performance evaluations, etc.

You're only out for yourself!
The third option is unfortunately about questionable behaviour carried out by the manager. This can include employee harassment, (both physical and emotional/psychological) unethical behaviour, and regular or blatant abuses of organisational policies and practices.

Suffering abuse from, finding fault with, or having reduced respect for their managers and supervisors is fundamentally the reason most employees decided to circumvent them.

Why are you bringing me this?
If you are approached by an employee who has skipped around the normal chain of command, it is your duty to give it some close thought. Employees who break the chain of command do so reluctantly and with some fore-thought. Many times they feel the need to emphasise their point and the unethical nature of the complaint.

Perhaps they have exaggerated the severity or urgency of the topic, but this is done to justify going around their manager. You need to be aware of this, because if you also dismiss this approach as being trivial or concocted, then you are in danger of commiting a greater sin against the individual, his colleagues, with whom he will share his experience, the organisation and yourself.

You will be seen to be endorsing a poor manager who is operating at a low level, abusing employees and implementing bad practices. You risk being condemned by the employees as being of a similar vain.

Conclusion
Employees will only circumvent their manager and reach out to someone higher in the organisation after a great deal of soul searching and when they feel they have good cause. They are being dismissed, ignored, and /or abused. Are you listening?

Micro-management and backing executives into a corner

The difference between micromanaging, intrusion and appropriate questioning is not well defined and can vary from person to person, organisations to organisations.

What really defines micromanaging is not whether a manager is digging into small details. It’s really a question of which details and for what purpose. Is the manager scoring points, making a small point, nit-picking on minutinae and expenses? Clearly, the manager believes they are drilling down into the details, where the devil lives and that will help reveal a higher-level issue; detecting risk or a structural change, getting to the real root cause of a problem, or questioning the overall effectiveness of a specific process?

Asking questions of an operational nature, is not in itself micromanaging, as long as the questions lead to pertinent insights about issues like strategy, performance, major investment decisions, key personnel, the choice of goals, or risk assessment.

Probing a decline in gross margins, or rise in expenses, etc., can easily be seen as trivial but in industries like office supplies or personal computers, where gross margins have taken a beating over the last ten years, managers may be correct in trying to discern whether the decline is symptomatic of a fundamental shift in the industry and whether the strategy has become obsolete.

The key lies in the analytics of working backwards, to link the operating details directly with strategic issues. For a mobile phone service provider and ISP, subscriber churn rate is an operating detail with very strategic importance.

The board of a telecommunications company that approves a multibillion-dollar project to lay new cable has a stake in knowing how the implementation is going. The project’s success might depend heavily on assumptions management made about attracting and retaining targeted high-revenue customers.

The board will want to dig into details about how many customers are willing to pay a premium for voice, video, and text combined. Are a sufficient number of customers coming on line on schedule? What percentage is staying with the company? What is the monthly churn, or turnover, in customers and what is the average customer bill?

In these cases, operational details are an important microscope for tracking the effective execution of the strategy and gauging how well it is working. These items materially affect the business going forward.

When a manager picks up on a small point and challenges it simply to demonstrate their power and ego; for the sake of showing who is right or what could have been done differently, or when a manager attempts to make a decision about operations, or individual people, then you can raise the alarm and accuse that person of micromanaging.

This typically happens in the area of the manager’s previous expertise and can be driven by a personal need to demonstrate superior subject knowledge or that they 'still have it.'

The way in which a question is worded can also indicate or reveal whether a manager is micromanaging. The difference lies in how the executive could respond. Does the inquiry put paint the executive into a corner, instead of shedding more light on a subject and opening the door for a broader discussion?

In Q2/Q3 2007, most boards across the globe were keen to learn how management was responding to the steep rise in commodity prices and the impact on margins. Many boards debated the potential impact on margins and what could or could not be passed on to customers. That was a very vital discussion to have.

A micromanager will initiate the discussion of pricing by lecturing long and hard on their personal experience in dealing with a price increase, implying that the executive in question lacks the courage to address the issue. This implies that management can do it if it has the will or the guts and is more of a challenging ultimatum than a discussion point.

Another more constructive approach, is to say, “I’m curious about several aspects of inflation and our pricing strategy. What is our process of adjusting prices as inflationary conditions change? How are decisions initiated? Who gets involved and with what tools? What training is being given to people who are looking at pricing and to the sales force that brings it all home? Are the regional sales managers buying into it?”

This lets management explain what the company is doing and what alternatives it has considered, an explanation that is likely to include topics and issues that the manager had not known of.

The manager's comeback, “What benchmarking are you doing to improve pricing processes and reduce our exposure to margin compression? Are there any strategic implications that the board needs to learn about?” In that way, the manager opens a door to several possibilities without insisting on his own chosen course of action. It also opens the door for other managers to join the discussion.

This open style of questioning becomes an imperative when the company is highly leveraged and commodities prices increase several times in a year. It gives managers flexibility and an insight into whether the company has the organisational mechanisms to move and is not awaiting orders from the top.

The difference in approach has a profound impact on the boardroom dynamic. Asking questions at the right altitude, with the right tone, and about the right things refocuses management’s attention while respecting the executive’s decision-making authority.

It is, after all, management’s job to deal with the margin compression and decide on its pricing practices, not the board’s. The board is there to make sure management has a plan and that it is executing that plan.

Tamiflu Scarcity, Pharmacists Make Their Own Sugary Mixture - NYTimes.com

With Tamiflu Scarce, Sugary Mix Is Not What the Doctor Ordered - NYTimes.com

With the liquid children's version of the anti-influenza drug Tamiflu in short supply, pharmacists are making their own children's version by mixing cherry syrup with the contents of the Tamiflu capsules.

But not just any cherry syrup. The prescribing information for Tamiflu lists cherry syrup made by the Humco Holding Group "a mixture of sugar, purified water, artificial cherry flavoring and some other common ingredients” as one of the approved liquids to mix with the medicine.

Lucky Humco has been scrambling to keep up with the demand. So it's not just boom time for th epharma companies, others are jumping on board the sweet money train.

"Our volume has exploded," said Greg Pulido, the chief executive of Humco, based in Texarkana, Tex. "About 30 days ago we got a phone call. We got another phone call. Then we started getting calls from all over the world."

The company typically sells about 50,000 pint-size bottles of the syrup each year. But with the spread of pandemic H1N1 influenza, also known as swine flu, Humco shipped 100,000 bottles in September alone. In October it is planning to make 400,000 bottles.

The company has had to have some ingredients shipped to its factory by air in order to meet the surge of orders, Mr. Pulido said. Last week the factory worked seven days instead of the usual four. But he said that contrary to rumors, there was no shortage of the syrup, and that he was confident there would not be.

The liquid version of Tamiflu is scarce because Roche, the manufacturer of the drug, is concentrating on making the capsules used by adults and older children, which it says is a quicker way to increase world supplies. The same production capacity needed to produce a liquid treatment for one person can be used to make capsules for more than 10 people, Roche says.

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