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Foreign Issuer BOD & SOX Compliance
When the Securities and Exchange Commission applied Reg FD to domestic companies only, the international community assumed the SEC set a foregoing precedent indicating blanket exemptions from major U.S. securities changes. Reg FD ("full disclosure") mandates that companies provide information to the public simultaniously with analysts, investors and others. Enter Sarbanes-Oxley...Clearly, foreign companies guessed wrong. What types of new regulation do foreign private issuers face? In this information packed 3 page paper, you'll find a summary as well as a forecast for where the issues will land when the dust settles. When the Securities and Exchange Commission applied Reg FD to domestic companies only, the international community assumed the SEC set a foregoing precedent indicating blanket exemptions from major U.S. securities changes. Reg FD — for full disclosure — mandates that public companies provide information to the public at the same time it tells analysts, investors and others. Clearly, foreign companies guessed wrong. The collapse of Enron and the bankruptcies of several major telecom companies, including Global Crossing and WorldCom, with the attendant layoffs of workers and in many cases total losses of their retirement savings, prompted intense Congressional scrutiny of required corporate financial disclosures. The level of Congressional and public scrutiny was already high because of the publicity surrounding the numerous failures of Arthur Andersen LLP to detect major fraud in corporate audits, leading to the virtual collapse of one of the world’s leading auditing firms, which only last year had 85,000 employees operating in 78 countries. In the face of a seriously declining stock market, the SEC proposed regulations requiring enhanced certification of all listed company financial statements by CEOs and CFOs. Congress began holding hearings, and very quickly reported out legislation, almost immediately adopted by the House, and somewhat later by the Senate, expanding on those reporting requirements and adding their applicability to foreign companies. The passage of the Sarbanes-Oxley Act's requires overseas companies listed on America exchanges to make numerous changes. These changes have caused a commotion non-domestic companies. Sarbanes-Oxley or SOX as it is affectionately known is aimed at cleaning up corporate governance and accounting in the U.S. However, some provisions of Sarbanes-Oxley conflict with the laws of other countries. That likely poses significant problems for foreign private issuers in U.S. markets. To appease its foreign companies, the SEC has offered a number of limited exemptions or special accommodations to certain provisions of Sarbanes-Oxley, including the attorney conduct rule and the use of non-GAAP financial measures, among others. The real battleground now it appears is over proposed rules on audit committee requirements and other Board related matters. Here is assembled a guide to the critical issues as well as a prognosis of the likely outcome. The risk if no compromise is found is that foreign companies that trade on U.S. exchanges could delist, while those considering a U.S. listing might wait. This could be significant as at the NYSE alone, 470 non-U.S. companies are listed, with a combined global market cap of $3.8 trillion, or about 30% of the total exchange. If even a fraction of those companies bolted, the impact would be heavy. U.S. investors would have more difficulty investing in foreign companies, and the companies that delist would lose easy access to American capital. This impact doesn’t even account for NASDAQ listings and other over the counter securities. The likelihood that such a mass exodus may occur is low. Most foreign executives, although paying lip service to the possibility, stress that it's not out of the question but highly unlikely. Two companies of note, Porsche (PSEPF ) in Germany and Daiwa Securities Group Inc. (DSECF ) in Japan, have recently announced delays to their plans for listing on the New York Stock Exchange as a result of Sarbanes-Oxley. But this is hardly enough to constitute of trend. [continued...] Want to know more? Download the White Paper "Foreign Issuer BOD & SOX Compliance" for just $9.95. People who ordered this paper also ordered: |
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