Global Journal of Management and Business Research, A: Administration and Management, Volume 23 Issue 10

Sustainable Compliance Programs in Complex Organizations Global Journal of Management and Business Research ( A ) XXIII Issue X Version I Year 2023 8 © 2023 Global Journals al. (1994) underinvestment theory and the Jensen (1986) agency cost of free cash flow analysis can explain why some firms engage in cash flow risk management. Finally, the firm’s risk management process could focus on earnings management. This may occur where there is a relationship between the firm manager’s own expected utility of wealth, his or her pay, and that value of the firm. Smith and Stulz (1985) imply that the compensation for a manager may dictate his or her preference for hedging. By tying the compensation packages of their managers to accounting earnings rather than to the value of the firm. A manager paid based on accounting earnings will respond accordingly and will choose to hedge accounting earnings. We posit that banks and financial institutions primarily concerned with risk managing their financial position, defined in terms of the quality of their assets and liabilities. By contrast, we consider that UK firms are primarily concerned with managing their earnings. Finally, we assume that non-UK firms are more oriented towards debt capital and therefore are concerned with cash flows than with their earnings volatility. V. M ethods, D ata and R esults This section overviews the sample selection procedures used, and report the design of the industry survey, as the first step in identifying the various ‘influencers’ of the compliance program. Then, we report the empirical findings from the archival data survey analysis of the quality of internal control departments responsible for monitoring compliance. a) Sample Selection Procedures We studied the internal control department quality of sample of large UK and Continental European firms that either had SOX as one of the compliance requirements and/or were subject to intense industry- based regulation of their operational risk controls (i.e., financial service firms). The survey focused initially on the top 600 European firms identified by the Department of Trade and Industry in its annual value added scoreboard (www.dti.innovation.gov.uk/ ). Of these, only 320 firms were fully listed on the stock exchange and had been in continuous existence on the value added scorecard for each of the preceding five years (i.e. prior to the Enron bankruptcy and the consequent imply- cations for corporate governance, earnings quality and subsequent SOX legislation was enacted). This procedure resulted in a final sample of 79 firms for which complete information was available. b) Survey Questionnaire We conducted an industry-wide survey that targeted UK and Continental European firms that either had SOX as one of the compliance requirements and/or were subject to intense industry-based regulation of their operational risk controls (i.e., financial service versus industrial firms). Twenty-seven sample firms had an US stock cross listing. These firms also had to have at the least one another compliance program listed in Table 1 to provide for a valid test case for sustainable compliance management. The paper originally proposed to a mix European and US firms’ participation in this survey, to provide a broader representation on the business compliance programs. The survey comprised four sections. Section one relates to the firm’s implementation experiences of SOX. Section two identifies which factors (‘influencers’) are the most important for effective and efficient compliance management. Section three deals with the surveyed firms’ perspective on the importance of the IT infrastructure and the Process Management practice with regards to compliance management. Section four relates to the measurement of compliance programs progress. The survey identified features of the internal control department that are affected by the new compliance environment, ranging from the size of the internal control department, the number of qualified staff, the extent of training, the corporate governance accountability links, and the frequency of internal control checks. Additional SOX compliance questions based on the interview were also included for those firms cross- listed on US stock exchanges. c) Descriptive Statistics Table 2 reports the descriptive statistics for the sample. There was a 25% response rate. Analysis of the population of non-respondents relative to the respon- dent samples indicated no significant differences in profitability, gearing or sales turnover.