In 2002, following the whole Enron fiasco, the Sarbanes-Oxley Act was signed into law.
This new legislation set new requirements for all US-based public companies, management, and company boards with regards to — you guessed it — controls that lead to accurate financial reporting. It placed a new level of responsibility on CFOs and CEOs to ensure that the financial reports and controls they signed off on were accurate. In fact, if they signed off on bad or misleading information, they could face hefty penalties, and potentially jail time.
You can be sure this legislation got the attention of these executives.
Now, this was a very drastic swing of the pendulum that redirected incredible wealth in the economy, because it required companies to completely overhaul a number of their operational processes, which lined the pockets of many a consultant. It was, however, well-intended to add extra layers of protection for investors. And, like most changes, it was often met with resistance.
During this time, I was hired at a regional bakery (and, yes; I gained 30 pounds on that job!) to help them comply with Sarbanes-Oxley. Walking into it, I knew that most operational folks were going to hate everything we had to do to get the business compliant with the new requirements. We had to be strategic in order to help make the changes that were needed. And anyone who was around in the early 2000’s for this legislation knows how drastic this change really was.
So, instead of walking in the door and saying, “You have to do X, Y, and Z to comply with the Sarbanes-Oxley,” we decided to take a different approach. Rather than dictate what to do, we instead started with a question: “What do you hate about how things are working today? What processes do you want to change?”
That gave everyone a sense of ownership and allowed us to make the changes something that was in the control of the process owners, and yet still met the regulatory requirements. Sure enough, this leading question, returned a laundry list of things they felt needed to be changed in their operations. And, as a result, we had a list of palatable ways to frame up the changes that were required to comply with Sarbanes-Oxley.
Together, we were able to say, “Okay, let’s look at this. We can solve 12 of these problems you identified in your process by redefining the steps, but I need your help, because we’ve also got to put these other 18 processes into place to beat back this Sarbanes-Oxley thing.”
Now, don’t let me sugar-coat this – there was still a lot of pain in the process. Sarbanes-Oxley was a costly and ungainly MONSTER in its original interpretation, particularly for smaller companies. But I believe we mitigated its potential impact with this approach, and that our success was enhanced by it.
This give-and-take utilized the process owner’s own momentum to minimize the resistance and increase the buy-in to the required changes. This, in turn, made it more likely that the company would stick to the new processes and made the entire process ever so slightly more beneficial for everyone involved.
How Change Management and Accounting Work Together
One of the biggest lessons I learned throughout this whole process was how change management and accounting work in tandem. A lot of the problems that business owners identified in their processes ultimately affected the accounting for their business component.
If you think about it, every single operational process in your business flows through to finance and accounting. In fact, finance and accounting, done properly, are the virtual reflection of your physical business. If you see that certain areas of your finance and accounting need improvement, it usually means that the underlying processes they represent need improvement, too.
So, if you have an accounting and reporting issue, instead of doing a million different manual things to try to fix it after-the-fact, always evaluate the process that’s reflected by that issue. Dollars to donuts, there’s an underlying process adjustment that can cure the problem.
By looking at your operational processes through the lens of accounting, everything is magnified. That helps to better identify opportunities for growth and positive change. And that’s how change management and accounting work together. Marrying change management and accounting can streamline your financial processes, but more importantly, it can help streamline your whole operation.
If you’re struggling with your accounting and financial processes right now, look at the silver lining. Use this struggle to peer deeply into what’s really going on in your business processes. You’ll get a deeper look at your operational processes and identify changes that can improve both operations AND accounting. And most importantly, you are avoiding putting a bandaid on the messenger (accounting); when the patient needs a cast.