Fight the Sarbanes Oxley Blues

Diane Francis column May 11

For years, Felicia Salomon dreaded the countless compliance forms and documents she had to wade through constantly as in-house counsel for a decentralized insurance conglomerate operating in many jurisdictions.

Three years ago, she decided to harness technology to overcome such legal drudgery and started a soft-ware based legal consulting firm called Corporate Responsibility System Technologies Ltd, in Toronto and New York City.

"We try and cut the red tape," she said in a recent interview in Toronto.
Her company simplifies the process tedious form-filling and other compliance requirements which cost companies and financial institutions billions of dollars collectively.

And the paper burden has become worse than ever. Globalization, the complexity of regulations, the number of laws and new regulatory agencies to deal with specialties such as money laundering or terrorism are making business life more complicated.

And new laws have made compliance more legally hazardous as well as expensive. High profile scandals have led to increased liability for officers and directors. For instance, CEOs must sign off on financial statements in the U.S. and the Ontario Securities Commission's Bill 198 requires CFOs to do the same. In Ontario, officers must also sign off that they have monitored their compliance and financial processes and they must create and monitor codes of ethics.

Penalties for non-compliance have also been hoisted. Fines in Canada can be as high as 5% of a public corporation’s market capitalization or C$1 million, whichever is greater.

Besides that, bad publicity arising from non-compliance can ruin reputations and destroy a corporation’s goodwill or investor support.

Corporate Responsibility System Technology’s software and data bases are updated continuously in the U.S. and Canada. They are also audited and approved by top law firms in their various sectors or jurisdictions to assure clients that they are meeting all compliance requirements.

Her company is an idea whose time has come. ?Her system has boiled down all the overlapping regulatory and legal frameworks into simple templates, or modules, based on the separate compliance requirements, be they a stock exchange, securities commission or financial institutional watchdog.

Her modules translate complex legalese into simple English, and allows corporate users to easily follow instructions and fill in the blanks. Client companies pays fees and get logins to access the modules off a browser. Training takes only hours.

“For instance, it took us four to six hours to train 50 users at the Royal and SunAlliance [Insurance] in groups of three or four,” she said.

Complete modules are available for publicly listed companies in the U.S. so they can comply with the Securities & Exchange Commission and Sarbanes-Oxley filings as well as the requirements imposed by the New York Stock Exchange, NASDAQ and American Stock Exchange. In Canada, her programs help public companies in Canada with securities and exchange requirements and also help insurance companies, banks and other financial institutions across North America file with their appropriate regulators.

The result is huge cost savings because her system means that compliance functionaries don't have to reinvent the wheel, hire outside consultants or find their own shortcuts.

"Our charges for a TSX company could be C$20,000 to C$35,000 a year, depending on the company. This would compare to C$100,000 to do it themselves or through counsel," she said.

Companies still require legal advice for complicated matters, she said, but her process reduces the cost of what's known in the profession as "commodity practice" -- or those compliance functions that common to everyone.

"Companies still need counsel to answer difficult questions," she said. ?
The company started three years ago and took two years to develop its legal modules. Now it's rolling out marketing efforts and seeking venture capital backing to offer services across North America. So far, she has landed a dozen clients and recently opened an office in New York City. Besides, Royal and SunAlliance, she has as clients Assurant and recently Metropolitan Life, among others.

Doing business with such large entities is beginning to lead to more opportunities because compliance requirements vary around the world.

"Assurant is a client and our process is being adapted for use in its Florida, Brazilian and British operations,” she said. “This potential could be enormous.”

Public companies and financial institutions are in greatest need of “automated” compliance help. The insurance world, south of the border, is heavily regulated and national companies must comply with various legislation in each of the 50 states.

Her firm also does custom work and consulting. It’s been approached to devise compliance systems for the Patriot Act, Food and Drug Act and various environmental laws.

"Compliance was the thing I hated to do the most and always procrastinated doing when I was a corporate lawyer," she said. "We've taken some of the chore away."