Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
74615918
label
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
74615918
sourceUrl
contentType
document
title
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
citationUrl
collections
Records of the Council of Economic Advisers (George W. Bush Administration)
Randall Kroszner's Files
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
74615918
levelOfDescription
fileUnit
otherTitles
t010-068b-corpgov-1-20140373f
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
b04a2cc8cec856ae
ocrText
2014-0373-F
[
]
Thursday, May 28, 2015
FOIA Marker
This is not a textual record. This FOIA Marker indicates that material has been removed
during FOIA processing by George W. Bush Presidential Library staff.
Council of Economic Advisers
Kroszner, Randall (Randy) - Subject Files
Location or
NARA Number:
FRC ID:
OA Number:
Stack: Row: Sect.: Shelf: Pos.:
Hollinger ID:
W 30
14
5
3
5789
18724
2740
2841
Folder Title:
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
Withdrawn/Redacted Material
The George W. Bush Library
DOCUMENT FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
NO.
001
Table of Contents
Corporate Governance Briefing Book
2
N.D.
P5;
002
Talking Points
Corporate Governance and Accounting Reforms
21
09/2002
P5;
003
Draft
[Letter] - To: POTUS - From: Harvey Pitt
5
06/14/2002
P5;
004
Report
SROs and Corporate Governance
2
11/01/2002
P5;
COLLECTION TITLE:
Council of Economic Advisers
SERIES:
Kroszner, Randall (Randy) - Subject Files
FOLDER TITLE:
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
FRC ID:
5789
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(I) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
2014-0373-F
Page 1 of 1
This document was prepared on Thursday, May 28, 2015
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Table of Contents Corporate Governance Briefing Book
2
N.D.
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Kroszner, Randall (Randy) - Subject Files
FOLDER TITLE:
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
FRC ID:
FOIA IDs and Segments:
5789
2014-0373-F
OA Num.:
2841
NARA Num.:
2740
RESTRICTION CODES
Presidential Records Act - |44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security/classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 5/28/2015
by erl
Corporate Governance and Accounting Reforms
Economic Perspective
Randall S. Kroszner
Member, Council of Economic Advisers
U.S. Executive Office of the President
October 2002
Conceptual Overview
Our macroeconomic outlook depends on the quality of
corporate governance and its reform:
-
corporate governance affects how financial
information is used
- better deployment of financial information
leads to better decisions & lower "transactions
costs" within organizations -> stronger
economic growth
Reforms are occurring at record pace through variety of
channels. Some examples:
Legal and regulatory initiatives:
- SEC: implementation of Sarbanes-Oxley Act
- NYSE/NASDAQ: proposed new listing standards
Market pressures toward reform:
- Managerial labor market
changes in D&O insurance
- Equity market, large shareholders
management/activist initiatives
- Market for corporate control
Reform: Three Core Principles at Work
Existing reforms tend to follow one of three core principles
of reform underlying President's ten-point plan, announced
last March:
Investor Access to Information
- timely and truthful reporting
Management Incentives
- including accountability (e.g., bearing of down-
side risk)
Auditor Independence
-
elimination of conflicts of interest, other
malincentives
Information Accuracy and Accessibility
Information-access reforms target a wide range of topics.
For example:
Disclosure of material off-balance sheet transactions
by 1/26/03
Disclose whether senior financial officers have code of
ethics (and, if not, why not) by 1/26/03
Reconciliation of pro-forma accounting with GAAP
Insider transaction Disclosure
Real-time disclosure
-
rather than waiting for periodic filing date
(e.g., quarterly report)
Manager/Officer Incentives and Accountability
Some recent reforms that target incentives (examples under
Act):
Legal sanctions for fraud and other dishonesty:
-
require CEO & CFO to certify financial reports.
-
tough penalties for false certification:
- up to $1 million (or 10 ys), or:
-
$5 MM (20 yrs) if "knowingly" standard met.
