So you’ve worked hard, made the right connections, and risen through the ranks to become a finance chief. Congratulations. The only thing left to do is make sure you have a good lawyer.
The passage of the Sarbanes-Oxley Act, together with the culture of suspicion that is thriving in America, increases the time CFOs will be spending under the microscope–and potentially under lock and key as well–if fraud is detected.
Progress Software Corp. CFO Bud Robertson doesn’t like legislators using corporate finance as a whipping boy. “I think they’ve gone completely overboard in trying to fine-tune every possible behavior,” he says. He envisions a world where he’d have to “put up my own money just so that anyone can sue me.” And if it gets that bad, he adds, “I might reconsider my profession.”
He’s not the only one recalculating the costs of being a CFO. Below are five worries triggered by the post-Enron environment, and how some finance executives are dealing with them.
1. Your Autograph May Be A Liability
CEOs and CFOs who “knowingly” sign financial statements that fail to meet requirements may be fined up to $1 million and sent to jail for 10 years. Signing such documents “willfully” exposes executives to $5 million in fines and 20 years, according to the corporate-governance law.
What’s the distinction between knowingly and willfully? “I think every law firm in the country is debating what it means,” says Walter Brown, a former federal prosecutor and now an attorney with Gray Cary. “But you can see there’s clear criminal exposure for CFOs.”
If there’s a financial restatement “due to the material noncompliance of the
issuer, as a result of misconduct,” moreover, CFOs and CEOs will have to forfeit any share of gains and bonuses they might have reaped within a year of filing the erroneous financials. The big fear here is that “on its face, it does not require that the CFO has to know of the [mis]conduct” in order to be punished, says Brown, creating more liability around frauds that might not be immediately detectable.
2. Personal Assets Are More Intangible
The legislation didn’t officially ban executive share-trading, except during 401(k) plan blackout periods. But advisers say that many firms are considering new ways to clamp down, nonetheless. And that’s just the start.
“We’re seeing more attention paid to the notion…that officers should not be trading in stocks or even exercising their options while still employed at the company,” says Joel Papernik, a New York attorney with Mintz Levin Cohn Ferris Glovsky & Popeo PC. General Electric Co., for example, said in July that it would require senior officers to purchase company stock with their option gains and hold that stock for one year.
While most companies are still mulling what, if any, requirements to change, experts expect longer vesting periods and shorter trading windows to become the norm. Other nonqualified long-term benefits, such as supplemental executive retirement plans, may well be at risk. Even home equity may become less of a safe haven, because of a pending federal bill that would supercede current laws in such states as Florida and Texas. The new law would set a federal cap on the home-equity amounts that bankrupt law violators could shelter from creditors.