Overseas Companies to SEC: Don't Tie Us Down with New Governance Rules

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Plans to tighten corporate governance laws have caused concern among foreign firms. Many months of lobbying may finally be paying off, but they don't expect a get-out clause By Paula L. Green

Perhaps it's a case of too little, too late, but Washington finally may be listening to the complaints of foreign companies feeling squeezed by US government efforts to curtail corporate corruption here at home.

A recent meeting between officials at the US Securities and Exchange Commission, the offices of congressmen Paul S. Sarbanes and Michael G. Oxley and foreign executives suggests the federal agency is listening to the concerns of overseas companies that are listing their securities on US exchanges.

"The meeting gave us the feeling that they're listening and they want to resolve as many conflicts as they can," says Todd Malan, executive director of the Organization for International Investment in Washington, DC. "But also that they are not going to let anyone out from the spirit and intent of the law."

Malan's group represents the interests of the US subsidiaries of nearly 100 companies, including many who have listed their shares on US markets. Sarbanes and Oxley are the congressmen who framed the eponymous act of 2002, which Congress approved in July in response to the wave of corporate scandals that have shaken investor confidence in US capital markets.The SEC is now in the midst of writing the regulations that will put the provisions of the Sarbanes-Oxley Act into place. Some-such as a requirement that a company's chief executive officer and chief financial officer certify specific financial statements-- were immediate. Other decrees-such as a corporation's need to have its auditing firm register with a new accounting oversight body-won't take effect until the end of April next year.

No Distinction for Foreign Firms

The major provisions of the act revolve around the governance of the accounting profession, disclosures by public companies, corporate governance and greater criminal penalties for securities fraud.

But most importantly for the more than 1,300 foreign firms that are registered with the SEC, the law makes virtually no distinction between US issuers and foreign private issuers. In the past, the SEC has made exemptions for foreign firms, a point that SEC chairman Harvey L. Pitt made in a speech given by video link early last month to a corporate audience gathered in London. Malan said foreign companies were heartened by Pitt's remarks, which stressed that the agency welcomed input from foreign firms and wanted to resolve conflicts while fulfilling the legislation's mandate.

"It was the first public articulation of that," says Malan, referring to the practical problems the law is creating for overseas firms as it conflicts with their own corporate laws. "They [the SEC] are saying that they get it."

But the remarks came too late for at least one German firm. Porsche, the German sports car maker, announced last month that it had scrapped plans to apply for a listing on the New York Stock Exchange because it did not agree with a US rule that forces chief executives to swear to the accuracy of their companies' accounts. Other German companies have also registered their complaints with the rule because German laws already require company accounts to be accurate and give the entire management board, the supervisory board and the auditors responsibility for their accuracy. …