Using Sarbanes-Oxley to Competitive Advantage

10/25/2004


BY CAMILLE SCHUSTER, Ph.D.
Global Collaborations
www.globalcollaborations.com

In response to such corporate scandals as Enron, the U.S. Congress passed the Sarbanes-Oxley Act of 2002 as an anti-fraud measure designed to make business transactions transparent. Essentially, it ensures that businesses reflect sales that actually occurred. And this coming November, your marketing department will face the challenge of bringing their documentation into compliance with the new legislature. But don’t panic, because even though this requires some additional paperwork and monitoring of systems, you can use the compliance to your advantage.

First, let’s take a closer look at how the new law will affect your company’s marketing processes.

Effect on Marketing

Sarbanes-Oxley hits the trade promotion area because it requires documentation of all marketing expenses, including where the transactions occurred, how many times and how much the marketing services cost. It also requires businesses to implement internal systems for keeping track of this detailed information, and for monitoring whether the contracted services actually occurred.

For example, say your company participates in co-op advertising, and you give a retailer $10,000 for marketing ($5,000 for the cost of the co-op ad, plus $5,000 designated for “marketing expenses”). The unspecified “marketing expenses” are where the problem lies. Before Sarbanes-Oxley, you could deduct the entire $10,000 as a business expense, regardless of how the retailer actually spends the unspecified $5,000. But now to prevent companies from using marketing funds for other operations, everything has to be documented in detail to be eligible for subtraction from your revenue.

“In detail” means that when Sarbanes-Oxley takes effect, your company’s data warehouse must include the following information:

  • A process capable of objectively identifying the value of any promotion spending.

  • A plan that specifically identifies what promotion activities for which money is allocated.

  • A process for identifying whether the money was actually used for those planned promotion activities.

  • A way to determine whether the promotion occurred at the designated time and place.

  • A designee who is responsible for identifying any deviation from the plan.

  • A plan of action in case the contracted promotional activities did not occur as planned.

Once all these reports are filed, your chief sales officer and your chief marketing officer, as well as the CEO and CFO, must sign off on the accuracy of the information. If the numbers aren’t accurate, you face a $10-20 million fine, and 10-20 years incarceration for noncompliance.

Certainly all this added documentation seems like a daunting, tedious, time-consuming and maybe even time-wasting task. But your efforts don’t have to be fruitless. You can use all the new information gained from compliance as a strategic advantage for your marketing.

Using Sarbanes-Oxley to Your Advantage

As you may already know, consumers in the marketplace have the power to demand customization and personalization. And to earn customer loyalty, you must develop a consumer-centric organization. The process of bringing your company into Sarbanes-Oxley compliance poses a great opportunity for learning a huge amount about the people who use your services. Because developing internal documentation and monitoring systems for compliance will already disrupt your organization, why not tailor your new systems to respond to consumer demand?

Instead of creating compliance systems based on your organizational goals, use the following process for developing a consumer-centric system that gives your company a competitive advantage:

1. Identify Your Most Valuable Consumers.

2. Get to Know Your Most Valuable Consumers.

3. Identify Consumer Response.

4. Plan Your Promotions Accordingly.

Future Advantage

You must comply with Sarbanes-Oxley; you don’t have a choice. So why not make the best of the situation? As you bring your company into alignment with the new legislation, use the information to develop internal processes for identifying your most valuable consumers. Link your advertising efforts with your sales figures and discover what gets the greatest reaction from the public. Target the channels that elicit the most response, establish contact with your consumers, and use all the data to refine your strategies.

Used in this manner, Sarbanes-Oxley is not just an exercise in compliance, but an opportunity to create a consumer-centric demand driven organization. With the extra information you gain, you can create a competitive advantage that will make your organization successful in the twenty-first century.





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