The requirements of the Sarbanes-Oxley Act of 2002, passed by Congress in the wake of the Enron and WorldCom scandals, apply only to companies that file reports with the Securities and Exchange Commission. However, some of the principles that are contained in the act (commonly known as “SOX”) provide good guidance on how nonpublic companies and independent planners should conduct their businesses.
Section 404 of SOX requires management of public companies to annually assess the effectiveness of their organization's internal financial reporting and for the organization's outside auditors to attest to that assessment. In addition, SOX requires annual disclosure of whether the public company has adopted a code of ethics for senior financial officers and, if so, the content of that code.
Most public companies have adopted a code of ethics in the wake of SOX, making them applicable to all employees, and not just financial executives, as the law requires. However, many private entities and organizations do not have such conduct guidance, other than to treat customers or members fairly and equitably. 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.)
Such total prohibitions, however, often ignore the realities of planning meetings. After all, taking a comp room from a hotel during a site inspection is a form of gift or benefit from a supplier. So, it's important when drafting codes of ethics to consider distinguishing between supplier gifts that benefit the organization and gifts that benefit only a single individual.
Put It in Writing
Having internal financial controls in place generally means that all expenditures should be supported by documentation (e.g., invoices or receipts) showing the nature and purpose of the expenditure and whether it was made as part of a contractual agreement.
Doing business on a handshake is no longer acceptable. Public companies have shareholders to hold them accountable, private companies have owners, and other organizations have boards of directors or members to whom management owes a fiduciary duty. An independent planner who doesn't have a clear and completewith his or her clients could wind up losing money if a client suddenly cancels a meeting or the contractual arrangement.
Thus, SOX teaches us that hiring outsiders to perform any type of 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.
Use the Fine-Tooth Comb
It's always best to get at least two bids or proposals for any product or service and to carefully review the competing proposals. SOX doesn't require that the low bid has to be adopted, but adopting a higher-cost proposal should always be accompanied by some documented rationale, such as more comprehensive services, a better provider track record, etc.
It is especially important to carefully reviewwhen signing documents with hotels and other venues because the liability for food and beverage, failure to meet committed room blocks, and cancellation can often 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.
For example, a force majeure clause typically references a series of events, then refers to similar “emergencies” that make performance impossible or substantially difficult (the legal meaning of impracticable). But courts have interpreted “emergencies” narrowly, so that not all occurrences outside of the parties' control will qualify. Understanding this at the time of contract signing could have saved one association more than $275,000 in damages, according to a recent court decision.
At the present time, SOX is applicable only to public companies, but it is probably only one good corporate scandal away from being made mandatory for all.
James M. Goldberg is a principal in the Washington, D.C., law firm of Goldberg & Associates, PLLC. His practice focuses on representing associations, corporations, and independent meeting planners. He is the author of The Meeting Planner's Legal Handbook.