Wednesday’s deadline for chief executive officers (CEOs) and chief financial officers (CFOs) of more than 900 of the largest companies in the United States to personally swear that their most recent financial reports are accurate has busied the upper echelons of a number of IT companies, but most are unfazed by the additional layer of paperwork.
Information technology or telecommunications is the core business of about 70 of the 947 companies that the U.S. Securities and Exchange Commission (SEC) ordered in June to meet the certification either Wednesday or on the date they are required to file their quarterly reports with the SEC.
As of Wednesday morning, about half of the IT and telecommunications companies on the SEC’s list had filed certifications, including Intel Corp., Amazon.com Inc., AT&T Corp., Oracle Corp., SBC Communications Inc., Gateway Inc., Advanced Micro Devices Inc., Sprint Corp., Motorola Inc. and Apple Computer Inc., according to the SEC Web site.
Information made available by the SEC included scanned images of the written statements bearing the signatures of Intel’s Craig Barrett, AT&T’s C. Michael Armstrong, Apple’s Steve Jobs, Amazon.com’s Jeff Bezos and Oracle’s Larry Ellison.
Notably missing among the technology companies that had certified as of Wednesday morning were Microsoft Corp., IBM Corp., Hewlett-Packard Co., Sun Microsystems Inc., Cisco Systems Inc. and Dell Computer Corp., according to the section of the SEC Web site that lists which companies have certified. However, updates to the Web site are lagging. For instance, IBM filed documents with the SEC Tuesday night that include the text of its certifications, according to the Electronic Data Gathering, Analysis and Retrieval System (EDGAR), which handles automated collection and processing of SEC documents. IBM’s certifications also are posted at its corporate Web site.
Wednesday’s deadline affects companies whose fiscal year runs concurrent with the calendar year, and those companies facing Wednesday’s deadline can file for an extension as late as Thursday, an SEC spokeswoman said. Companies with fiscal years that don’t end Dec. 31 have a different deadline for their certifications between now and the end of the year based on when they have to file their quarterly report with the SEC, which hasn’t said what the penalty will be for companies that miss the deadline.
A spokeswoman for HP said the company’s deadline for filing the certification is Sept. 16 and the company expects to meet that deadline. HP officials have started the process for becoming certified, the spokeswoman said, but declined to elaborate on what the process entailed. Sun, likewise, has a later deadline for its financial report — Sept. 28 — and plans to file its certification “within that time frame,” a Sun spokeswoman said.
Dell filed certification papers on Wednesday afternoon, though the company had until Sept. 16 to do so. A spokesman said Michael Dell has signed off on Dell’s annual results for a long time, so the government requirement didn’t drastically alter the company’s procedures.
No technology companies thus far have revised their reports, and none is expected to do so, said Ken McGee, an analyst with Gartner Inc. However, if one technology company were to decline to sign, “I think that would send shockwaves throughout the tech industry,” he said.
“I think there was enough empirical evidence to show that wherever there was an accountant taking liberties, there was an IT vendor two inches away,” McGee said.
The unprecedented order requiring chief executive officers and chief financial officers to personally certify in writing and under oath that their most recent reports filed with the SEC are complete and accurate came after accounting scandals at Enron Corp. and WorldCom Inc. shook investor and public confidence in corporate governance. WorldCom plans to restate its financial reports and will not certify them until after the revision is complete, said Julie Moore, spokeswoman for WorldCom.
Zeus Kerravala, a vice president at Yankee Group, said the SEC waited for the collapse of companies like WorldCom before it started raising questions. “I think that the big question here is, when the market was screaming, when the Nasdaq was at 5,000 and people said tech was overvalued, where was the SEC then?” Kerravala said.
If the SEC’s intensified scrutiny and added regulations such as the certification requirement had been in place sooner, “we still would have had a tech collapse, but maybe not of the magnitude we have now,” he added. He also said there will be a lot of scrutiny cast on companies that file late.
Wednesday’s deadline, which applies to companies with reported annual revenues in excess of US$1.2 billion, is just the beginning of the certification requirement. Under legislation passed by Congress and signed July 30 by President George W. Bush, the CEOs and CFOs of all publicly traded companies will be required to sign statements that certify the accuracy of their results every time they file them.
The new broader certification requirement, which will become effective by Aug. 29, will apply as well to foreign companies such as Nortel Networks Corp., in Brampton, Ontario, that issue stock in the U.S. Officers who make false certifications will face personal liability, including a maximum of $5 million in fines and 20 years in prison.
This won’t be much deterrence for companies that aren’t honest, said Dan Kusnetzky, vice president of system software at IDC.
“You can’t legislate morality. People who are going to fudge their numbers will just look at the rule and find another way to work around it,” Kusnetzky said. “People on the up and up will not have to change what they are doing, just sign one more document.”
Others remain unconvinced that the certifications alone will raise investor confidence.
“I think sophisticated investors understand that if companies are going to play fast and loose with their balance sheet, this isn’t going to have an impact on the game they were playing,” said John Cummings, director of investor relations at Sybase Inc. “I think it’s going to take some people being thrown in jail to send a real message to the market that this type of behavior won’t be tolerated, and to lift public trust.”
Sybase wasn’t among those required to file a certification with the SEC, but its CFO already signs off on its filings with the SEC. Sybase is exploring ways to supplement the financial information it provides to analysts and investors during its quarterly conference calls, by making it easier to find information about nonfinancial matters such as corporate headcount, Cummings said. One way that all companies can boost investor confidence is by making their companies more “transparent,” he said.
PeopleSoft, like Sybase, also has always had its CEO and CFO approve financial statements, so the new regulation doesn’t change its process, said Steve Swasey, a spokesman for PeopleSoft. “At some point, we think that this scrutiny will vindicate more than it condemns,” Swasey said.
Another question the process raises is whether the certifications will make any difference when companies are selecting IT vendors.
Tom Beermann, a spokesman for Intel, said he didn’t think it would, adding that for Intel, the certification was not a big exercise.
“As far as the effort that went into certifying the results, we’ve had in place a similar kind of effort all along, some extra scrutiny was applied to reviewing our documents this time, but it wasn’t like we’ve had to move mountains,”
(Stacy Cowley in New York, Tom Krazit in Boston and Steve Lawson and James Niccolai in San Francisco contributed to this report.)