"Those in the business community that have been calling for a rollback [on compliance requirements] are being shortsighted," said former Securities and Exchange Commission (SEC) Chairman Arthur Levitt at the State of Regulatory Compliance Roundtable held Tuesday at the Holeman Lounge, National Press Club in Washington, D.C. "Reform is a process," he added.
For most companies, the process of reform has had some costly consequences -- and the spending is expected to continue. According to a report by Boston, Mass.-based AMR research, this year compliance spending likely will reach an estimated $5.8 billion on Sarbanes-Oxley efforts alone. Additionally, AMR predicts that companies will spend an estimated $80 billion on compliance over the next five years. But, despite the costly years ahead, it seems that financial services institutions and other U.S. corporations slowly are warming up to the idea of ongoing regulations.
Roundtable panelist David Richards, president of the Institute of Internal Auditors (IIA), said that a number of member companies are realizing that, when it comes to compliance, "There's much more benefit than cost to the bottom line." As evidence, he cited a recent survey on the benefits of Sarbanes Oxley Section 404, where 171 IIA member companies attributed improved audit trails, increased implementation of antifraud activities, and a better understanding of risk within general computer controls as among the rule's positive effects. "Ten to fifteen percent of compliance costs were spent on learning time [such as defining what a control is]," added Richards. "That's not likely to occur every year."
Levitt even called for greater disclosure, specifically in the matter of executive compensation. Levitt alleged that a number of firms have implemented compensation levels "that are almost obscenities." In order to restore investor trust, he said, "Greater disclosure is needed in part by the SEC, disclosing unwarranted pay packages unrelated to performances." He added that the SEC should demand more detailed information about total executive compensation, including details on how a firm measures performance. Levitt also recommended including a compensation table that would highlight these details to keep corporations from camouflaging huge executive perks. Executive compensation, along with tangled relationships between chief executive officers and boards, are "the hot button issues of America's institutional and individual investors," he said.