New-look SEC to tackle details of corporate reform

Corporate governance and accounting reform in America will be on the front burner on Tuesday, as new faces at the Securities and Exchange Commission and Chairman Harvey Pitt begin implementing the landmark Sarbanes-Oxley Act to clean up big business.

The most far-reaching remake of US securities laws since the 1930s, the legislation calls for many changes during the next year, including regular certification by top corporate officers of financial results and faster disclosure of corporate insider trading.

Both these sections of Sarbanes-Oxley will be considered on Tuesday at the SEC’s first public meeting with three new members: Harvey Goldschmid, Paul Atkins and Roel Campos.

As a series of corporate scandals ranging from Enron Corporation to WorldCom Incorporated shook US markets over the last 12 months, Pitt, a former elite Wall Street lawyer, spent most of his first year in office coping virtually alone with the crisis.

After winning praise for helping restore the stock markets after the September 11 attacks, Pitt took heavy fire for his handling of relations with past clients, leading some lawmakers from both sides of the aisle in Congress to call for his resignation.

The new commissioners will give Pitt needed political cover, lawyers said, and help share the load as the SEC hammers out the details of reforms drafted by Democratic Maryland Senator Paul Sarbanes and Republican Ohio Rep. Michael Oxley, and signed into law by U.S. President George Bush on July 30.

“It’s been a long time since there’s been a full commission and since there’s been one with such a range of experience and viewpoints,” said Gregory Bruch, partner at the law firm of Foley & Lardner in Washington and a former top SEC lawyer.

“It’s clearly a much stronger agency when you have a full complement of five commissioners, who are a mix of Democrats and Republicans.
It makes the SEC much less susceptible to being accused of engaging in partisan politics.”

Republicans Pitt and Cynthia Glassman, an economist who came aboard this summer, will be joined by Atkins, another Republican lawyer, as well as two Democrats—law school professor Goldschmid and broadcasting executive Campos.

The new-look SEC is under siege by corporate lobbyists trying to influence how it implements the quickly approved Sarbanes-Oxley legislation. Some lawyers estimated the SEC in the next year must adopt 24 new sets of rules.


An early test of the SEC’s commitment to the new law will come on Tuesday. The commission must square the demands of more than 1 300 foreign companies that are listed on US exchanges with a provision requiring chief executives and chief financial officers to swear by their firms’ financial results.

Eleven German companies—including automaker DaimlerChrysler AG and telecoms group Deutsche Telekom AG—have demanded that non-US companies be exempt from results certification. The British government has also complained.

Canada had by far the most listings in America at the end of 2001 with 503. Next was Britain with 143; Israel with 91, and the Netherlands with 43. Germany was ninth with 31.

The certification idea got a trial run this summer when CEOs and CFOs of 942 big US companies were ordered to vouch for past results. By Friday, 780 companies’ top officers had done so, with dozens more to come, according to an SEC Web site.

Non-US companies already get some breaks from the SEC. For instance, they furnish results to the SEC less frequently than US companies, and they are exempt from proxy and other rules. The exceptions are meant to reflect differing laws in their respective home countries.

The German companies argue that results certification is unnecessary and conflicts with how their corporations are structured, with no officer wielding the power of the American-style CEO.

But Sarbanes-Oxley clearly meant for non-US companies to be covered by results certification, if only in their annual reports instead of all of them, said Maureen Brundage, partner at the international law firm of White & Case in New York.

The SEC was likely on Tuesday to compromise by requiring annual certification, but no more, of foreign firms, she said.


Another Sarbanes-Oxley provision—to shorten disclosure times of legal corporate insider trading to two days from up to 40 days—is also slated to come before the SEC on Tuesday.

Investment bank Morgan Stanley and others have asked the SEC to waive the two-day rule for automatic trading programs, known as 10b5-1 plans, that stock-rich corporate chiefs use to regularly sell shares without running afoul of insider trading rules.

The SEC on Tuesday will also consider a proposal to accelerate financial statement filing deadlines. The due date for quarterly reports would become 30 days after the end of each quarter, instead of 45 days; for annual reports, 60 days after the end of the fiscal year, instead of 90 days.

The rule, proposed by the SEC itself in April, would apply only to companies under SEC regulation for at least a year, that have filed at least one annual report and that have a publicly held market capitalisation of at least $75-million.

In the coming year, the commission will face a long list of other deadlines to strengthen corporate governance and accounting, including September 2 when nominations are due for membership on a new accounting industry oversight board. The Public Company Accounting Oversight Board is supposed to be named by October 28 and up and running by April 26, 2003.

October 28 is also a key deadline for proposal by the SEC of several rules covering prohibition of improper influence on auditors, disclosure of audit committee expertise and disclosure of senior financial officer codes of ethics. - Reuters

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