Auditor cannot be [recent] former employer of principal
financial officer (recent: 1 year or less
Restricting use, or requiring shareholder approval, of
certain forms of executive compensation.
- Prohibition on loans to officers and directors
Sarbanes-Oxley Act
Auditor Independence
A special board will be appointed to oversee the reform of
auditor's rights and incentives.
Public Company Accounting Oversight Board, under
SEC supervision
-
five members (only 2 CPAs) appointed by
10/28/02
- up and running by 4/26/03
Also, auditors will be prohibited from from supplying
certain (8) "non-audit" services, with additional
prohibitions under Board discretion.
-
All audit firms, foreign and domestic, must "register"
with board.
-
commitment to follow rules
-
provide audit work papers
-
SEC may decide to make exemptions of foreign
and other audit firms in some instances.
-
Board powers include:
-
referral of misconduct to SEC, DOJ others
-
establishing auditing, attestation, quality control
and ethics standards for public accounting firms to
follow in preparing and issuing audit reports
Next Steps
Big legislative and regulatory steps have been taken, as well
as major changes in the markets.
The SEC will implement the Act in phases, following a
"clock" set by Congress. Examples, by #days from
enactment:
-
30 days: rules requiring CEO/CFO certification of
financial statements.
-
90 days: appoint members to oversight board (PCAOB)
draft rules requiring disclosure of financial
officer codes of ethics (final at 180 days).
-
180 days: issue final rules requiring disclosure of
off-balance sheet transactions final rules on
presentation of pro forma financial information (not
misleading, reconciled with GAAP).
-
270 days: Board should be and running issue rule
directing exchanges to amend "audit committee" aspect
of listing standards.
SEC also must conduct studies. For example:
-
Should issuers be required to switch audit firms
periodically? (Act requires switching each 5 years).
SEC Record of Enforcement
FY 2002 - 2002
FY
FY
FY
2000
2001
2002
(year)
(year)
(10 mos)
Financial fraud and issuer
reporting actions filed
103
112
122
Officer and director bars sought
38
51
71
Temporary restraining orders filed
33
31
42
Asset freezes
56
43
50
Trading suspensions
11
2
10
Subpoena enforcement actions
9
13
18
Disgorgement of compensation/
N/A
18
17
bonuses/ stock options sought
Disgorgement ordered (millions)
$463
$530
$632
Penalties ordered (millions)
$43.7
$56.1
$46.9
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Talking Points
Corporate Governance and Accounting Reforms
21
09/2002
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Kroszner, Randall (Randy) - Subject Files
FOLDER TITLE:
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
FRC ID:
FOIA IDs and Segments:
5789
2014-0373-F
OA Num.:
2841
NARA Num.:
2740
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 5/28/2015
by erl
2
Pension and Corporate Governance Timeline
2001
December
12/2: Enron files for Chapter 11 bankruptcy protection.
2002
January
1/10: President convenes Task Force on Pension Security (Secretaries of Labor,
Treasury, and Commerce) and Financial Markets Working Group (Treasury, SEC,
Fed, and CFTC).
February
2/1: President presents recommendations of the Task Force on Pension Security
(better information, executive accountability during blackouts, access to investment
advice, and ability to diversify).
2/14: Boehner bill (H.R. 3762) on pension reform, implementing President's pension
recommendations, is presented in committee.
2/14: Oxley bill (H.R. 3763) on corporate governance and accounting reform is
presented in committee.
March
3/7: President presents Ten-Point Plan to Improve Corporate Responsibility and
Protect America's Shareholders, based on recommendations of Financial Markets
Working Group.
April
4/11: Boehner pension bill passes House 255-163 and is referred to Senate, which is
yet to act on pension reform.
4/24: Oxley corporate governance bill passes House 334-90 and is referred to Senate.
June
6/18: Sarbanes corporate governance bill is presented in committee.
July
7/9: President delivers corporate governance speech in NYC calling for enhanced
penalties and enforcement of securities fraud and related crimes.
