Five years after it became law, the Sarbanes-Oxley bill has sparked a number of shifts in the way meetings are managed and procured, said Joshua Grimes, Esq., Grimes Law Offices, Philadelphia, speaking at the Third Annual Pharmaceutical Meeting Planners Forum, held March 26 and 27 at the Pennsylvania Convention Center in Philadelphia. “It’s just beginning to influence the industry and the way you do business.”
Sarbanes-Oxley, commonly known as SOX, was enacted in response to accounting scandals at Enron, WorldCom, and elsewhere to rebuild public trust in corporate America by legislating corporate accounting standards, explained Grimes, leading a session at the forum, which was co-organized by Medical Meetings and the Center for Business Intelligence.
Legally, the bill applies only to publicly traded companies, but Grimes said it’s not just for public companies anymore. “Sarbanes-Oxley has come into its own with nonpublic companies,” he said. Its standards and best practices are starting to trickle down to all companies and organizations (including associations) because they “just make good business sense,” he said. Pharmaceutical companies, he added, should pay particularly close attention due to the regulatory scrutiny they are under. “It’s one more layer of protection in the pharmaceutical industry to keep regulators away.”
Contracting Changes
So, what hath SOX wrought? For meeting professionals, it means more paperwork and documentation. Planners must document all expenses and save all receipts and invoices so that there is a paper trail and a record of a “good business reason” for every decision. “The key is accountability,” said Grimes. “Meetings can’t seem wasteful, so you need to justify every dollar spent.” To make sure documents are kept, companies should have a document-retention policy that says all documents should be on file for 7 to 10 years, at which time they should be destroyed—by shredder.
SOX has also resulted in more oversight. Budgets have to be approved by supervisors, usually at two different levels. Also, independent audit committees need to be established to oversee all accounting and financial reporting at the company. Grimes also recommended that companies establish a conflict-of-interest policy, which requires employees to disclose any information that might be considered a conflict in a given business dealing or to abstain from making decisions in the matter.
Contracting has also changed. Since SOX became law, more procurement departments have taken over the contracting process for meetings. The result is more lengthy, detailed contracts as procurement “throws everything but the kitchen sink” into contracts to protect the organization, ensure compliance, and mandate basic requirements of vendors. Many companies are including conflict-of-interest policies in their contracts to guard against a vendor, say an independent planning company, driving business to a hotel because they got higher commissions there. If commissions are indeed higher, that may be fine, said Grimes, but the third party has to prove (and document) that it was in the best interest of the company to have the meeting at the venue offering higher commissions. Third parties should read the contracts carefully to make sure liability isn’t unduly shifted to them.
Companies should develop a meeting handbook that outlines goals, objectives, policies, and rules for meetings so everyone, including vendors, knows exactly what the company expects. Because SOX also applies to meetings held outside the U.S., planners have to make sure that vendors in other countries are aware of the regulations.
RFPs and Preferred Suppliers
Sarbanes-Oxley has also brought about changes in the way meeting services are procured and vendors are selected, stated Grimes. First, more organizations are issuing requests for proposals (RFPs) for services to show that the low bidder was considered by a selection committee and that the best decision was made. The company does not have to go with the low bidder, but it should document why a more expensive property was selected—whether it had better amenities, a better location, was more attractive to attendees, etc. Certain events, like incentive trips, obviously demand a more upscale property, but even incentive trips need to be backed up with documentation as to the reasons for the choice of property.
Also, added Grimes, it is perfectly acceptable for planners to participate in familiarization trips to properties under consideration; but they could be perceived as improper if the venue is booked and a good business reason to select the hotel is not documented or explained. Companies are also creating travel policies, which, among other things, put a limit on individual expenses when traveling for business. Some organizations are even using “smart cards”—credit cards that will authorize payments only within predetermined amounts, that is, each individual transaction cannot exceed a certain limit.
Finally, Sarbanes-Oxley has led to an increase in the use of preferred suppliers. Companies are doing more due diligence on vendors to make sure they are qualified, meet their expectations, can comply with all the policies, and use competent sub-contractors. Because of all the vetting and scrutiny required, companies are more comfortable using contractors they know and whose policies they are familiar with. Also, since contracting is going through finance or procurement departments, companies are able to use their leverage to get volume discounts by using preferred suppliers.