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RECENTGOVERNANCEDEVELOPMENTSINTHEUNITEDSTATESRobertD.StrahotaAssistantDirector,OfficeofInternationalAffairs*U.S.SecuritiesandExchangeCommissionPreparedforFourthSouthEasternEuropeCorporateGovernanceRoundtableMarch7,2003*TheU.S.SecuritiesandExchangeCommission,asamatterofpolicy,disclaimsresponsibilityforanypublicationorpresentationbyitsemployees.TheviewsexpressedinthispresentationarethoseofMr.StrahotaanddonotnecessarilyreflecttheviewsoftheCommission,individualCommissioners,orMr.Strahota’scolleaguesonthestaffoftheCommission.SARBANES-OXLEYOVERVIEW•OnJuly30,2002,PresidentBushsignedtheSarbanes-OxleyActof2002(SOX)intolaw•SOXisthemostimportantsecuritieslegislationaffectingpubliccompaniesandaccountingoversightsincetheSecuritiesandExchangeCommission(SEC)wasformedin1934•WhilethenewlawwaspromptedbyproblemsencounteredintheU.S.,theseproblemsareglobalindimension•SOX’provisionsgenerallymakenodistinctionbetweenU.S.andforeignissuerswhoseektoaccessU.S.capitalmarkets–Theterms“issuer”and“publiccompany”asusedinmanyplacesthroughoutSOXmeananissuerthesecuritiesofwhichareregisteredundertheSecuritiesExchangeActof1934(ExchangeAct),whichisrequiredtofilereportsundertheExchangeAct,orthathasfiledaregistrationstatementforapublicofferingofitssecuritiesundertheSecuritiesActof1933thathasnotbecomeeffectiveandthathasnotbeenwithdrawn•SEC’smandateistoimplementSOXfullyforallissuers,foreignanddomestic,butitispreparedtoconsiderhowitmayfulfillthismandatethroughrulemakingandinterpretiveauthorityinwaysthataccommodatehomecountryrequirementsandregulatoryapproachestoforeignissuersandaccountantsSOXAUDITCOMMITTEEREQUIREMENTS•BeforeEnronandsubsequentfinancialreportingabusesarose,theNYSE,AMEXandNasdaqmarketsalreadyhadstrengthenedtheirauditcommitteerequirementsbyrequiringattheminimumathree-personcommitteecomprisedentirelyofindependentdirectorswithfinancialsophisticationandatleastonecommitteememberrequiredtohaveaccounting/auditingexpertise•InJuly2002,theNYSEapprovedrecommendationsofitsCorporateAccountabilityandListingStandardsCommitteethatwouldrequiredomesticissuerstohaveamajorityofindependentdirectors,strengthenthedefinitionofindependentdirector,andrequirethatauditcommitteesofNYSElistedcompanieshavethesoleauthoritytohireandfiretheindependentauditors•BeforeSOX,themarkets’auditcommittee,independentdirectorandothercorporategovernancerequirementsgenerallyhavenotappliedtoforeignissuerswithlistedsecuritiesSOXAUDITCOMMITTEEREQUIREMENTS•SOXdefines“auditcommittee”as:“acommittee(orequivalentbody)establishedbyandamongsttheboardofdirectorsofanissuerforpurposesofoverseeingtheaccountingandfinancialreportingprocessesoftheissuerandauditsofthefinancialstatementsoftheissuer;and…ifnosuchcommitteeexistswithrespecttoanissuer,theentireboardofdirectorsoftheissuer”•Forcertainpurposes,however,SOXimposesadditionalrequirementsregardingthecompositionandresponsibilitiesofan“auditcommittee”SOXAUDITCOMMITTEEREQUIREMENTS•SOXaddsSection10A(m)totheExchangeActandrequiresthatbyApril26,2003theSEC,byrule,mustdirectthenationalsecuritiesexchangesandNASDtoprohibitthelistingofsecuritiesofanycompany,includingforeigncompanies,thatdonotmeetthefollowingrequirements:–Eachmemberofthecompany’sauditcommitteemustbeadirectorandmustotherwisebeindependent;:–Theauditcommitteemustberesponsibleforhiring,retention,compensationandoversightoftheindependentauditors–Theauditcommitteemustberesponsibleforpre-approvalorallauditandnon-auditservices–Theauditcommitteemustreceivereportsfromtheindependentauditorsregardingcriticalaccountingpolicesandpractices,discussionsthathavetakenplacewithmanagementregardingalternativetreatmentsoffinancialinformationunderGAAP,andanyaccountingdisagreementsandothermaterialwrittencommunicationsbetweentheauditorsandmanagement–Theauditcommitteemustestablishprocedurestoreceiveandaddresscomplaintsregardingaccounting,internalcontrolandauditissues,andtoprovidecompanyemployeesanopportunitytomakeconfidential,anonymoussubmissionsregardingaccountingandauditingmatters–Theauditcommitteemusthaveauthoritytoengageindependentcounselandotheradvisers;thecompanymustprovideadequatefundingforthecommitteeAUDITCOMMITTEEREQUIREMENTS•Section10A(m)(1)(b)requiresthatSECrulesshallprovideforanissuertohaveanopportunitytocureanydefectsthatwouldbeabasisfortheU.S.listingprohibition•“Independence”meansthatanauditcommitteememberisnotanaffiliate(controlperson)oftheissueroranysubsidiaryandthatthememberreceivesnoconsulting,advisoryorcompensatoryfeefromtheissuerexceptishiscapacityasamemberoftheauditcommittee,anotherboardcommitteeortheboardofdirectors•SECisgivenauthoritytoexemptfromtheindependencerequirement“aparticularrelationshipwithrespecttoauditcommitteemembers,astheCommissiondeemsappropriateinlightofthecircumstances.”•SOXauditcommitteerequirementsapplytodomesticandforeignissuers.Congressprovidedonlyspecific,limitedexemptionauthorityinsuchprovisions.Therefore,itdoubtfulthatCongressintendedtheSEC’sgeneralexemptionauthorityunderSection36(a)oftheExchangeActtobeusedtograntexemptionsACCOMODATIONSFORFOREIGNISSUERS•InExchangeActReleaseNo.3