7/15: Sarbanes corporate governance bill passes Senate.
7/21: Worldcom files for Chapter 11 bankruptcy protection.
7/25: Sarbanes-Oxley conference report passes House and Senate.
7/30: President signs Sarbanes-Oxley corporate governance bill.
Provisions of S-O effective immediately:
CEO and CFO certification (section 906);
CEO and CFO disgorgement of bonuses and profits from security sales if
earnings are restated due to material noncompliance with the financial
reporting requirements (section 304);
Prohibition of personal loans made by an issuer to its directors and executive
officers (section 402);
SEC to review the reports of all listed companies no less than once every three
years (section 408);
Penalties for "knowingly false" officer certifications up to $1 million and 10
years imprisonment (section 906);
Penalties for securities fraud include fines and maximum 25 years
imprisonment (section 807);
August
8/16: NYSE original listing rule proposals submitted to SEC for review.
8/29: (30 day mark)
SEC to issue final rules about CEO and CFO certification (section 302);
Effective date of accelerated filings by officers, directors and significant owners
(section 403).
September
9/10: original NASDAQ listing rule proposals published (not submitted to SEC).
October
10/28: (90 day mark)
The SEC must have appointed chairperson and initial members of the Oversight
Board (section 101);
SEC must propose rules prohibiting an officer to influence the conduct of audits
(section 303);
SEC must propose rules requiring each issuer to disclose that the audit committee is
comprised of at least one member who is a financial expert (section 407);
SEC to propose rules regarding the disclosure of code of ethics for senior financial
advisors (section 406)
2003
January
1/26: (180 day mark)
Audit firms must be registered with Oversight Board (section 102);
SEC must issue final regulations to carry out requirements on auditor independence
(sections 201, 202, 203, 204, 206);
SEC must consult with Secretary of Labor to clarify regulations regarding insider
trades during individual account plan blackout periods (section 306);
SEC to issue rules regarding the professional responsibilities of attorneys (section
307);
SEC to issue requirements that each annual and quarterly financial report must
disclose all material off-balance sheet transactions (section 401);
SEC to issue rules regarding accountant's retention of records (section 802;
SEC to issue report about the role and functions of credit rating agencies in the
operation of the securities market (section 702);
Comptroller General to issue report whether investment banks and financial advisors
assisted public companies in manipulating their earnings and obfuscating their true
financial condition (section 705).
April 2003
4/26: (270 day mark)
The SEC must determine if the Oversight Board has the capacity to carry out its
duties of overseeing accounting firms that audit the financial statements of public
reporting companies (section 101);
SEC to issue rules directing national securities and national securities associations to
prohibit the listing of any security of an issuer that is not in compliance with the Act's
audit committee standards, including the requirement that every member of the audit
committee by "independent" (section 301).
July 2003
7/30: (One year mark)
SEC to adopt, or to direct a registered securities association or national securities
exchange to adopt, rules to reduce conflicts of interest of securities analysts (section
501);
Comptroller General to study the potential effects of requiring the mandatory rotation
of registered public accountants (section 207); Comptroller General to conduct study
on the consolidation of public accounting firms (section 701).
3
Directors and Auditors
Administration
Sarbanes-Oxley
SEC
SROs
Majority
Requests that stock markets
NYSE: Listed companies must
Independent
require that a majority of a
have a majority of independent
Directors
company's directors be truly
directors (within 24 months of SEC
independent so that they have no
appr). NASDAQ: majority of
material relationship with the
independent members and
company.
independent director approval (by
ad hoc committee or majority) of
all director nominations.
Definition of
NYSE: i. No material relationship
Independent
(Board definition); ii. Five year
Director
cooling off period for employees,
auditors, interlocking relationships,
anyone with immediate family in
any of these categories (effective
upon SEC approval). NASDAQ:
prohibit former auditors from being
considered independent; 3 year
cooling off period for interlocking
relationships, receipt of >$60,000
other than for Board service,
former audit service.
