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Standards & GuidanceBriefs .....
Majority voting for directors, Section 404 of the Sarbanes- Oxley Act (requiring company assessment of internal controls) and clear links between top executive pay and performance have been backed by a joint task force convened in the US by the Council of Institutional Investors and the National Association of Corporate Directors. A report, the culmination of 10 months work, has been published providing a range of recommendations that the task force believes will improve corporate governance at US companies. The group also recommended that boards consider seeking advisory shareholder votes annually on executive pay, which is widely being demanded by institutional investors this year.
Audit reports - the main channel of communication between auditors and shareholders - are currently too boilerplate and standardised, according to a report from the UK's Audit Quality Forum. (AQF). While the AQF’s paper recognised that auditors were subject to legal constraints—with the purpose of the audit report being a signed document expressing the truth and fairness of a company’s financial statements—it concluded that investors expected more. The AQF’s paper suggests that there should be positive statements as to the adequacy of the accounts and that there are no matters that auditors wish to draw attention to. The AQF’s report also recommended that reviews be carried out as to whether disclosures in annual reports meet the wishes of investors for more information, and as to whether the current Combined Code recommendations on audit committees are sufficient.
US institutional investors have criticised the Securities and Exchange Commission for the amendment, at the end of last year, to the rules relating to executive pay disclosure. The change became effective before the comment period ended last month. The Council of Institutional Investors opposed the revision which means that companies disclosing stock and option awards within the summary compensation table will use the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 Share Based Statement (FAS 123R) rather than disclosing the grant date fair value amounts - although these will have to be disclosed elsewhere. The SEC had said the changes would made it easier for companies to prepare and for investors to understand and this view was backed by the US Chamber of Commerce.
Siemens was hit with a record €396.6m fine after the European Commission found the German electrical engineering and electronics group to be one of 11 companies operating in a cartel. Operating in the market for gas insulated switchgear projects the group rigged bids for procurement contracts, fixed prices, allocated projects to each other and exchanged confidential information. Including Siemens’, the total fines imposed by the Commission equalled €750m.
NASD members have approved the plan for the securities regulator to merge with the New York Stock Exchange's (NYSE) self-regulatory arm to form a single self-regulatory organisation. The move is designed to create a single regulator for all securities brokers and dealers in the US, thereby eliminating regulatory overlap and reducing costs for the industry. Of the 83% of eligible NASD firms that voted, 64% supported the proposed combination. Mary Schapiro, NASD chair and chief executive, described the initiative as the replacement of an outdated regulatory structure with one that better serves the needs of firms and investors in a fast-changing marketplace.
Bryan Wagner became the first person to be convicted by the US federal courts in the Hewlett Packard (HP) pretexting investigation last month. He admitted to being paid as part of a conspiracy that made fraudulent use of people's confidential information to obtain telephone records of journalists and HP officials. Wagner pleaded guilty to establishing an online telephone service account in the name of a Wall Street Journal reporter and fraudulently used their social security number to access the reporter's telephone records. This was part of a HP investigation into leaks to the press of HP information. Wagner was engaged by Action Research Group as part of the inquiry. This firm had been appointed by Security Outsourcing Solutions, the company engaged by HP. Wagner pleaded guilty as part of a plea agreement. He will be sentenced in June.
The former general counsel for Comverse Technology has agreed to pay $3m to settle civil charges brought over the company’s share options backdating practices. William Sorin’s settlement with the US Securities and Exchange Commission (SEC) also bars him from serving as a company director or working as an attorney for one. Comverse is among the most high profile cases in the US stock options backdating scandal, and the US is currently seeking the extradition of the company’s former chief executive, Kobi Alexander, from Namibia. In its complaint against Sorin, the SEC alleges he created company records to falsely indicate the company’s compensation committee had approved an options grant on a date when no such meeting took place.
The Pensions Regulator has banned David Foster, the former chairman of Ericsson’s UK employee benefits scheme, from acting as a trustee over his attempts to boost the pensions of executives. The Pensions Regulator found Foster had misrepresented the pension benefits of UK executives to senior management within the Swedish telecommunications company, falsely stating that executives were entitled to benefits accruing at a 1/30th rate and to receive unreduced benefits from the age of 50. Foster also accepted for himself an “exceptionally favourable” second deferred pension.
The Financial Services Authority (FSA) is consulting on changes to its enforcement and decision making manuals that would take account of the regulator’s more principles-based approach to enforcement. The FSA proposes to delete these two manuals and replace them with a decision procedure and penalties manual that would essentially carry over the substance of current policy in a more concise and easily understandable form. However, among changes that are proposed is a focus on how to meet the “separation requirement” between those FSA officials who gather evidence and those who decide whether or not a case is to proceed. The deadline for comment is 10 April.
The finance committee of the US Senate has passed rules that will limit the earnings executives can place into deferred compensation plans. Included in the legislation is a provision to outlaw schemes that protect executive compensation from creditors in the event of a bankruptcy. Senator Chuck Grassley, the Republican ranking member of the committee, said, “Executives shouldn’t get to hide compensation from creditors while rank-and-file employees lose their shirts”. Another provision significantly limits companies’ ability to take tax deductions for the cost of executives’ personal use of corporate aircraft.
KPMG is to face a tribunal over its 2000 audit of Independent Insurance, which collapsed in 2001 when it was revealed the company had failed to set aside sufficient reserves for recorded claims. The complaint against KPMG and one of its partners, Andrew Sayers, was laid by Chris Dickson, executive counsel to the Accountants’ Joint Disciplinary Scheme (JDS). The JDS’ executive committee will appoint a joint disciplinary tribunal to hear the case.
The Sri Lankan rules on corporate governance for listed companies, formulated by the country's Securities and Exchange Commission and the Institute of Chartered Accountants of Sri Lanka in consultation with the Colombo Stock Exchange are to be incorporated into the Listing Rules for companies listed on the exchange. Mandatory compliance to the rules will be implemented in two stages. Firstly a table indicating the level of compliance with the standards set out in the Listing Rules must be included in company annual reports relating to the financial year commencing on or after 1 April. In the second stage, effective from financial years commencing on or after 1 April 2008, it will be mandatory for companies to comply with all governance standards and annual reports must contain statements affirming this.
The US Financial Accounting Standards Board (FASB) has established a 12 member advisory committee to help identify urgent accounting and financial reporting issues. The Investors Technical Advisory Committee will also propose new items for the FASB’s agenda and offer perspectives on the implementation of new standards. Robert Herz, FASB chairman, said the creation of the committee is another step in ensuring views of investors and other users are embedded in the FASB’s processes and reflected in the standards it develops.
February, 2007 |
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