Sarbanes-Oxley’s New Disclosure Rules

One section of the Sarbanes-Oxley Act that has broad technology implications is Section 409, which calls for real-time disclosure of “material changes.” Like most of the act, Section 409 is vaguely worded and never actually defines material changes, but most experts think it could be anything from a stock sale by a corporate officer to the loss of a large account?basically anything that could impact a company’s perceived market value. Section 409 can clearly be traced to the Enron, WorldCom, Adelphia and Imclone scandals, where the well-connected cashed out shortly before companies collapsed. Under current financial law, companies don’t need to disclose material changes until they file their quarterly reports. The current Securities and Exchange Commission interpretation forces companies to make that information public within four days.

The new rules will require a flow of information unlike anything corporations have done before. Few corporate systems are currently designed to tag certain information high priority and then automatically route it to the appropriate executives. Analyst companies such as AMR Research think Section 409 could require major infrastructure overhauls. Since most companies aren’t yet willing to do that (in the absence of more concrete guidance from the SEC), compliance with Section 409 is currently limited to training employees to identify material events and notify the proper people within a company or enter the event into a special material event tracking database. As of press time, it remained unclear if this will be enough or whether companies will need to do the rearchitecting AMR and others predict. Stay tuned for more.