Corporate Disclosure and the Sarbanes-Oxley Act of 2002
What is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act of 2002 was designed to rebuild public trust in the corporate community in the wake of the Enron scandal and other corporate and accounting scandals. Sarbanes-Oxley requires publicly traded companies to adhere to governance standards that expand board member roles in overseeing financial transactions and auditing procedures.
Sarbanes-Oxley’s Effect on Corporate Philanthropic Organizations
Nonprofit organizations—including corporate foundations—are required to comply with two Sarbanes-Oxley provisions: whistle-blower protection and document destruction. However, incorporating other internal controls and policies included in the act may lead to greater accountability and transparency by nonprofits to their boards of directors, their donors, and the general public.
Introduced in the House of Representatives by Rep. Michael Oxley (R-Ohio), chair of the Financial Services Committee, the bill (H.R. 3763) was passed by the House on April 24, 2002, as the Corporate Auditing Accountability, Responsibility, and Transparency Act. It contained a provision requiring the Securities and Exchange Commission to adopt rules mandating the disclosure of relationships between companies—including their directors and officers—and nonprofit organizations. The House referred the bill to the Senate Banking Committee, chaired by Sen. Paul Sarbanes (D-Maryland), who was preparing his own proposal. The Senate Committee passed that bill (S. 2673) and the full Senate followed suit on July 15, 2002. The House and Senate then formed a conference committee to reconcile the differences between S. 2673 and H.R. 3763.