But opinions diverge more radically on questions of whether regulations have improved corporate governance in general. Just one finance executive in six gives them a ringing endorsement, saying the rules have largely addressed important issues and corrected shortcomings. One in four believes the rules head in the right direction but don’t go far enough, while another quarter of the respondents take the opposite view and dismiss the regulations as distracting and costly. The most common response? Uncertainty—more than a third of respondents say it’s too soon to tell whether reforms will work.
But don’t write off that uncertainty as being downbeat, advises Hart. “CFOs are doing much of the scut work to implement these new rules. That will inevitably inspire some grousing,” he says. “That so many are taking a wait-and-see attitude is in fact positive.”
And scut work abounds. “There is a lot of paperwork; it is voluminous,” says Hart, primarily in support of the attestation process that culminates with the CEO and CFO vouching for the accuracy of quarterly financial results.
As CFO has reported previously, the costs of compliance are substantial for most companies, with 7 of every 10 finance executives believing the benefits fail to outweigh the costs (see “Sticker Shock,” September 2003). Lately, though, CFOs seem more inclined to see a silver lining—in the added status that accrues to the CFO as co-signatory along with the CEO. “The very fact that the CFO is one of only two people who must now attest to financial results underscores the CFO’s importance in providing leadership, in establishing the tone at the top,” says Debra Smithart, former CFO at restaurant company Brinker International Inc. and now a member of the audit committee of Denny’s Corp.’s board.
CFOs could be forgiven for dismissing the phrase “tone at the top”—coined by the Treadway Commission when it proposed a number of corporate reforms in the 1980s—as hollow, New Age management-speak completely at odds with the current drive for no-nonsense rule-making. “There was a time when I would have laughed it off,” says David Steiner, CFO of Houston-based Waste Management Corp. “But I’ve come to see that within large corporations it’s the only thing that matters.”
For CFOs, helping establish the tone at the top can take several forms. “At one company I’m familiar with,” says Hart, “the governance policies weren’t all they could be, and the CFO refused to sign off until things were improved.” The Hilton executive says that the CFO in question “made sure the company was in compliance, and then some, which entailed not getting just the troops to follow better procedures, but other senior executives as well.”
Indeed, adds Don Barger, CFO of Overland Park, Kansas-based Yellow Roadway Corp., CFOs need to foster a state of mind at the company in which “anyone who has a question on anything feels free to raise it, and any potentially problematic situations are fully assessed.”