Who are CEO, CFO, Shareholders, and the Board of Directors? What is SOX?
You read in the news about the CEO, CFO, and Directors, but who are they and what do they do?
CEO stands for Chief Executive Officer and is a top-ranking corporate position, responsible for over-seeing company operations. CEO is often the company’s President and reports to the board of directors. He or she is the most important person of the company and is responsible for its financial results, health and future.
CFO stands for Chief Financial Officer. CFO is the person responsible for financial planning, record-keeping, reporting financial performance and forecasts to the investors. The CFO typically reports to the CEO, and is frequently a member of the board of directors. Shareholders of a company are the ultimate owners of a company.
Shareholders elect members of the board of directors to govern a company on their behalf. Members of the board report to shareholders. Duties of the board of directors include supervising the work of CEO and the company. They hire the CEO, and assess the CEO’s performance on goals and strategies that are set for the company. Members of the board of directors have the authority to fire the CEO as well.
SOX is short form of Sarbanes-Oxley Act. The Sarbanes-Oxley Act is a federal law signed on July 30, 2002 that establishes higher requirements for truthful and accurate financial reporting standards by all public companies. This law is named after Senator Paul Sarbanes of Maryland and House Representative Michael Oxley of Ohio. Sarbanes-Oxley Act contains 11 major sections that define new corporate board responsibilities with provisions for criminal penalties for not following the law. SOX imposes higher reporting standards and responsibilities on a company’s board of directors, its management, and its auditors.
This law was in response to major corporate and accounting scandals at companies like Enron, Tyco, WorldCom, and many more causing public mistrust in accounting and reporting. Many hard working people lost their jobs, savings, and investments in these companies because of greed and corrupt management, board and accountants. Some of the people responsible for the scandals are in US jails.