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Emory Miller
Government Affairs
Robbins-Gioia
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Once the penalties for noncompliance with the Sarbanes-Oxley Act are published, many observers anticipate that companies will start spending significant dollars on fulfilling the terms of the regulation. The criminal penalties for executive managers and board members are particularly harsh, with a maximum personal fine ranging from $1 million to $5 million and a maximum prison term of 10 to 20 years.
The penalties are the result of well-publicized past transgressions ? Enron, Tyco International, ImClone, etc. Executives at these companies overstated net profits, manipulated reserves, understated debts, and blatantly deceived shareholders. Congress struck back ? hard. Under the 2002 Sarbanes-Oxley Act, firms must eliminate conflicts of interest, establish processes that ensure honest corporate disclosure, and mete out tough justice when failures occur. In other words, Sarbanes-Oxley requires firms to govern more effectively with greater accountability.
Where better to learn lessons in governing than from government itself. . . .
To achieve real progress and meet the letter as well as the spirit of Sarbanes-Oxley, companies should view Sarbanes-Oxley as a governance issue rather than a compliance issue, as it is frequently considered today. As private businesses scramble to meet the Sarbanes-Oxley Act requirements, they can look to historically regulated government agencies for a wealth of best practices. These practices are fundamental to good governance and good management. They address a broad spectrum of key issues and values, including institutional standing, public trust, checks and balances, oversight, self-learning, integrity, and full disclosure.
Institutional Standing and Public Trust
The U.S. Constitution, Bill of Rights, and generally the laws of our land provide the foundation for governance by a long-standing and well-thought-out government that has withstood a civil war, a deep financial depression, internal scandals, intense public dissent on a host of issues, and terrorist attacks. Due to the government's longevity and institutional standing, government executives do not mind making investments to "ensure" the integrity of a core process. They can run the risk of "over-management" to maintain integrity and trust in the institution of government because "trust in government" is a core value of our citizenry. Additionally, government officials are not distracted by immediate issues of profit and loss, or generally by the vulnerability their organizations. They know government will continue and "trust in government" is a highly valued principle worthy of investment.
Private companies, on the other hand, are notoriously unstable due to a highly cyclic business environment and their reliance on annual revenues. Their investments necessarily favor their short-term delivery of products and services rather than their longer-term institutional needs. Additionally, "trust" for a company centers more on the value consumers place in its goods and services than on its standing as an institution. The end result is businesses oftentimes find themselves "under managing" in areas of longer-term import. This is not to say that company officials are not interested in their institutions and the integrity of their institutions. They just have different immediate needs and priorities than an institution of government.
Accountability
Public trust is a mainstay of government, infused in all of its functions and operations since the country's beginnings. Trust is built on accountability. The government is expected to operate with integrity because it is a public institution accountable to all citizens. In fact, accountability is often written into laws and regulations. Many laws have been passed in recent years that have had profound impacts on the function of government: the IT Management Reform Act, the Government Performance and Results Act (GPRA), and the E-Gov Act ? to name a few. These laws and others designate officials to act and perform in specific roles and with specific responsibilities. In other words, chief financial officers, chief information officers, procurement executives, and other designated officials are held accountable by executive orders, laws, regulations, and Office of Management and Budget issuances. These documents often specify actions, milestones, performance metrics, and performance goals related to the delivery and value of goods and services to citizens.
In contrast, private companies are not inclined "to burden themselves" with additional rules and regulations pertaining to the activities and actions of their managing officials. They tend to be more focused on tangibles, efficiencies, and profits. Their strongest guiding force is the marketplace and their profit/loss performance. Performance goals are market driven. Rules and procedures that pertain more to boardroom activity versus market performance don't seem relevant.
Checks and Balances
The balance of power and the system of checks and balances arising from our three branches of government are part of the government's DNA. Our country's founders institutionalized the principle in all of our governing structures to mitigate excesses in power and lessen the likelihood that individuals could exercise undue influence. Generally, the system of checks and balances has worked well. Branches of government, agencies, bureaus, and organizations balance one another and hold each other accountable to a standard of ethical performance.
In the private realm, checks and balances mechanisms vary according to whether a company is publicly traded or private. For publicly traded companies, the Security and Exchange Commission ? and now Sarbanes-Oxley ? play important roles. Heretofore, companies have not been inclined to use profits to invest heavily in internal management oversight including checks and balances. Consequently, management and financial accountability in the public sector varies greatly. Needless to say, Sarbanes-Oxley will change that. Companies will invest in management infrastructure and functions in ways they have not done before.
Oversight
The government likewise has a mature oversight infrastructure that can serve as a model for companies working to improve their internal governance systems. The legislative branch gives us the Congress and the General Accounting Office; the judicial branch provides the court system; the executive branch, the Office of Management and Budget and the Department of Justice. Inspectors general provide oversight at individual agencies.
Once again, publicly traded companies must answer to the SEC and Sarbanes-Oxley requirements. History shows that a single oversight path is insufficient for complex organizations. Smart companies will create multiple matrixed oversight infrastructures that will not only support Sarbanes-Oxley requirements, but also provide enhanced visibility into the state of the business and improve business processes. In fact, a CIO Insight survey on CIO Insight and Baseline subscribers found that 81.5 percent of respondents expect business process improvement as one of the benefits from Sarbanes-Oxley.
