While some reports in the media point to the stringent legislative requirements of Sarbanes-Oxley as a new nightmare for senior executives of South African companies seeking to tap into US markets, the good news is that local companies are on track when it comes to staying in line with the compliance codes of good governance. That is the word from Paul Mullon, marketing director of document and records management specialist Metrofile.
All South African companies are required by law to retain all pertinent documents and company records for a period of time. The ECT Act and the findings of the King Commissions have focused attention on the management of businesses and the necessity for the appropriate management and storage of documentation. At the same time, there are many laws covering the running and legal requirements of companies in all industries. These rules were in force long before the advent of Sarbanes-Oxley. The point is that because this legislation has been in place for some time now, most South African companies will have little difficulty meeting the requirements of international laws, particularly because these are remarkably similar to our own.
Let us look at four key components of the Sarbanes-Oxley Act:
* Audit manuals and work papers must be preserved: Accountants must be able to produce their manuals and auditors must track all their processes and procedures. It makes absolute sense to track audit trails and ensure that these are kept on file, and similar legislation exists in South Africa. These documents hold weight in court and, in a post-Enron world may be essential in proving or disproving fraudulent intent.
* Accountants must hold files: Before Sarbanes-Oxley, document retention was a management issue. Now, there are penalties for the crime of destroying, changing or altering records during federal investigations, and anyone who does so can be fined or imprisoned. Accountants have to retain documents for a period of five years after an audit. In South Africa, the National Archives and Records Service Act similarly states that any person who wilfully damages any public or non-public record in the control of a governmental body or removes, destroys or erases such a record will be prosecuted. Individual legislation is also in place to cover the requirements of specific industry sectors.
* Spoliation is not permitted: This refers to the fact that you cannot destroy any documents that may be required in a lawsuit. Intentional destruction or alteration of evidence has dire consequences. Again, the same applies locally, as we saw recently in the Mac and Mo debacle. The fact is though, that if a company is run on sound governance principles, there should never be a need to destroy documentation; all documents should be available anyway as a matter of business course, regardless of the legislative requirements.
* General document retention guidelines: The emphasis here is on practical considerations. Documents must be preserved where there are practical reasons to maintain them, such as the need to defend a lawsuit, or where legislation requires them to be retained. South African legislation echoes these requirements, and allows for unnecessary or superfluous documents to be destroyed as part of a well managed document retention policy.
Sarbanes-Oxley is therefore unlikely to affect business relations between local and US companies. Locally based subsidiaries are part of the value chain of their US parent company anyway, and it is highly likely that they will follow the same document retention strategies.
That said, there is still much confusion in the local market around document retention and legislative requirements. Perhaps one of the biggest advantages of Sarbanes-Oxley is that it has generated an enormous amount of awareness locally about these requirements. Considering that South African companies tend to err on the side of conservatism and generally retain far more than they need to - often at great cost - we can only hope that this will encourage local business to move away from information overload.
The bottom line is that sound governance principles suggest that South African companies, public and private, should be adhering to the legislation around document retention regardless of the requirements of international business. Good governance is not only essential for boosting investor confidence; it is also a loud and clear indication that a business is being well run. For those companies that have been doing the job anyway, Sarbanes-Oxley holds few additional burdens.