by CIO Staff

External Regulations Causing More Work

Jul 25, 20053 mins

External regulations have increased for the majority of businesses and senior executives and managers are feeling the weight in the form of increased workload.

This trend is not healthy for business, as more executives and managers become consumed with external rules that, in some cases, may cost companies increasingly larger amounts of time and money.

Four-fifths of senior executives and managers say that in the past few years the amount of external regulations (government regulations, rules, Sarbanes-Oxley [SOX], etc.) affecting their department or organization has increased. And half of those say it has increased dramatically, in a nationwide survey we conducted over a base of more than 1,000 companies.

The real question is how much these various regulations have aided businesses.

“The sad thing is that I don’t see where the increased regulations truly help the intended constituents and the cost to businesses (ultimately consumers) is substantial,” said one survey respondent.

However, in the wake of Enron, WorldCom, etc., it could be argued that at least in some cases external regulation was necessary.

“These controls should already have been in place as part of running the business,” said one respondent. “They were externally imposed because we were not doing it.”

But if not careful, external regulation can become excessive, with rules designed for some being applied to all.

“SOX auditors need to have differentiation on how they audit huge firms versus smaller firms,” said one respondent.

Said another: “Financial industry regulations, especially with privacy regulations, have escalated exponentially.”

The burden of increased external regulations falls to senior executives and managers who have to work more or harder to assure that their part of the business complies.

Almost three-fourths of executives and managers say their personal workload has increased as a result of external regulations. This at a time when there is little if any extra time other than what is needed to get the job done.

“I appreciate the need to provide documentation of our processes, but the added levels of bureaucratic activity and the unnecessary duplication of effort detract from overall productivity,” said one survey respondent. “At the end of the day, no amount of checking the checker will prevent unprincipled people from cheating. It will just change the method.”

“SOX has resulted in nearly all improvement and progressive programs being put on hold,” said another respondent. “It is consuming massive staff time and is undoing past office lean initiatives. All this for a company that was already technically compliant. Yes, the SOX unemployed auditors welfare act has increased our workload.”

Said one senior executive at a smaller company: “The average cost of regulation compliance for small businesses is $7,000 per year.”

“Regulations in general and Sarbanes-Oxley in particular have been a huge drain on management time and financial resources,” said one respondent. “There has been very little benefit to shareholders or management. Thankfully, the tide is turning slightly in 2005.”

While some regulation, such as enforcing proper accounting to protect shareholders, can obviously be beneficial to many businesses, too much regulation can cause a company to be more focused on compliance and less focused on the actual business and its customers, to the ultimate detriment of everyone.