Semantic Viewpoint: A Discourse on Innovation Technologies

Semantic Web-Enabled Sarbanes-Oxley Compliance

By Zachary Alexander
The IT Investment Architect®

A group of concerned pre-IPO (Initial Public Offering) executives recently gathered at a meeting of the local technology council. Each participant recounted the issues that new companies are facing with Sarbanes-Oxley related reporting costs. They asked if a semantic web-enabled compliance program would be a good solution for their problems.

Sarbanes-Oxley (SOX) is one of the many new regulations that have been enacted in the United States after the dotcom malfeasance and as a result of the general sense of unaccountability of corporate executives. Sarbanes-Oxley holds executives responsible for the actions that they take on behalf of their companies and the effectiveness of their compliance reporting processes. The introduction of the regulations created a new regulatory environment that is fond of piercing the corporate veil.

The corporate veil is an imaginary screen that protects executives from the general liabilities of doing business. On one side of the corporate veil, executives are personally protected from prosecution for the actions of their companies. On the other side, they are acting independently with no protection or limited liabilities. The problem is that it can be difficult to determine on which side of the corporate veil an executive is on at any given time.

Pre-IPO executives contemplating an IPO or Merger & Acquisition (M&A) event in the near future need a functioning SOX compliance program. Large software companies are selling retrofitted Enterprise Resource Planning (ERP) systems to solve the SOX compliance problem. An ERP system is simply a very large database that tracks company resources and/or reporting tasks. Many pre-IPO executives worry about creating a money pit or internet sand trap at a time when they are most concerned about getting their financial books in order. Here are three benefits that can be expected from creating a homegrown semantic web-enabled SOX compliance program:

Reduced modification costs. ERP systems have substantial modification costs for even minor changes. These costs are also not forward compatible, which means that they will not work with upgraded ERP systems. Necessary modifications soon turn into a healthy set of reoccurring costs. This is because the modifications have to be reapplied after every new software upgrade and the ERP vendors upgrade frequently. Modification costs can easily be accommodated by large companies because of their ability to shift budget priorities with only minor inconvenience. However, Pre-IPO executives generally do not have this kind of budgetary discretion.

Reduced number of ill-conceived workflow processes. Pre-IPO Executives, who try to avoid the modification costs, are locked into workflow and/or reporting processes that are defined by the ERP vendor. Workflow processes define how employees do their job. The purpose of these processes is to impose problem-solving standards. This can lead to major productivity glitches caused by critical processes being halted due to workflow and/or reporting errors.

Reduced technology exuberance. ERP vendors often sell their products as silver bullets that will fix every problem that a company can image. This leads to over-heated expectations. According to ERP vendors, all any company has to do to fix their SOX compliance problem is add reporting tasks to their product’s databases. ERP vendors do not level with their customers about the work that will be involved with creating new business practices. Semantic web project teams know a significant amount of time will be needed to explain the benefits of the semantic web. They know that new business practices will have to be created to take advantage of the new semantic web technology.