Regulatory scrutiny is changing the way buyers at U.S. financial services companies approach corporate meetings and incentives. New banking rules coming into effect next year also have financial companies changing the requirements for the use of third-party providers.
In addition to avoiding the appearance of improper spending and accounting practices, buyers must ensure their companies comply with Sarbanes-Oxley regulations. Now, the National Association of Securities Dealers, the private securities industry regulator officially known by its acronym, has proposed an expansion of Conduct Rule 2311, which prohibits non-cash compensation and sales contests, including travel incentives.
The expansion also would prohibit holding education and training events out of the country. The Securities Industry Association has posted an open letter to NASD, stating that the expansion would negatively affect its members. In particular, SIA said many member firms with foreign offices conduct business in foreign locations, and hold appropriate training and education meetings overseas. The association proposed to change the wording of the regulation to "require that the venue be appropriate to the purpose of the meeting."
According to SIA, securities companies spend $25 billion a year on compliance with various rules and regulations, up from $13 billion in 2002.
Patricia Carbee, senior vice president of marketing and business development at Horsham, Pa.-based Penn Mutual, said the increased scrutiny on the financial services industry prompted the company to change its policies on annual conferences.
"We've gone through some major changes over the past six months. Mid-year, we were asked to change how we were running our conferences," Carbee said during an executive panel discussion at Meeting Professionals International's Professional Education Conference in January (Meetings Today, March 6).
Because Penn Mutual sells investment products and services in addition to life insurance, Carbee said the company had to comply with strict regulations on employee incentive programs.
"The regulatory environment really made us do this, and the way that we measure our success is so different now," she said.
Strict NASD and Securities and Exchange Commission rules limit what financial companies can give as amenities. "We can only give $100 worth of gifts to a producer in a year," Carbee said.
To deal with perceptions of corporate excess, some financial services and pharmaceutical companies have policies that vary based on whether a meeting is internal or external, said Mary Donohue, vice president of sales for LaCure Corporate and Leisure, a Toronto-based planning company focused on incentives and high-end executive retreats. Meetings that include attendees from outside the company are put through greater scrutiny.
"Customers are asking for more targeted reports because of SOX," Donohue said.
In its fourth annual survey of corporate governance practices, The Business Roundtable, an association of chief executive officers of U.S. companies, on March 20 said that for the first time the costs of implementing Sarbanes-Oxley had stabilized. According to the survey, 94 percent of member respondents expected spending on Sarbanes-Oxley compliance to stay the same or drop in 2006. The survey was completed by 105 of the association's 160 member companies, according to the release.
Joshua Grimes, a Philadelphia-based attorney who specializes in hospitality and meetings industry issues, said spending on Sarbanes-Oxley compliance may have stabilized because companies already have invested heavily in changing their policies and are waiting to see how the regulations are enforced before making additional changes.
"It's still a fairly new law, so things are still getting fleshed out," attorney Grimes said. "Many companies throw the kitchen sink at it. They're not sure of what the law requires exactly so they're putting every sort of compliance restriction into their meeting contracts."
Grimes for the past 18 months has conducted educational sessions on the effect of Sarbanes-Oxley on the meetings industry. Many companies' legal departments do not clearly communicate Sarbanes-Oxley compliance to their meeting departments or to their suppliers, he said.
"People acknowledge that they need to comply with SOX, but there are still difficulties between knowing that they have to do something and implementing it," he said.
Meeting buyers also run the risk of breaking Sarbanes-Oxley rules if they accept certain gifts from suppliers, Grimes said. If a buyer accepts a free night's stay at a hotel, and then books a corporate meeting at the property, it could violate the regulations. Companies need to do a better job of communicating industry rules and regulations to both their meeting buyers and their suppliers, he said.
"I very rarely see any attorneys, almost never," Grimes said of his educational sessions. "The meetings industry is not the focus of an in-house counsel's job. It's sort of an incidental part of what they do."
The potential effect of Sarbanes-Oxley on international meetings also has concerned corporate meeting buyers, Grimes said. Tipping and payment methods that are common practice overseas may be considered improper under Sarbanes-Oxley.
"Every single program that we orchestrate has certain goals or expectations that we adhere to, whether they are budgetary or whether they are governmental regulations," said Patricia Kerr, director of conference planning and recognition at Manulife Financial Co.'s Canadian division, based in Kitchener-Waterloo, Ontario. Kerr handles six incentive travel programs each year.
"We use the term 'incentive,' but I don't know of anybody that is running pure incentive programs anymore. All of our programs have an exceptional amount of educational content in them."
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