A recent survey has revealed that directors from around the world are afraid of making mistakes and falling foul of the Sarbanes-Oxley Act. Furthermore, the fear of being held personally responsible for violating Sarbanes-Oxley has led to directors declining board seats where they feel the risks are too great.
Over half of the board directors (58%) surveyed said they felt that the Sarbanes-Oxley Act has made them overly cautious and wary of risk, and that it should either be revoked or modified. Such were the findings of the 32nd Annual Board of Directors Study, released by Korn/Ferry International based on the responses of nearly 1,200 board members from 15 nations in the Americas, Asia Pacific and Europe.
The main results of the survey are outlined below:
Effects of Regulation. 72% of responding directors in the Americas believe that Sarbanes-Oxley regulations have served to make their boards more cautious. Almost two-thirds (65%) of their counterparts serving on Japanese boards are of the same opinion. 61% of responding directors in the UK view the Combined Code as having the same effect on governance. More than half (58%) of responding directors in the Americas feel Sarbanes-Oxley should be repealed or overhauled. This is a view shared by 37% of the directors surveyed in Japan. In the UK, however, only 28% endorse such action to remedy the Combined Code. Director Risk. Becoming a director means adhering to the conditions of Sarbanes-Oxley and taking personal responsibility for compliance. As a result, the position of director is now perceived as a serious risk. In the Americas 59% of the directors surveyed have turned down a board seat due to the risks involved. Risk was also characterized as the determining factor in declining board seats by 83% of surveyed directors in Australasia, 77% in Switzerland and 68% in Non-Japan Asia.In other words, it appears that the Sarbanes-Oxley Act is frightening off directors to such an extent that they are now calling for it to be annulled.
“Nobody ever said that managing a company was easy. In protecting the interests of investors and shareholders, Sarbanes-Oxley does go too far in certain respects. However, without the application of such unpleasant internal controls and personal responsibility we could well be facing another series of major corporate scandals and fraud. Therefore, the only way of shaking off the fear of Sarbanes-Oxley is to use a reliable and effective mechanism of internal control and regularly carry out audits. Of course, that will require a sizable sum, but the other options are far more costly," believes Denis Zenkin, marketing director at InfoWatch.
Source: Korn/Ferry International
