Introductory thoughts about controls and governance.

• Author: Cangemi, Michael P.
• Position: President's page - Financial Executives International.

I am delighted to have this opportunity to serve as President and CEO of Financial Executives International. Over the course of my career, I have always enjoyed communicating through the written word, so I also appreciate the opportunity to have this space in Financial Executive. For me, writing forces me to think more deeply about issues.

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As some of you know, from 1987 until 2007, I was the editor-in-chief of the IS Control Journal, the publication of the 50,000-member Information Systems Audit and Control Association (ISACA). In it, I wrote a monthly column, "Issues and Comments," that contained brief summaries and comments on issues, primarily focused on governance and management. Here, on the President's Page, I intend to use a similar approach to address key issues that impact you, our members.

Internal Control: Does the Size of an Organization Matter?

My background includes serving as financial vice president for a Fortune 500 company, as well as CFO of a $200 million subsidiary of a London Stock Exchange-listed company. These experiences, combined with significant exposure to companies of varying sizes, in my public practice periods, enabled me to see how issues such as internal control affect companies differently.

Since the passage of the Sarbanes-Oxley Act in 2002, my sympathies have always been with the smaller public companies. Not surprisingly, a few years after the law was signed, the SEC convened a task force to study the impact of the law on smaller companies. Since its passage, much has been written and considered regarding smaller companies' internal control systems. Not unlike the accounting standards debate, referred to as "Big GAAP, Little GAAP," many financial professionals believe that internal controls should be subject to the same principles in organizations of all sizes. It is difficult to argue against consistency of application of principles, so I agree--at least in principle.

I have always looked at corporate governance and internal control as related to capital formation and the cost of capital. Owners of private businesses, who have their personal capital at risk, determine the appropriate level of governance or control over their organization. As the organization grows, through partners or lender financing, the need for more formal governance grows.

Entering the public capital markets brings--along with the capital--formal regulatory requirements for governance and control...