Member Viewpoint
Sarbanes-Oxley & the Corporate Real Estate Executive
By Mark Rose and Jeff Groh
Mark.Rose@am.joneslanglasalle.com
Jeff.Groh@am.joneslanglasalle.com
 What
is Sarbanes-Oxley and what does it mean to Corporate Real Estate
executives? Emerging from the wake of corporate scandal, the Sarbanes-Oxley
Act of 2002 was passed with the express goal of advancing guidelines
and process for corporate governance. It devised new standards requiring
companies to improve record and document management, automate financial
reporting and strengthen governance policies.
The major concepts of the Sarbanes- Oxley Act are as follows:
- CEO/CFO Certification Of Financial Reports- Requires full disclosure
on financial reports and imposes criminal penalties for violations.
- Broadened Enforcement and Defined Criminal Penalties- Establishes
stiffer penalties reaching beyond the C-Suite.
- Improved Financial Disclosures- Disclosures must include any off-balance
sheet transactions as well as disclosures of internal controls.
- The Formation of Audit Committees- Imposes added responsibilities
on board members.
- Limited Roles For Accountants And Attorneys- Places restrictions
on fiduciaries performing multipleservice roles in order to eliminate
conflicts of interest.
The impact of Sarbanes-Oxley is not simply the establishment of
financial reporting requirements for publicly-held corporations.
Sarbanes-Oxley Act goes beyond the financial data, affecting the
organization by requiring a structure and mind-set for the administration
of the corporation's finances. This regimen benefits employees, investors,
and clients by increasing the quality and reliability of financial
acumen while concurrently reducing the risk of reputation loss.
Section 404: Section 404, the most far-reaching component of the
Act, requires management to annually assess internal controls and
calls for the development of an Internal Control Report which shall
state management's responsibility for maintaining proper standards
for financial reporting. Once defined, management must test, measure
and document the effectiveness of the controls at the end of each
fiscal year. This reporting shall be attested by an external auditor.
Failure to gain such attestation would have extreme negative ramifications
for a corporation.
Section 404 compliance extends to:
- Third Party Administrators
- Information Technology Providers
- Custodial Relationships
- Client Accounting
- Investment Accounting
Compliance Costs: Most corporations will spend dearly for employees
and consultants to perform the work necessary for initial compliance
and on-going maintenance of these standards. Accounting firms find
themselves in a position of greater profitability and risk as they
provide such services. The business gained in assisting corporations
in preparing for Sarbanes-Oxley is counter-balanced by the increased
liability of attesting that a corporation's financial controls are
adequate.
Sarbanes-Oxley and Corporate Real Estate: The advent of the Sarbanes-Oxley
Act should affect Corporate Real Estate executives in the following
ways:
- Vendor relationships will be made more carefully- Engagements
will become more formal (complete with documented decision rationale)
and vendors will need to comply with the Sarbanes-Oxley Act in order
to be considered for top assignments.
- The real estate accounting function and other business processes
will be outsourced at increasing levels- Corporations will opt to
simplify, assign risk and gain efficiencies in these non-core activities.
- The C-Suite, Auditors and Board Members will begin to push for
adoption of "best practices"- They will be required to
personally attest to the financial processes and controls of a corporation.
- De-centralized real estate structures will be discouraged- The
development and management of controls will prove much more costly
and complicated than centralized structures.
Corporate real estate executives have the opportunity to get ahead
of the wave of process rigor and scrutiny. Developing, measuring
and managing processes for delivering real estate services to the
corporation is now more important than ever before.
About the Authors:
Mark Rose is Chief Operating Officer of Jones Lang LaSalle
Jeff Groh is an Executive Vice President in Jones Lang LaSalle's
Corporate Solutions Group.
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