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Withering Heights

by Ailish M. Nic Phaidin
Brevard Technical Journal

I doubt that either Emily Bronte or Maurice Greenberg, former Chairman of AIG, would agree with a new title to the old English love story. Mind you, the remarkable Heathcliff would never have countenanced the generosity of Maurice. Heathcliff had more earthy generosities. His was of the intangible type.

Maurice (Greenberg), on the other hand, is - by all accounts - an extraordinarily generous man. His devotion to his wife, the lovely Corinne, is remarkable in many ways, particularly in 1.339 million ways. That's the number of shares in AIG stock Maurice shelved over to Corinne on March 11th, 2005. According to all the reports, at the time of the shelving over, the shares amounted to $2.2bn. Maurice's handlers on the SEC filings for this particular transaction stated that the 1.339 million shares "represents a gift."

Then, lo and behold, on March 14th, 2005 Maurice decides to "step down" from his lofty position with AIG. It is my earnest hope that the lovely Corinne will decide, in her wisdom, to keep and maintain Maurice in a manner to which he had (latterly) become accustomed for the remainder of his life on her well-gotten gains.

It would probably have been less (much less) expensive to buy the Taj Mahal and thus create a spectacle of devotion and undying love to last into semi-eternity. As it is, the $2.2b will probably last into eternity as a fitting tribute (aka: reminder) of the mad pursuit of mammon in a society of mammon pursuers alongside the eternally debauched cases of the Enrons, WorldComs, and Health Souths in this new era of Sarbanes-Oxley. Isn't the Congress a great place to begin the regulatory process? Well, of course it is. One could hardly expect this process to begin with the SEC or NYSE.

It may be worthwhile to go to www.aigcorporate.com and seek out their document entitled "Code of Business Conduct and Ethics." It makes for a grand fireside read.

What we know as the Sarbanes-Oxley Act is properly entitled the "U.S. Public Company Accounting Reform and Investor Protection Act of 2002." This act is a direct result of the formidable and furtive acts of corporations that shook investor trust in the integrity of our capital markets. This handy little act has left the external accounting profession in a quandary and in a rush to judgment of their clients. It has left their clients scrambling to comply with the stringent and laboriously cumbersome regulations of the new Act. In particular, accountants and clients are having difficulties meshing their respective responsibilities under Section 404 of the Act, which specifically states and requires: "An internal control report, which shall

1. State the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and

2. Contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting."

Needless to say, external accountants are now reluctant to give the mere perception of non-compliance in relation to their part in the reporting stages. There's vast documenting requirements attached to this Act as issued by the Public Company Accounting Oversight Board on October 7, 2003. This is time-consuming and extraordinarily laborious, particularly in the initial few reporting periods.

So much for the "big guys" under the new Act - now what effect will it have on the little guys?

How will the Sarbanes-Oxley Act affect the small-to-medium businesses? Will it affect them at all? Not directly, but most likely it will affect them indirectly, particularly those who do business with the "big guys."

Section 404 deals primarily with non-audit services. CPAs will err on the side of caution, I believe, even though you are not open to SEC regulation. Companies will also perhaps err on the side of caution when contracting with your business. As institutional investors and shareholders of publicly quoted companies can withhold their votes on the numbers crunched, and the written policies and procedures put in place, by the audit committees, you might need to take a look at how the "big guys" may come to expect from you before they complete a contract with you. The minutia of documentation and transparence required by Sarbanes-Oxley is mind-boggling to say the least. It filters into every aspect of the corporation and it demands accuracy in reporting.

In meetings with the publicly quoted companies with whom you are presently doing business, or hoping to do business, can you show the transparence of your business governance? It may be time for you to look at what Sarbanes-Oxley actually says about the big guys, so you can see where the small guy needs to strategize and focus for the medium-to-long term. I believe that if the big guys are forced, which they are, to redeem themselves and partially drown themselves in a deluge of paperwork to satisfy their federal masters, then their staff will perhaps be briefed on how to do business and with whom in relation to their contractors. It really is a good exercise, even in a cursory way, to look at this issue in the short-term. In the medium-to-long term, it's a great and rewarding exercise.

Your decisions today will determine where you are on the heap in 5 - 10 years time. I doubt that the future will hold many generous Maurice Greenberg's or many opportunities to hire a charming and sultry Heathcliff to shovel out the crap before the investigators, whether in the form of corporate contractors or government agents, either arrive on your door or refuse to do business with you. A bit of fireside research online will go a long way towards helping you to make the right decision. A quick fall from great heights can be withering.