Compliance in the Supply Chain – Implications of SOX on UK Businesses Dr. Jean-Anne Stewart

2 Background Most recent research on Sarbanes-Oxley has focused on large, dual-listed companies or UK subsidiaries of US companies How many companies in the UK are affected, now and in the future? There is a need to investigate implications on other UK-based companies in the supply chain How will they cope with process changes and improvements? Are there any benefits to becoming SOX compliant?

3 The Research Project Commissioned by Microsoft Jan 2007 to June 2007 Literature Review Qualitative Methodology Focus Groups and Case Studies Interviews with companies, employing between 50 and 1000 people Report Published and Further Review

4 How many UK Companies are affected?

5 Summary of Case Studies 5 UK based companies 3 UK subsidiaries of US companies Sectors – IT, Telecoms, Consulting, Healthcare Insurance, Pharmaceutical, FMCG Size – 50 to 1000 people Turnover - £0.5 to £350m All businesses experiencing rapid growth

6 Case Studies - Subsidiaries SOX compliant as corporation listed on NASDAQ and NYSE Existing processes and strong reporting systems Some additional documentation Appointment of Compliance Officer / Compliance Director reporting to US HQ Consulting services used Significant training programme for directors and managers No additional IT needed – use of scalable / integrated ERP

7 Case Studies – UK Companies (1) Telecom company with services and equipment provided by US company –‘There is no tolerance for late payments or direct debits as stricter collection times, down to 4 weeks from 8 weeks, before SOX’. Healthcare insurance rapidly expanding –‘We made a strategic decision to focus on expansion in UK and Ireland and have spent £1m + to secure compliance with FSA. We recognise that there will be further costs as and when we make the strategic decision to move into the US market’

8 Case Studies – UK Companies (2) Consulting company specialising in sales training –‘We see SOX as an exciting opportunity to generate additional revenue. We have developed a programme to train sales people to effectively sell value to executives in a SOX compliant environment. We estimate 75% of IT / high-tech purchasing decisions are made by senior executives who are very aware of the need for SOX compliance’ Consultancy working on a turnaround, following Chapter 11 (accounting irregularities), leading to subsequent acquisition –‘We needed an immediate alignment with SOX. We realigned all business processes (R&D, Marketing, Sales, Manufacturing) and introduced new policies and regular audits. Rather than new IT, we focused on establishing a common baseline, harmonising different IT tools’

9 Case Studies (3) Consultancy company providing services to US subsidiaries in Europe and UK –‘It took a lot of time and effort to make sure we were SOX compliant to meet our customers’ needs but we now see it as a real advantage. It has become one of the criteria to become a preferred supplier ‘ Pharmaceutical company in Europe buying products from local companies –‘We need to make sure our suppliers comply with our processes so that we maintain our SOX compliance. This has made us more careful about selecting suppliers, especially smaller companies’

10 Summary of Findings SOX compliance will become increasingly important for UK companies looking to raise capital, experiencing M&A, or simply doing business with larger compliant companies Companies are more focused on innovation and sales, but SOX will become increasingly essential for doing business Some early adopters see it as delivering a competitive advantage, despite initial cost and effort SOX could be seen as a pre-requisite similar to ISO-9000, but for management and reporting transparency Sectors mainly affected are manufacturing, financial services, retail, pharma and knowledge services ERP systems are complex and costly, so companies need simple, affordable and robust IT tools

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