CEO, CFO & CIO ENGAGEMENT IN INFORMATION TECHNOLOGY MANAGEMENT: THE DISCIPLINARY EFFECTS OF SARBANES-OXLEY INFORMATION TECHNOLOGY MATERIAL WEAKNESSES Discussant Report Acklesh Prasad

The effect of reporting the SOX IT material weaknesses on C x O engagement.  Argument – while much as been advocated about the value of management involvement in IT-related activities, little understanding about the consequences of senior executive’s personal engagement practices.  Agency Theory SOX related IT material weaknesses will have consequences for CIOs, CEOs, and CFOs. Identify the IT material weaknesses that are most influential regarding CEO, CFO, and CIO turnover.  Data from various secondary sources, controlling for other C x O turnover-related factors: A positive association between IT material weaknesses and C x O turnover. Certain specific IT-related internal control weaknesses associated with C x O turnover.  Implication - C x Os may find it beneficial to become personally engaged in specific aspects of their firms’ IT management. Introduction

Increased digitization of firms data and business processes, thus heightening the senior executive’s hands-on personal engagement in IT-related initiatives.  “provides evidence supporting the desirability for these individuals becoming personally engaged with specific aspects of enterprise IT management.” While noble intention, there is however contention on the intuitiveness of this knowledge. Mismatch in the perceived “strategic” IT-related roles of senior executives and the “operational” IT-related internal controls considered as a measure of their outcome of level of commitment. Would the research significantly alter management’s perception to reconsider their level of commitment towards IT-related initiatives (is there low level of commitment?). Focus - quality of commitment rather than the quantity. Stronger Argument - why there is a need to consider the consequences of failures of management’s IT-related commitments, when much is needed to advance understanding and provide directions on how to improve on the effectiveness and efficiency of use of IT in organisations. Motivation

Agency Theory  A good starting base.  To what extent is reporting of weak internal controls an agency problem is an issue that is subject of contention. Management’s [initiatives] to disclose material internal control weaknesses could be a sign of a genuine attempt to communicate factors that may cast doubt on the appropriateness of the financial reports. Eventual decision to disclose information to the shareholders stems from a complicated set of management-auditor negotiations. Does not evaluate the principal’s disciplinary action in the event of IT-related internal control weakness disclosures. Management turnover intentions in the event of internal control weakness disclosures is far more perplexing than the (uncomplicated) principal-related actions. Thus, while the agency theory provides an ideal base to postulate overarching consequences of misalignment in objectives, it would seem that one would find difficulty in advocating turnover-related conjectures solely from this theory base. Perhaps complementing a few theory bases (consequences – decisions) would seem ideal. Theoretical Basis

Challenges of Data Collection.  Apparent limitations in evaluating such data.  Context, basis, and purpose for collecting these data would differ.  A palpable alternative - the survey approach. Authors should be commended for their effort in sourcing data to test their stated propositions.  Includes a number of factors as controls that may affect executive turnover intentions. Data transformations Overall, a noteworthy effort. Research Design

C x O turnover and labor market consequences differ for IT control weakness firms, non-IT control weakness firms and clean firms. Logistic regression:  Level of additional variance explained in the respective models compared to the base model.  Incremental factors (control weaknesses and specific IT control weaknesses) does contribute to C x O turnovers; it does not explain the extent of this explanation. Pertinent - a number of controls included in the model - the pseudo squared correlation (R 2 ) reveals less that 20% of the variation in C x O turnover. Nature of pseudo R 2 (Efron's, McFadden's, McFadden's (adjusted), Cox & Snell, Nagelkerke / Cragg & Uhler's, McKelvey & Zavoina, Count, Adjusted Count)  The results reveal much in the significance of the relationships (t-values), but perhaps less on the magnitude of these relationships.  Exercise caution when interpreting the extent and the magnitude of the explained variance in C x O turnover from the included factors, including the control factors. Results

Discussion of the results reveal support to the conjectures that firms reporting of material IT internal control weaknesses contributes to C x O turnover.  The C x O turnover intentions are far more complex.  Discussion of the results a bit intense than the analysis reveals. C x O would be accountable for day-to-day IT-related activities, but considering the infiltration of technology into processes, including financial reporting, it would be naïve to advocate more than necessary IT-related responsibility to C x O. With the diverse responsibilities vested on C x O, and as advocated, effective use and understanding of IT entails a coordinated approach from IT managers and end users. Discussion on the relationship between specific IT-related internal control material weaknesses and C x O turnover is important and noteworthy. Discussion

Encouraging C x O to become more personally engaged in specific aspects of IT management is a noble - one would expect C x O to be already substantially engaged in their IT management initiatives.  CxO would need to develop their IT-related skills and resources to be able to understand better how their IT-related initiatives has impacted their business process. A coordinated IT governance approach would ensure that C x Os are equipped with the necessary information to identify, in this study the, IT-related internal control weaknesses. The IT governance related implication would be having a governance structure that embraces resources from different levels within the organisational hierarchy. This study implicates that the effect on C x Os turnover is significant, it not overwhelming.  To move forward the “disciplinary effects” side of this research: Understand where responsibility rests; Who eventually suffers the consequence of such control deficiencies. Provide important insights on distribution of the level of responsibility on IT-related policies and procedures, and C x O perceived ownership of IT-related resources embedded within their business processes. Implications for Theory and Practice

The research endeavored to better our understanding on the disciplinary effects of reported weakness on firms IT-related material internal control weaknesses on C x Os.  This paper has succeeded in this venture. One of possible factors that could have resulted to less than concrete outcome is the quality and variability of the dataset. This perhaps, is the key limitation of what has been an important initiative, and the results of this study be interpreted with this constraint in mind. One should also acknowledge the authors efforts on providing us with some important insights on the consequences of reporting SOX-related IT material internal control weaknesses. This inevitably provides researchers with numerous insights and opportunities to further their knowledge on the implications of ineffective management of IT-related resources in organisations. The practitioners would acknowledge that there is a lot that needs knowing on managing the ever-demanding resource that IT is. Conclusion