IPO: The problem of J-SOX

Hello. This is Irino, a strategy consultant.

Even in America, the birthplace of SOX(Sarbanes-Oxley Act), people are starting to have a negative view and regard it as an evil law. I helped with the introduction of J-SOX law and benefitted from it as a consultant, but I am against it as a manager to tell you the truth. The reasons are

Excess cost burden
The average expense a listed company spends for SOX is more than 400 million yen in America. Some companies in Japan have spent more than 1 billion yen for it. I just have to say the government regulation is too much of a cost burden on companies.

No meaning of a regulation
Cause of many false financial reportings is thought to be fallacy, but the real cause is employees’ and managers’ fraud. Instead of enforcing people to prepare detailed documents of employees’ work process as a three-piece set, it would have been much better if all that was required are confirmations (written oaths) by managers.

How to respond in a minimum way?

Since Financial Instruments and Exchange Act has been enforced already and government performance standard is decided, what matters now is “how to main low cost and man-hour load”. The points to keep in mind are

How to reduce expenses for external resources

How to reduce the area which requires documentation and do with “check lists”.

How to reduce man-hour for test runs during upgrading&assessment phase.

How to reduce the burden of SOX related compliance tasks for every year.

Out of 400 million yen, the average SOX-related expense a listed company paid in America, 160 million (≒40%) was spent on external resources (consulting and auditing companies), so POINT 1 is the most important. For example, instead of asking consultants to make documents for three-piece set, you can have managers on site do the task instead. That way, quality loss often caused when information is passed on to is unlikely to happen.

That’s it for today.

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