Two years into the new "sarbox"-or Sarbanes-Oxley-world of corporate responsibility, executives are reporting many positive benefits they hadn't anticipated and a few negatives they had. As most businessmen and women know, the Sarbanes-Oxley Act of 2002 has become one of the most sweeping pieces of legislation to impact American big business in decades-forcing some executives to clean up shoddy accounting practices and making them all more responsible to shareholders.

President Bush signed the Sarbanes-Oxley Act into law two years ago, on June 30. While concerned about the additional time, energy and money devoted to Sarbanes-Oxley, today many executives across the country are saying the act has actually turned out to be a good thing for their companies. Southwest Florida business leaders say they anticipated the growing pains and are using the act to strengthen their procedures and their companies overall.

A survey by Corporate Board Member Magazine found 60 percent of company directors thought the act had a positive effect on their companies, and 70 percent say it was good for their boards. "We're going through a rough period now where companies are learning as they implement the system," says Guy Lander, an attorney in New York City and the author of the book What Is Sarbanes-Oxley? "Some [provisions] will prove to be more helpful than others."

What Is Sarbanes-Oxley?

In 2001 and 2002, you couldn't swing the proverbial dead cat without hitting a major company going down in the flames of an accounting scandal. Their names have become legendary-Enron, WorldCom, Global Crossing.

"I've got a little old lady who's lost over $3 million in Enron," says Tom Grady, a securities litigation attorney in Naples. "I represent people who are in the middle of all types of claims against these types of companies."

Faced with an outcry from distraught shareholders who had lost billions, Congress quickly passed Sarbox. The act made new securities laws, and amended existing laws in many ways. Some compare it to the far-reaching Securities Act of 1933 and the Securities Exchange Act of 1934, enacted in the aftermath of the 1929 stock-market crash.

Sarbox throws open the boardroom windows and lets in the light. In theory, it means no more back hall deals being cut or books being fudged.

"Sarbanes-Oxley. sets the mood for increasing the transparency, the visibility of what's happening with a board," Grady says. "Directors will be held to a higher level of responsibility than before."

And how.

Chief executive officers and chief financial officers now have to certify, with their own signatures, that their company's annual and quarterly reports are accurate. With a few exceptions, companies are banned from making personal loans to their directors or executives. Non-audit services by an auditor now have to be pre-approved and disclosed.

Combined with the many new levels of accounting accountability, these responsibilities have changed the way many companies operate.

Faster Filings

Like many companies, FindWhat.com, a Fort Myers-based Internet search engine, has hired outside consultants to help comply with Sarbanes-Oxley. "Beginning in 2004, public companies are now required to obtain a formal opinion of the effectiveness of their internal controls," says Brenda Agius, senior vice president of finance at FindWhat.com. "This will be the first time a separate opinion on a company's internal controls is mandated."

In the past, auditors would test a company's internal controls for their own purposes, but these results were never meant to be reported or shared with the public. Shortcomings in these internal controls led to many of the major corporate scandals.

"Detecting weaknesses in a company's internal controls is extremely critical," Agius says. "When a company's controls are weak, there is a high degree of possible material misstatement, whether intentional or not, in the company's reportable financial statements."

Local companies that fall into an "accelerated filers" category are seeing deadlines zooming at them, thanks to Sarbox. The act will ultimately drop Form 10-K filing deadlines from 90 days to just 60. Form 10-Q filing deadlines will shrink from 45 days to 35 days.

"It certainly makes you have to speed up the process of getting numbers finalized and audited," says Clay Cone, vice president and director of communications for First National Bankshares of Florida. Cone says his organization, which was spun off from FNB Corp. in January, was already regulated more heavily than many publicly traded companies because it's part of the financial industry. "We already fell under intense and very strict provisions," he says.

Still, First National Bankshares has added staff in its finance and legal departments to help keep up, in part, with the increased oversight of Sarbox.

Companies must also disclose the availability of current and periodic reports on their official Web sites.

