October 21, 2004

Nasdaq Approves Code of Conduct Rules for Foreign Issuers

Today, the SEC approved the Nasdaq amendments that amend Rule 4350 and related interpretative material to provide time frames for foreign issuers and foreign private issuers to disclose certain code of conduct waivers. The amendments provide that:

1. Foreign issuers, other than foreign private issuers, are required to disclose any waivers of the code of conduct by the board of directors for directors and executive officers in the same time frame as domestic issuers, i.e., via a Form 8-K within five business days.

2. Foreign private issuers are required to disclose waivers of the code of conduct by the board of directors for directors and executive officers either on the issuer’s next Form 20-F or 40-F, or on a Form 6-K.

How Closely Are Mutual Funds Following Their Voting Guidelines?

Last month, the AFL-CIO issued a report – Behind the Curtain: How the 10 Largest Mutual Fund Families Voted when Presented with 12 Opportunities to Curb CEO Pay Abuse in 2004 – that ranked the 10 largest mutual fund families (based on assets managed in stock funds for retail investors) on how closely they followed the AFL-CIO’s guidelines on proxy voting on pay issues.

As you may recall, mutual funds began reporting their voting records at the end of August for the first time. Because mutual funds hold about a quarter of the domestic stockholdings, their votes can be decisive.

The report ranked the 10 funds by the percentage of how often the fund met the AFL-CIO’s guidelines – and their was quite a variance as the scores ranged from a high of 100% for American Century to a low of 20% for Putnam. Fidelity, the nation’s largest fund family (and who was very opposed to disclosing its voting record during that debate) ranked 9th with a 25% score.

Charities Get Their Own Sarbanes-Oxley

Sarbanes-Oxley continues to ripple through other areas of the law. A week ago, Governor Schwarzenegger signed a California bill – SB 1262 – which will impose some SOX-like requirements on charities, including requirements that charities with gross revenues of more than $2 million prepare financial statements in accordance with GAAP that are audited by independent auditors.

Corporate charities meeting this threshold will have to have an audit committee with responsibilities similar to those under SOx. The boards of all charities will be required to review and approve the compensation and benefits of the President or CEO and the Treasurer or CFO to assure that it is “just and reasonable.”

Keith Bishop notes that there probably are more charities affected by this law than issuers affected by SOX. According the California Attorney General, there were over 80,000 charitable organizations registered in California as of January 2001.