'Sarbanes' is industry's new 'open sesame'

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Sarbanes-Oxley, the post-Enron law designed to make corporate executives more financially accountable, is taking on a new life, invoked with somewhat reckless abandon as a magic phrase in marketing to marketers.

Need to sell management on a new customer-relationship-marketing system? Cite Sarbanes-Oxley. Want to sell a brand manager an analytic tool for measuring return on marketing investment? Try SarbOx there, too. It's been a justification for at least one agency review and an excuse for agencies not to divulge financial information during reviews.

There's just one problem: The law doesn't really require any of these things, according to a man who should know, Douglas Carmichael, chief auditor of the Public Company Accounting Oversight Board, whose duty is to oversee how auditors do their job in the post-Enron age of accounting scrutiny.

EXTREMES

A little less than three years since its passage and one year since it took effect, Sarbanes-Oxley is generating bitter complaints about its compliance cost. "One of the reasons [for the concerns] is that people take it to extremes," Mr. Carmichael said. "People interested in selling products and services are exaggerating what you have to do to comply."

One marketing executive who recently heard a pitch from a vendor of marketing ROI analytic software said, "I must have heard the words `Sarbanes-Oxley' about 20 times."

Proving your marketing spending is working "would be nice to do, but it has nothing to do with Sarbanes-Oxley," said Mr. Carmichael. Rather, it only requires an annual assessment by management and external auditor of whether internal controls over financial reporting are effective. In other words, companies need approval processes and documentation to prove reported marketing expenses were really spent as reported.

Yet David Beals, CEO of the Chicago-based consultancy Jones Lundin Beals, recalls one prospective client approaching him six months ago citing Sarbanes-Oxley as a reason for holding regular agency reviews. He declined to name the client, and the firm ultimately didn't handle the review.

"It was a marketing person," Mr. Beals said, "and he made it sound like [a mandate from] the procurement department. I'm not sure he had a really good handle on exactly what Sarbanes-Oxley is."

Odder still, in reviews the firm does handle, agencies increasingly cite Sarbanes-Oxley as a reason not to provide financial data. "It seems like clients and agencies alike are using it as a smoke screen to justify all kinds of stuff," Mr. Beals said.

At least some of the misunderstanding stems from salesmanship by vendors of analytic tools for marketing ROI and marketing-resource-management ( MRM) software that can track, budget, forecast and monitor effectiveness of marketing spending. Sometimes, the sales pitches gain legitimacy through repetition.

Ken Kornbluh, CEO of MarketingPilot software, last year penned an article for an online newsletter of the CMO Council citing SarbOx as a reason companies should invest in software to track, budget and forecast marketing spending. David Stewart, a professor of marketing at University of Southern California, cited that article in a paper of his own presented to the Advertising Research Federation convention in April arguing for better measurement of advertising effectiveness, specifically citing a copy evaluation tool by RSC Group's ARS.

Gartner, the information-technology research firm known for helping tout the Y2K computer bug, has hopped on the Sarbanes-Oxley's bandwagon, too.

"Marketing is a huge category of spending, so it's obvious Sarbanes-Oxley is going to throw scrutiny on that," said Kim Collins, research VP at Gartner. "People wanted to invest in MRM before, but couldn't really get the buy in perhaps internally to do it. Sarbanes-Oxley moves MRM from being a luxury item to something that you have to do."

She did acknowledge, though, that the law doesn't actually require investment in MRM. "Sarbanes makes [companies] have to account [for spending]," she said. "And once they account for it, people realize, `Wow, I didn't know this much was going to the agency.' Then it's `Do we need to be spending this much money?"'

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