Compliance Alert: Independent Comp Committees May be Required

 Email Article |  Twitter |  Facebook |  digg it |   LinkedIn 

The amendment below to the Wall Street Reform Act has been passed.  The amendment still needs to be signed into law but it requires (among other things) an Independent Compensation Committee.  This will impact certain exchanges and will most certainly be tested as part of Sarbanes-Oxley controls.

June 21, 2010: 

AGREED TO - EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE

• Independent Compensation Committees: Standards for listing on an exchange will require that compensation committees include only independent directors and have authority to hire compensation consultants in order to strengthen their independence from the executives they are rewarding or punishing.
• No Compensation for Lies: Requires that public companies set policies to take back executive compensation if it was based on inaccurate financial statements that don't comply with accounting standards.
• SEC Review: Directs the SEC to clarify disclosures relating to compensation, including requiring companies to provide charts that compare their executive compensation with stock performance over a five-year period.

Don't pay for an Ethics Line / Whistleblower Hotline to pass Sarbanes-Oxley

 Email Article |  Twitter |  Facebook |  digg it |   LinkedIn 

One of the requirements as laid out by the Committee of Sponsoring Organization or COSO for the Entity Level control is a whistleblower hotline. 

Many organizations have sprung up offering this service in a variety of forms.  One of the most sophisticated I have seen included a voice camouflage (think 20/20 and the way the voice is changed when an undercover person speaks). 

These are wonderful alternatives for companies who are able to afford it but do not be fooled into thinking that an anonymous hotline is required to pass Sarbanes-Oxley. 

Here are some free options that we have implemented that have successfully passed audit:

1. Installing a separate line in the CFO's office and publishing the number on posters in the break room & in the employee handbook.  Sure, this is not necessarily anonymous but with some creativity (i.e., pay phones), people can make it relatively anonymous.  We even did this with the CFO's regular line.
2. Posting the email account of the Audit Committee Chair on a poster in the break room and in the employee handbook to let people know that if they have a concern, they should write - not call because a number was not available - the Audit Committee Chair directly.  The auditors fussed a little because they were used to seeing "hotlines" that were manned by an independent 3rd party but in some cases, this is just not an expense that companies can afford.  $100+ per month is $100!  And again, in this case, a person could create an anonymous email from Yahoo! or MSN that would provide the level of anonymity they desire. 

The point of a "Whistleblower Hotline" is to have an avenue whereby people can explain a grievance in a manner that is taken seriously; that does not mean you are required to pay for a subscription to a service. 

An interesting tidbit, in my over 50 implementations of SOX, the most significant whistleblower communications I have witnessed have come from vendors and customers - not employees. 

We have a nice Whistleblower Hotline poster that you made download via this link after registration.  The file is in Microsoft® Publisher so you may change it as necessary.  Here is an example of what it looks like:

Entity Level Control - Code of Conduct

 Email Article |  Twitter |  Facebook |  digg it |   LinkedIn 

One of the controls prescribed by The Committee of Sponsoring Organizations of the Treadway Commission (COSO), who provides the guidance for the Entity Level Process, relates to the use of a robust code of conduct. 

The code of conduct should be presented to all existing employees and then given to any new employees as they are hired.  The code of conduct can be used to mitigate risk to your company by requiring existing and new employees to attest to reading, understanding, and following the code.  If there is a need to terminate someone for violation of the code, the attestation sheet may need to be used as evidence that the former employee knowingly violated company procedures and that the termination was valid.  Or, by reading the code, employees may be more likely to adhere to company policy thereby mitigating issues that could have arisen if the code was not in place.

Now, most people do not have time to create a code of conduct or a corresponding attestation.  We at Vibato have over 500+ documents such as this in our library and we are happy to share them with you.  Feel free to send me an email or register via this link if you would like a copy of our code of conduct.  I can be reached at tbockwoldt@vibato.com