Self-learning
The President's Management Agenda (PMA) truly sets a business agenda for individual agencies and the government as a whole. It is focused on performance, results, and outcomes. The President?s staff at the Office of Management and Budget uses the PMA to set the vision and framework for overall government performance. Agencies are measured against a set of consistent metrics and scorecards, which usually become public. As agencies matriculate to a higher level of performance and achievement, other agencies take note. Lessons learned, both good and bad, are typically shared among agency officials to the benefit of all and government as a whole. Companies, on the other hand, have a natural aversion to sharing corporate data, especially that which pertains to proprietary best practices, competitive advantages, and company financial matters. Why? Companies compete among themselves. [Government agencies compete with one another only to the extent they share the same pot of appropriated dollars.] Lessons learned beyond corporate structures are not as readily available to corporations as they are among government agencies. This said, resources are available. Trade associations and industry events help facilitate knowledge sharing and promote continuous learning. The Internet and its online communities have spawned an entirely new level of information sharing from CEO-only chat forums to technical user groups.
Integrity
As mentioned previously, pubic trust is belief in the institution of government. That belief, in turn, fosters institutional integrity ? a core value of all government organizations. Government maintains integrity by being accountable to all citizens, no matter where they live, what they do, or what products or services they buy or desire. Loyalty is sought from all sectors of our nation and its communities.
Industry, in contrast, is accountable to a much smaller and less loyal subset of stakeholders and customers. Customers usually have other sources of supply and will quickly turn to them if they are not satisfied. The integrity they seek needs not extend beyond the life of the product or the length of the transaction. Firms desiring brand loyalty and future growth will need to work harder than their counterparts in government to instill lasting loyalties.
Full Disclosure
The U.S. government is a public institution that generally operates in an open fashion, much to its credit and benefit. As mentioned earlier, the government issues performance results in the form of "report cards" that tell the public how well or poorly each government agency is managing itself within different areas. This information is widely analyzed and published. If the news is good, the disclosure reinforces the favorable behavior and recognizes the agency's executives and staff. If the news is negative, peer and public pressure serve as yet another check and balance mechanism to drive improvement.
Industry is different. It is not driven by devised scorecards but by market pressures and results directly related to the sales of products and services. Firms are indeed compared, but at the cash registers. For private firms, "full disclosure" occurs daily with reported sales, and quarterly with announced earnings. Sarbanes-Oxley will define success beyond sales figures, though, by requiring firms to manage more openly.
We Learn from Each Other
So, there are lessons to be learned from government. Does this mean the private realm is in need of correction while the public sector is above reproach? Of course not. Throughout the years, business has learned from government and government from business. The very essence of the President's Management Agenda, the GPRA, the IT Management Reform Act, and other acts is to have government manage itself more like a public business. Conversely, Sabanes-Oxley simply says more accountability is needed in private enterprises and the government is a good source for lessons learned.
Is There a Silver Bullet?
Companies faced with the daunting task of addressing Sarbanes-Oxley requirements look for proven methods and solutions and ask, "Is there a silver bullet?" The usual answer is "no." In any industry or discipline silver bullets are hard to come by. However, given that all of the Sarbanes-Oxley related issues are governance or management issues, an argument could be made that today's set of sound, proven, and structured business practices (i.e., program and project management or PM) is a "silver bullet" for addressing accountability and openness in the private sector. In simple terms, good governance, by private or public entities, is good management ? and the underpinning of good management is the discipline of program and project management.
Increasingly, government program and project managers are instilling in their organizations the rigor and discipline of their trade and are being held accountable for their actions and decisions. Because their methods and practices are repeatedly proven to be successful, these officials are gaining in stature and their discipline is being acknowledged as a sound way to manage. In response to this widespread acceptance, the Office of Personnel Management (OPM) has developed "interpretive guidance" for a project manager career path dealing with information technology. And the government's CIO Council is looking at competency levels requiring certifications.
CEO Best Practices
So how can a CEO use program management to comply with Sarbanes-Oxley? Several thoughts follow:
- Seek and share lessons in sound financial management among companies and from government.
- Establish and integrate structured processes at enterprise, program, and project levels.
- Create oversight structures and invest in multiple checks and balances processes.
- Establish a project management office (PMO) as a center of project management excellence and a best practice repository.
- Encourage a defined career path in project/program management.
- Welcome new people to the table. Each employee brings individual strengths and perspectives. Good solutions are formed throughout the corporation and not just in the executive suites.
- Invest in internal and external networks to learn and share. Doing so will minimize duplication and redundancies, promote collaboration, provide mentoring and thought leadership, offer best practices and proven templates, and break down silos.
- Make sure your corporate vision, mission, strategic plans, portfolio management process, financial investments, and performance goals support one another and the organization?s overall strategy and objectives for success.
Conclusion
The government has been conversant with PM for a long time, and it is time for private industry to join the ranks. Program and project management addresses risk, control, accountability, performance, delivery, and cost. Program and project management is simply good governance where knowledge is shared, structured and repeatable processes are put in place, production is optimized, and process improvement is institutionalized. Once project management is institutionalized, the visibility and processes it engenders makes complying with Sarbanes-Oxley "easy."
Emory Miller
Government Affairs
Robbins-Gioia
Emory Miller currently serves as senior vice president for government affairs at Robbins-Gioia, LLC, a program management consultancy headquartered in Alexandria, Virginia. Prior to this post, Miller served as the General Service Administration's director of professional development. He career has included 37 years of distinguished government service.
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