The duties of the chief executive officer, chief financial officer and board members-particularly those on the board's audit committee-have grown much tougher in the wake of corporate meltdowns posted by Enron and others this year. Now that Congress has responded with the Sarbanes-Oxley Act, and the Securities and Exchange Commission has also weighed in, the responsibilities of corporate officers and boards members have changed. These reforms will be costly, take time and require a certain amount of reorganization within companies, but they are manageable, said speakers at the annual meeting of the Independent Petroleum Association of America, in a session titled "Financial Statements: Where Does the Buck Stop?" Companies need to forge a balance between an independent board and one aligned with management's vision for the future. The board must be a control mechanism, a business partner and an overseer, the panelists said. When introducing the session, moderator John Swords, chair of the IPAA Tax Committee, described the Sarbanes-Oxley Act as a sledgehammer hitting a gnat. One problem he foresees: "You can't have your own audit committee look at your internal controls now, you have to hire an outside auditor to do so. But it probably won't know as much about your company as you do." The act requires the CEO and CFO to sign off on financial statements and take criminal responsibility for failure to disclose certain information. The audit committee of a board now assumes a heavier work load as it will be the entity to hire, fire and supervise accounting firms, rather than the CEO or CFO performing this function. At least one member must have an auditing background. Committee members must be skeptical and get enough information to make informed judgments. The SEC will enforce the act through its interpretation and rulemaking. "The role of a director has gotten immensely more difficult. Directors that were appropriate in the past may not have the skills or experience needed today," said Steven J. Shapiro, senior vice president and CFO of Burlington Resources. "The things that can get you into trouble also can get you out of trouble-leadership, communication, compensation systems and the quality of directors." The act will restore public confidence, but at a price, according to Arthur Berner, partner with law firm Haynes & Boone LLP. He said directors who previously were passive need to be much more proactive now. Sarbanes-Oxley goes deeper than financial controls, he said. It requires management to evaluate the right information as to completeness and materiality, and certify that it complies with SEC requirements. That means executives must get involved in such details as making sure that internal controls are in place and transactions are authorized and reported properly. Companies that don't implement the proper procedures will be punished more heavily by the marketplace than by any accounting oversight board, Berner added. Robert W. Strickler, senior partner with PricewaterhouseCoopers, said the procedures that will have to be put in place are time-consuming and expensive. All panelists agreed the cost of having a board of directors will likely go up, as it becomes harder to attract qualified people, and they are required to put in more hours of service, and assume more liability. Directors and officers' insurance rates are soaring The act authorizes companies to hire independent counsel to conduct probes and ask the tough questions. It contains a stipulation that corporations cannot retaliate again whistle-blowers. Among other provisions, the act also restricts loans to officers and directors. Burlington is creating a disclosure committee, Shapiro said, to make sure the Houston independent discloses information investors need to know. A board governance committee assures the competency of board members and makes committee assignments. The company has always had a director education program, but that will be more intense now. Burlington also has set up a communications system with more meetings to make sure of accuracy, and to lay a paper trail that proves the company has met the legal requirements of the new law. It is now unlawful for an auditor to perform any investment banking, conduct appraisals or provide expert services for the company it is auditing. "That leaves [accounting firms]with audit-related services and tax services only," Strickler said. Any service provided must be approved in advance by the company's directors or executives. All fees paid to the auditors must be disclosed. Arthur Andersen was criticized because it received $50 million in fees from Enron, but only $5 million had been disclosed for auditing services. The balance came from business consulting services. Dale Kesler, former audit partner with Arthur Andersen (who left years before the Enron scandal broke), looks at the law from the perspective of a board member, since he serves as a director for several companies. The audit committee must not only look at the information provided to the auditors by the company, but it must make sure of the integrity of that information, he said. This almost assures that there sometimes will be tension between management and the audit committee, Kesler said. Private companies aren't immune to the new rules, he added. They have to make sure they don't get in the same situation that now affects public companies. Kesler said he knew of a couple of companies where directors have declined to serve, or resigned. "There are problems getting qualified people," he said. Corporations must now make board membership attractive to qualified people without putting the assets of those people at risk. -Don Lyle and Leslie Haines