TheCorporateCounsel.net

March 13, 2007

More Reform Recommendations: The US Chamber of Commerce’s Commission Report

Yesterday, the US Chamber of Commerce released a 179-page Report from a Commission it formed that makes a series of reform recommendations (here is an executive summary of the Report). This Report comes on the heels of a number of other reports urging reform, all of which are posted in our “Sarbanes-Oxley Reform” Practice Area; also noteworthy is today’s NY Times article on CEOs mingling with Congress leaders and Bush adminstration officials over reform efforts.

Here are the six “primary recommendations” from the Report:

1. Modernize the SEC – Reform and modernize the federal government’s regulatory approach to financial markets and market participants, including realigning its organizational structure (by forming a few new Divisions, including promoting a few offices to a Division such as the Office of International Affairs).

2. Give the SEC More Exemptive Authority – Congress should pass a law to provide the SEC with the flexibility to address issues relating to the implementation of the Sarbanes-Oxley, including folding SOX into the Securities Exchange Act of 1934.

3. Minimize Earnings Guidance – Companies should stop issuing earnings guidance altogether or move away from quarterly earnings guidance with a single earnings per share number to just providing annual guidance with a range of projected EPS numbers.

4. Protect Auditors – Policymakers should consider proposals to reduce the significant risks faced by auditors raised by litigation and criminal prosecution; consider the notion that auditors be allowed to raise capital from private shareholders rather than just audit partners.

5. More Retirement Savings Plans – Retirement savings plans should be multiplied by connecting all businesses with 21 or more employees which lack these plans to financial institutions that will provide such a plan.

6. Encourage More to Save for Retirement – Employers should sponsor retirement plans and enhance the portability of retirement accounts through the introduction of a simpler, consolidated 401(k)-like plan.

There are quite a few recommendations in the Report beyond these six primiary ones. For example, in the accounting area, the Report encourages continued of convergence of international and US accounting and auditing standards and seeks a change to the SEC’s existing approach to reconciliation (the Report recommends deciding whether to eliminate should be made on a country-by-country basis, with mutual recognition). The Report also would have the SEC’s Chief Accountant conduct rulemaking about when a restatement of financials is required.

In the enforcement area, the Report believes the SEC should implement – with Congressional support via targeted legislation – an enhanced “prudential” role over financial intermediaries and recommends that the DOJ and SEC should not consider the waiver of privilege as a factor in determining whether there was cooperation in an investigation. The Report also urges the SEC to study whether its enforcement program is effective (as well as the PSLRA’s impact on the effectiveness of the federal securities laws).

The Report tackled the thorny issue of formal vs. informal guidance from the SEC Staff – although informal guidance from the SEC is encouraged in the Report, “all parts of the SEC – including the Office of Chief Accountant – should adhere to the notice and comment procedures of the Administrative Procedures Act for significant changes in policy.” That sounds fine in principle but I get worried that all Staff guidance will be shut down (and the queries in our Q&A Forums will triple).

Other bloggers have analyzed this Report, including the D&O Diary and FEI’s Financial Reporting Blog.

Fixing CEO Pay From “Within”

Congrats to our own Jesse Brill for being profiled in today’s front-page WSJ article for his efforts to rein in CEO pay. Working with Jesse for these past 4-plus years has taught me a lot – including how important it is for us lawyers to speak up and say what we think, regardless of how unpopular the message might be. Somewhere over the past few decades, the legal profession changed and has tended to look more and more like a pack of sheep. Jesse has a lot of backbone and isn’t afraid to use it.

All I Ever Wanted Was a Human…

Thanks to Jim McRitchie of CorpGov.net for pointing us to GetHuman.com, a site that blissfully lists how to get ahold of a human on the phone rather than the automated mazes we encounter too often in our daily life. Of course, the human you get may very well be far away in India or some exotic locale…