Contract Management: Improving Corporate Governance

The Sarbanes-Oxley act places stringent guidelines on corporate governance, and many executives are hurrying to bring their companies into compliance. How can a contract management system help?

The business press in recent months has been dominated by waves of corporate scandals, and several well-respected companies have had to dramatically restate their earnings. It's not surprising then that a poll of corporate executives taken by Kennedy Information, publisher of Shareholder Value magazine, found that 46 percent said these scandals have harmed the way investors viewed their companies. ("In Corporate America It's Cleanup Time," Fortune Magazine, September 2,2002, By Jerry Useem.)

"Investors increasingly demand full transparency of accounting policies and their effects," ("Firms Still Fall Short on Disclosure, SEC says," Washington Post, February 28,2003 by Kathleen Day) the SEC noted in a "guidance" that detailed its expectations for annual reports. In July of 2002, legislators passed the Sarbanes-Oxley Act to help re-establish trust in corporations. The most sweeping change in corporate governance since the Great Depression, the Sarbanes-Oxley Act is designed to prevent corporate and accounting fraud by increasing the transparency of corporate finances, policies and practices.

The Sarbanes-Oxley Act mandates that corporations develop sound internal controls as well as provide timely and accurate disclosure of financial information to investors. The Act also specifies oversight and penalties to enable enforcement of these requirements. While most corporations focus on aspects of the Sarbanes-Oxley Act that govern financial transactions, the Act also has implications for the commercial contracts that underlie each financial transaction. This is an area that most companies today are ill prepared to manage. Contract management software has emerged as a powerful solution that provides organizations with greater visibility into contracts, enabling the control and disclosure necessary to comply with the requirements of the Sarbanes-Oxley Act.

The Role of Contract Management in Improving Corporate Governance

Good contract management is critical for enabling corporations to fully comply with several key Sarbanes-Oxley Act provisions including certification requirements, rules requiring enhanced internal controls and disclosure mandates. "Sarbanes-Oxley is sending a wake up call to many executives who realize they had better get a handle on the commitments being negotiated in their corporations," according to Tim Cummins, executive director of the International Association of Contract and Commercial Managers. "Yet even now, many are turning to the General Counsel in the expectation this will fix the problem and provide instant answers. In come cases, it probably will; but in many it is going to lead to frustration. There is a world of difference between 'contracts' and 'contracting'