Fraud law spurs backlash, then buy-in

When Carmen Requena's employer asked her to lead internal audits, she quickly learned that the job made her as popular as a meter maid.

Such audits had never been done at her midsize software company, and her team was formed in response to the demands of a stringent federal antifraud law known as the Sarbanes-Oxley Act.

"The very first meetings that I started to attend, people were sort of dragging their feet and not tremendously thrilled at what they had to do," she says.

But during the past 18 months, grudging reluctance has given way to acceptance and even the view that the rigorous new accounting standards entail benefits as well as costs for the company, Micros Systems in Columbia, Md.

It's a story that's been repeated in many corporations in the wake of the scandal at Enron Corp., which symbolized American dynamism until hidden losses forced it into sudden bankruptcy - and prompted Congress to enact the Sarbanes-Oxley legislation of 2002.

Now, nearly four years later, as the trial of two former Enron executives unfolds in a Texas courtroom, Enron's legislative offspring is very much alive and is reshaping the culture of American business.

Even though some business leaders remain harshly critical of the complex compliance and high costs the law imposes and hope features of the law will be rescinded or scaled back, few expect the core provisions will be rolled back outright. Others say the law is enhancing the quality of corporate financial statements and clarifying the distinct financial duties of top executives, directors, and outside auditors.

"Fundamentally, Sarbanes-Oxley is correct and is here to stay," says Charles Elson, an expert on corporate governance at the University of Delaware. "It changed the course of business in this country."

The law feeds into a broader trend of tighter scrutiny of corporate governance.

The US Securities and Exchange Commission (SEC) is moving to require stricter disclosures of soaring executive pay. And in coming weeks, corporate annual meetings will include rising pressure from shareholders for more say in the choice of the directors who act on their behalf.

For better or worse, Sarbanes-Oxley has had sweeping effects, making it one of the most significant bills ever signed by President Bush.

The bad news is high costs and bureaucracy. Companies now have people dedicated solely to compliance with the law's internal auditing rules. Micros, which employs 3,000 around the world, relies on a staff of four for the job.

In a recent survey of chief financial officers by CFO magazine, two-thirds said it had affected profitability - with earnings dropping by an estimated average of 3 percent at companies that felt an earnings impact.

The good news is strengthened accounting, which may also mean higher investor confidence and greater stability of stock-market prices.

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