The Sarbanes-Oxley Act of 2002 was passed in response to several major corporate scandals — Enron, WorldCom and Tyco International, among others — that caused financial hardship to investors, retirees, and employees.

While this legislation was intended to protect public investors, it has placed a large bureaucratic burden on companies. For example, companies’ IT systems now must be configured to support the auditing and certification of financial data.  Some estimate the cost of SOX on U.S. businesses to be in the billions each year — not counting the opportunity cost of for companies who choose not to list on a US exchange because of the total expense.

The new legislation also created a high degree of liability for officers — they literally have to sign off on the financials as a way of accepting and acknowledging that they really are on top of what is happening and that subordinates are not running wild and hiding fraudulent activities. This adds considerably to the time and burden of creating and publishing information about corporate performance. Now your career, reputation and perhaps even your freedom are on the line.

So what does this have to do with Demand Foresight? SOX reporting affects forecasting and financial projections, including revenue, margin and market share based on volume.  Without exception, companies report their surprises — good and bad — every earnings period, along with their possible impact on future performance. A company that’s squeaking by on quarterly numbers and facing a projected downturn can easily lose 10, 20 or 50 percent of its market share in a matter of hours or days.

How much confidence shareholders have in the management team’s control and understanding of the business can make all the difference in how they react to these quarterly “surprises.” Herein lays the opportunity for supply chain managers to play a critical role in meeting SOX requirements. I’ll connect more of the dots in Part 2 of this topic.