July 12, 2010

Survey Results: Code of Ethics and the Board

Below are the results from a recent survey we conducted on the topic of code of ethics and the board:

1. Which board committee typically reviews (and approves) your company’s Code of Ethics policy:
– Corporate Governance committee – 57.9%
– Audit committee – 31.6%
– Compensation committee – 0.0%
– Compliance committee – 0.0%
– Other board committee – 2.6%
– No board committee – 7.9%

2. Which board committee “enforces” (or handles complaints related to) the business conduct provisions of your company’s Code of Ethics such as confidentiality, use of corporate assets, etc.:
– Corporate Governance committee – 31.6%
– Audit committee – 68.4%
– Compensation committee – 0.0%
– Compliance committee – 0.0%
– Other board committee – 2.6%
– No board committee – 0.0%

3. Our company has a separate Code of Ethics – one for our senior financial officers and a separate one for all our employees:
– Yes, they are separate – 16.2%
– No, there is only one Code that applies to both senior financial officers and all employees – 83.8%

4. Our company has a separate Code of Ethics – one for our Board of Directors and a separate one for our employees:
– Yes, they are separate – 13.2%
– No, there is only one Code that applies to both directors and employees – 86.8%

5. When it comes to the Code of Ethics that applies to our directors, our Board:
– Is required to sit through actual ethics training – 18.4%
– Is offered an ethics training class if they wish to sit through it – 15.8%
– Just gets copies of the Board’s Code of Ethics – 65.8%

Please take our new “Quick Survey on Director Education & Orientation.”

Is the PCAOB a Good Cop or Big Flop?

Yesterday, I was surprised to see this lengthy article in the Washington Post analyzing the PCAOB’s tenure so far. My surprise had more to do with a mainstream newspaper choosing this topic than what was in the piece. The article itself is pretty comprehensive and hits most of the marks (one item it doesn’t cover enough is how much the PCAOB is beholden to the SEC and how that may hamstring how it operates).

Speaking of marks, in the article, Lynn Turner is quoted as giving the PCAOB a “B” for inspections, a “D-plus” for standard setting and an “F” for enforcement. When the PCAOB was born, I was concerned that the PCAOB would overly extend the SEC’s enforcement capabilities and efforts. Here is an excerpt from the WaPo article on what has actually transpired:

In the realm of enforcement, the PCAOB shares powers with the SEC and was intended to bolster the SEC’s policing efforts. But Turner, the former SEC official, said the board may have the opposite effect. Because PCAOB investigations unfold in secret, audit firms “are much better off if the action is brought by the PCAOB where it can be kept under wraps, slowed down and dragged out without anyone knowing anything whatsoever about it,” Turner said by e-mail. The board’s acting chairman made a similar point in recent testimony, saying the law gives auditors “an incentive to litigate, rather than settle, in order to delay any adverse publicity.”

So far, the board has issued 31 disciplinary orders, some of which send mixed messages. After the chairman of a computer services company in India confessed to inflating profits for several years and overstating a cash balance by $1 billion, two auditors affiliated with PricewaterhouseCoopers allegedly failed to cooperate with a PCAOB investigation. The board disbarred the auditors in March, about a year after it first sought their testimony.

In 2009, the board disciplined a former Deloitte & Touche auditor for misconduct that allegedly took place more than five years earlier. In another case, a BDO Seidman auditor was disbarred for allegedly backdating records to make it appear that an audit was done properly and for directing a subordinate to do the same. The auditor has since left the firm. Two years after disciplining him, the board reinstated his right to audit public companies. Carcello, the Tennessee professor, said the outcome of some cases left him wondering: “What does it take to be disbarred for life?”

Poll: Do Folks Still Refer to the PCAOB as “Peekaboo”?

As I blogged about back in 2003, the PCAOB strongly dislikes being referred to as “Peekaboo.” When I heard that way back then, I assumed the nickname died a quick death and I have only heard the PCAOB referred to as such on rare occasion. Thus, I was surprised that the WaPo’s article used the term in its subtitle. Participate in this anonymous poll and let us know what you call the PCAOB:

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– Broc Romanek