Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Monday, November 27, 2006

Heavyweights zero in on Sarbanes reforms.

There is an interesting convergence of themes on whether regulators in the US will react to the changing decisions of companies seeking to list. In the blue corner, arguing for a more “agile framework” is Mr Paulson, USA Treasury Secretary. In the red corner, Mr Eliot Spitzer, denying that US rules are hurting US competitiveness.

The London Stock Exchange has seen a flood of new companies joining the market that otherwise might have preferred Wall St, such as the vast Rosneft and Kazakhmys and the 36 Chinese companies now listed on Aim. Twice as much foreign equity is now traded in London as in the US.

Paul Sarbanes and Michael Oxley were lauded as heroes, whose rules would clean up corporate America. Four years on the view looks rather different. And the SEC is under pressure to relax some of the more demanding aspects of SOX.

A few weeks ago, US treasury secretary Henry Paulson, favoured a study aimed at determining how much America is losing out as a result of the stringent internal compliance and audit rules, which include a demand that chief executives personally declare their annual figures to be true.

Mr Paulson – and others – fear that US public markets are losing out to foreign rivals and private markets, ie that companies prefer to list on non-US markets or move into private hands rather than play by US rules. Chief executives’ estimates of annual SOX compliance range from £15-20 million pounds.

And with the strong potential for US exchanges NYSE and NASDAQ acquiring and merging with LSE and Euronext, many are concerned at the prospect of US regulation by the back door.

All of which puts into context the remarks made by Mr Eliot Spitzer, noted for his aggressive actions against investment banks and others during his time as New York state's attorney-general. Now fresh from winning the New York governor's race by a landslide, Spitzer has defended SOX. In an FT interview, he noted "The argument that we are failing in competitiveness because of regulations is incomplete. We're failing in competitiveness because of failed business models and the lack of smart investment in technology.”

This argument could run and run; meanwhile don’t expect a relaxation of the Sarbanes Oxley requirements anytime soon.


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