Discussant Report Acklesh Prasad

1. CEO, CFO & CIO ENGAGEMENT IN INFORMATION TECHNOLOGY MANAGEMENT:THE DISCIPLINARY EFFECTS OF SARBANES-OXLEY INFORMATION TECHNOLOGY MATERIAL WEAKNESSES Discussant Report Acklesh Prasad

2. Introduction The effect of reporting the SOX IT material weaknesses on CxO engagement. • Argument – while much as been advocated about the value of management involvement in IT-related activities, little understanding about the consequences of senior executive’s personal engagement practices. • Agency Theory • SOX related IT material weaknesses will have consequences for CIOs, CEOs, and CFOs. • Identify the IT material weaknesses that are most influential regarding CEO, CFO, and CIO turnover. • Data from various secondary sources, controlling for other CxO turnover-related factors: • A positive association between IT material weaknesses and CxO turnover. • Certain specific IT-related internal control weaknesses associated with CxO turnover. • Implication - CxOs may find it beneficial to become personally engaged in specific aspects of their firms’ IT management.

3. Motivation • Increased digitization of firms data and business processes, thus heightening the senior executive’s hands-on personal engagement in IT-related initiatives. • “provides evidence supporting the desirability for these individuals becoming personally engaged with specific aspects of enterprise IT management.” • While noble intention, there is however contention on the intuitiveness of this knowledge. • Mismatch in the perceived “strategic” IT-related roles of senior executives and the “operational” IT-related internal controls considered as a measure of their outcome of level of commitment. • Would the research significantly alter management’s perception to reconsider their level of commitment towards IT-related initiatives (is there low level of commitment?). • Focus - quality of commitment rather than the quantity. • Stronger Argument - why there is a need to consider the consequences of failures of management’s IT-related commitments, when much is needed to advance understanding and provide directions on how to improve on the effectiveness and efficiency of use of IT in organisations.

4. Theoretical Basis • Agency Theory • A good starting base. • To what extent is reporting of weak internal controls an agency problem is an issue that is subject of contention. • Management’s [initiatives] to disclose material internal control weaknesses could be a sign of a genuine attempt to communicate factors that may cast doubt on the appropriateness of the financial reports. • Eventual decision to disclose information to the shareholders stems from a complicated set of management-auditor negotiations. • Does not evaluate the principal’s disciplinary action in the event of IT-related internal control weakness disclosures. • Management turnover intentions in the event of internal control weakness disclosures is far more perplexing than the (uncomplicated) principal-related actions. • Thus, while the agency theory provides an ideal base to postulate overarching consequences of misalignment in objectives, it would seem that one would find difficulty in advocating turnover-related conjectures solely from this theory base. Perhaps complementing a few theory bases (consequences – decisions) would seem ideal.

5. Research Design • Challenges of Data Collection. • Apparent limitations in evaluating such data. • Context, basis, and purpose for collecting these data would differ. • A palpable alternative - the survey approach. • Authors should be commended for their effort in sourcing data to test their stated propositions. • Includes a number of factors as controls that may affect executive turnover intentions. • Data transformations • Overall, a noteworthy effort.

6. Results • CxOturnover and labor market consequences differ for IT control weakness firms, non-IT control weakness firms and clean firms. • Logistic regression: • Level of additional variance explained in the respective models compared to the base model. • Incremental factors (control weaknesses and specific IT control weaknesses) does contribute to CxO turnovers; it does not explain the extent of this explanation. • Pertinent - a number of controls included in the model - the pseudo squared correlation (R2) reveals less that 20% of the variation in CxO turnover. • Nature of pseudo R2 (Efron's , McFadden's, McFadden's (adjusted), Cox & Snell, Nagelkerke / Cragg & Uhler's, McKelvey & Zavoina, Count , Adjusted Count) • The results reveal much in the significance of the relationships (t-values), but perhaps less on the magnitude of these relationships. • Exercise caution when interpreting the extent and the magnitude of the explained variance in CxO turnover from the included factors, including the control factors.

7. Discussion • Discussion of the results reveal support to the conjectures that firms reporting of material IT internal control weaknesses contributes to CxO turnover. • The CxO turnover intentions are far more complex. • Discussion of the results a bit intensethan the analysis reveals. • CxOwould be accountable for day-to-day IT-related activities, but considering the infiltration of technology into processes, including financial reporting, it would be naïve to advocate more than necessary IT-related responsibility to CxO. • With the diverse responsibilities vested on CxO, and as advocated, effective use and understanding of IT entails a coordinated approach from IT managers and end users. • Discussion on the relationship between specific IT-related internal control material weaknesses and CxO turnover is important and noteworthy.

8. Implications for Theory and Practice • Encouraging CxO to become more personally engaged in specific aspects of IT management is a noble - one would expect CxO to be already substantially engaged in their IT management initiatives. • CxOwould need to develop their IT-related skills and resources to be able to understand better how their IT-related initiatives has impacted their business process. • A coordinated IT governance approach would ensure that CxOs are equipped with the necessary information to identify, in this study the, IT-related internal control weaknesses. • The IT governance related implication would be having a governance structure that embraces resources from different levels within the organisational hierarchy. • This study implicates that the effect on CxOs turnover is significant, it not overwhelming. • To move forward the “disciplinary effects” side of this research: • Understand where responsibility rests; • Who eventually suffers the consequence of such control deficiencies. • Provide important insights on distribution of the level of responsibility on IT-related policies and procedures, and CxO perceived ownership of IT-related resources embedded within their business processes.

9. Conclusion • The research endeavored to better our understanding on the disciplinary effects of reported weakness on firms IT-related material internal control weaknesses on CxOs. • This paper has succeeded in this venture. • One of possible factors that could have resulted to less than concrete outcome is the quality and variability of the dataset. • This perhaps, is the key limitation of what has been an important initiative, and the results of this study be interpreted with this constraint in mind. • One should also acknowledge the authors efforts on providing us with some important insights on the consequences of reporting SOX-related IT material internal control weaknesses. • This inevitably provides researchers with numerous insights and opportunities to further their knowledge on the implications of ineffective management of IT-related resources in organisations. • The practitioners would acknowledge that there is a lot that needs knowing on managing the ever-demanding resource that IT is.