A Maze of Rules

There are a myriad other provisions, so complicated that a cottage industry of consultants has developed around Sarbanes-Oxley. Books have been published, magazine articles written-all to try and help executives avoid a misstep that would garner SEC penalties.

Today, a company's audit committee must include at least one independent financial expert, and the outside auditor now reports to the audit committee, as opposed to the CFO. Finally, the, audit partner, the person in charge of the outside audit team, must be rotated out every five years.

"He gets too ingrained, everything becomes too cozy, it's too easy to hide things," says Lander.

There is new support for so-called whistleblowers with specific protections in the act for company employees who report misdeeds by executives. And companies that don't comply face increased penalties. At the extreme, executives who willfully certify a statement, knowing that the accompanying report does not comply with all requirements, are potentially in for a world of hurt-up to a $5 million fine and up to 20 years in prison.

"It's the shareholders' money," says Grady. "They're entitled to the board's best intentions to do what's best for the shareholders in the long haul."

Areas of Concern

Despite executives nationwide singing the praises of many Sarbanes-Oxley provisions, some parts of the act still have them concerned.

A survey by Foley & Lardner, a law firm based in Milwaukee, asked Florida business executives about the impact of Sarbox. Sixty-three percent of those surveyed thought the act had made corporate governance "too strict," while only 37 percent said it was "about right." No one said it wasn't strict enough.

Among the issues: Sarbox placed a ban on company personal loans to top executives, but exactly what this means is still unclear. As a result, some companies are refraining from making loans from 401(k) accounts or loans to help an executive move, common and usually considered acceptable in the business world.

"There were times that companies erred on the side of caution," says Lander."The language is very broad. How it's implemented by companies in different situations is hard to figure out." Lander says that a group of national law firms has now put together a consensus paper on the issue that many public companies are using as a guide.

Another stumbling block for some companies is costs of hiring consultants to traverse the complicated elements of the law, attorneys and accountants to file the increased paperwork load, and auditors to test the new systems. While larger companies may be able to absorb these costs with nominal impact, smaller companies are getting hit harder. "Imagine a smaller company with a shaky balance sheet and all of a sudden it's got to [comply with Sarbanes-Oxley]," says Lander. "It could affect their performance."

On a national scale, the Foley & Lardner survey found small companies with revenues of less than $1 billion are looking at increases of 105 percent in accounting expenditures, 94 percent in directors' and officers' insurance and 90 percent in legal services.

"Ultimately, the shareholders pay no matter how you slice it," says Grady.

It's likely not a coincidence that reports say the number of public companies privatizing is on the upswing. The Foley & Lardner report says 56 percent of Florida companies surveyed are considering alternatives to remaining public. These include merging with another company or even selling the business outright.

Still, financial experts say there are no shortcuts around Sarbanes-Oxley. "All businesses, small and large, without regard to available resources, must come to the realization that creating a strong accounting department is very important," says FindWhat.com's Agius. "[It's] now a part of doing business."

Nor does Sarbanes-Oxley close every loophole and promise a scandal free future. "It's not a panacea. Enron had, in theory, one of the best boards around," says Grady, referring to that company's majority of independent directors. "It's still necessary for corporate management to get proactive in being responsible to shareholders."

A Good Thing

Many Southwest Florida executives say they're pleased with the results brought by Sarbanes-Oxley. While it has made some things more difficult, it's allowed them to fine-tune operations that help the company. "We currently have six CPAs on staff, which is five more than the average of other companies our size," Agius says. "Our controls have never been stronger and we are excited about having them measured."

Ultimately, if this increased responsibility works as intended, it will mean fewer scandals, more information available and better-run companies- all benefits for the ones who count most-the shareholders. "Anything that increases the amount of public information that is disseminated by a company is a good thing," Cone says. "Information is how an investor makes decisions."

"The public invested their life savings into companies that appeared to be financially solid," Agius says. "After working their entire lives, their retirement savings are gone because some CFO or CEO felt pressure to fictitiously create earnings, rather than [really] earn them."

Sarbox aims to prevent any more of those sad stories.