Although the requirements of the Sarbanes-Oxley Act of 2002, passed by Congress in the wake of the Enron and Worldcom scandals, are applicable only to the nearly 12,000 companies that file reports with the Securities and Exchange Commission, some of the principles contained in the act provide strong guidance on how all companies should conduct their businesses — and their meetings.
Section 404 of SOX requires management of public companies to annually assess the effectiveness of their internal control structure and procedures for financial reporting, and for outside auditors to attest to the assessment made by management. Having internal financial controls in place generally means that all expenditures are supported by documentation (e.g., invoices or receipts) showing the purpose of the expenditure and whether it was made pursuant to an underlying.
How does this affect meeting planners? For one, doing business on a handshake is no longer acceptable. Hiring outsiders to perform any service should be done only in accordance with a contract that clearly spells out the rights and responsibilities of both parties, the compensation to be provided, and the timing of such payments, as well as the conditions under which the contractual arrangement can be terminated, whether by an outside event (e.g.,) or by one party deciding not to proceed further.
It's always best to secure at least two bids or proposals for any product or service and to review carefully the competing proposals. SOX does not require that the low bid always has to be adopted, but adopting a higher-cost proposal should always be accompanied by some documented rationale, such as the provision of greater services, a better track record, etc.
Many smaller companies are often hesitant — usually for cost reasons — to employ lawyers to review. But careful contract review is especially important when signing documents with hotels and other venues because the liability for food and beverage, as well as failure to meet room-block and F&B commitments, can be significant. Virtually every word in hotel contracts needs to be scrutinized because of the potential for misinterpretation later if a term is not clear.
Most public companies have adopted a code of ethics in the wake of SOX, and have made them applicable to all employees — not just financial executives, as the law requires. A good code of ethics will deal specifically with situations such as whether employees may accept gifts or benefits from suppliers. Most tend to ban them, but such total prohibitions often ignore the realities of planning meetings. After all, taking a comp hotel room during a site inspection is a form of gift or benefit from a supplier. So, it's important when drafting a code of ethics to consider distinguishing between supplier gifts that benefit the company and gifts that benefit only an individual.
At present, SOX is only applicable to public companies, but it is probably only one scandal away from being made mandatory for all organizations. A good planner will get the jump on this possibility and implement SOX-like procedures now.
James M. Goldberg is a principal in the Washington, D.C., law firm of Goldberg & Associates, PLLC (www.assnlaw.com). His practice focuses on representing associations, corporations, and independent meeting and event planners in their dealings with hotels and other suppliers. He is the author of The Meeting Planner's Legal Handbook.
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