CEOs say trust with their CFO continues to be paramount

One of the provisions of the Sarbanes-Oxley Act requires the chief executive and the chief financial officer to sign off on the accuracy and completeness of a company’s quarterly and annual reports. The Boulder County Business Report wanted to know how this new requirement is affecting the relationship between the CEO and the CFO, and what actual changes companies have put into place to comply with the new regulations.

These sections of Sarbanes-Oxley, passed by Congress in 2002 in response to the Enron and WorldCom financial scandals, are just few of the many controls now mandated to assure shareholders of publicly held companies that a company is being run by widely accepted business and financial “best practices.” Section 302 requires CEO and CFO signoff on results.

Several Boulder Valley area public companies said the CEO/CFO signoff provision has not changed the relationship between the two executives.

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Paul Berberian, chief executive of Louisville-based Raindance Communications, and Nick Cuccaro, chief financial officer, always have had a tight relationship, Berberian said, and the act hasn’t changed that. If anything, Berberian said that he and Cuccaro spend more time together in executive and audit meetings as the act is implemented.

Cuccaro agreed that the two always have enjoyed a close relationship, meeting regularly for lunch and in formal and informal meetings. “What’s critical is a trust between the CEO and CFO, and that’s always been there (at Raindance),” Cuccaro said. “There’s been no change in relationship & it’s always been built on trust and integrity.”

Ed Dunlap, chief financial officer at Boulder-based Wild Oats Markets, said he has always had a close relationship with Chief Executive Perry Odak, and works with Odak to keep him aware of what is occurring in the financial arena. “I have always felt it my responsibility to keep all corporate officers apprised of changes,´ said Dunlap, adding that he has the luxury of a CEO who is a former financial officer.

Company executives agreed that Sarbanes-Oxley signed into law processes they have done for years, and the certifications are welcomed as a way to restore public confidence in the way companies are run. Companies traditionally have in place a set of internal controls governing their financial practices.

What the act has changed is the way companies document the controls that verify their reporting. Dunlap said at Wild Oats, the proper controls and documentation are largely in place, but the passage of the act accelerated the process. “We’re in a very good place to comply with Section 404 of the act by the fourth quarter of next year, putting us in the 90th percentile of companies,” he said.

Berberian said Sarbanes-Oxley increases the documentation required of a company. “I used to go into the kitchen and make a sandwich, but now I have to describe how I made that sandwich,” he quipped. Even though the act is geared toward larger companies, small and medium-size companies also are required to certify their practices, he said.

Tim Anderson, chief financial officer at Boulder-based Carrier Access, said the act has not changed what his company does, but added, “We do additional work to show that we are doing what we have always done. We have internal controls, and now we have more formal reporting and documentation to the board (of directors) and the (Securities and Exchange Commission).” If there has been a change, Anderson said, it has been between the audit and executive committees, rather than between members of the executive committee, since audit committees now want to know more about the precise internal functioning of a company than in the past because of their new oversight responsibilities.

The new rules require checks and balances and internal controls. Cuccaro said Raindance has engaged outside independent firms to help with documentation, but what’s being mandated and documented has always been done at the company. “It’s for the exceptions that the rules (in Sarbanes-Oxley) have come into play,” he said.

Dunlap at Wild Oats concurred, saying that most companies have financial controls in place, but a few companies overrode those controls. “Corporate integrity has been tarnished by the actions of a few.”

Because of Sarbanes-Oxley, companies have incorporated more structure around what has been done informally for a long time. But corporate integrity is more important than specific practices, and drives those practices, Cuccaro said. A company has to be committed to doing what’s right. This philosophy is pervasive, he said: People in a company must be committed to the highest ideals in running a company. This way of thinking influences everything, not only the bottom line, but also a company’s product as well as how it treats its customers and employees, Cuccaro said.

Boulder Valley executives echo Tim Anderson at Carrier Access regarding implementation of the Sarbanes-Oxley Act. “It’s important to do the certifications because confidence is needed,” he said. “Heightened awareness is a good thing.”