Independent Audit,
The President also calls for all
Audit committee members must
NYSE: Audit, nominating, and
Nominating, and
members of a company's audit
be independent.
compensation committees
Compensation
committee, nominating committee,
comprised solely of independent
Cmtes.
and compensation committee to
directors (effective: audit- 6
be truly independent.
months after SEC approvall nom
and comp- 24 months of SEC
approval). NASDAQ: audit
commmitee member cannot be
"affiliate" of company in any way.
Audit Committees
Point 7: Investors should have
Audit committee hires and
Drafting rules to ensure audit
NYSE: Audit committee alone can
complete confidence in the
oversees accounting firms.
committees alone hire and fire
hire/fire auditor (effective within 6
independence and integrity of
Companies disclose if one
auditors.
Companies must
months of SEC approval)
companies' auditors. (I.e. Audit
member of audit committee is
disclose whether they have a
NASDAQ: Audit cmtes alone hire
committees choose auditors)
"financial expert." Auditors
"financial expert" on audit
and fire auditors, review and
disclose all critical accounting
committee (required by 10/28/02)
approve all related-party
practices to audit cmte.
transactions.
Regularly
NYSE: Board must schedule
scheduled
regular executive sessions without
meetings of non-
management (effective within
management
months of SEC approval).
directors
NASDAQ: same.
Auditor Service
Point 7: Investors should have
Auditors may not provide any of
Drafting rules to ensure audit
NYSE: Audit committee alone can
Restrictions
complete confidence in the
nine specified services for audit
committees approve non-audit
approve non-audit relationship
independence and integrity of
client and must obtain prior
services by external auditors.
with auditors (effective within 6
companies' auditors. (I.e. No non-
approval from PCAOB for any
months of SEC approval)
audit or internal audit services
services provided.
NASDAQ: Audit committees must
provided by external auditor)
approve non-audit services by
external auditors.
Auditor Rotation
Audit partner rotation every 5
years.
Foreign Auditing
Firms
Disclosure
Administration
Sarbanes-Oxley
SEC
SROs
Fuller Disclosure
Point 1: Each investor should have
Pro forma accounting statements
Proposed rules requiring
quarterly access to information
must be reconciled with GAAP in
description of accounting policies in
needed to judge a firm's financial
company reports. Material off-
clear language and put limitations
performance, conditions, and risk.
balance-sheet transactions must be
on pro-forma reporting.
disclosed in company reports.
Real-time
Point 2: Each investor should have
Proposed rules accelerating filing
NASDAQ: considering but nothing
Disclosure
prompt access to critical
deadlines. Tripled amount of
proposed yet.
information.
information that must be reported.
Ethics Code
Companies must disclose code of
Companies must issue code of
NYSE: Code of ethics and business
Disclosure
ethics for senior financial officers in
ethics for senior financial officers
conduct must be published, as
company report.
(required by: 10/28/02)
must any waivers. This includes
suggested prohibition of loans to
officers and directors (effective
within 6 months of SEC approval).
NASDAQ: same.
Accounting Practice
Point 10: Firms' accounting
Auditor report to audit committee
Disclosure
systems should be compared with
must compare company's audit
best practices, not simply against
practices to auditor's preferred
minimum standards.
treatment.
Compensation
Describe and justify compensation
Disclosure
packages in annual reports.
Insider Transactions
Point 6: Corporate leaders should
Management and principal
Initiated rulemaking to require
NASDAQ considered proposal but
be required to tell the public
stockholders must report
companies to promptly report
did not include in first submission to
promptly whenever they buy or sell
transactions by end of second
specific securities transactions
SEC.
company stock for personal gain.
business day.
(required by: done).
Executive
Point 3: CEOs should personally
CEO and CFO must verify fairness
Proposed rules requiring CEO and
NYSE: Listed company CEOs must
Certification
vouch for the veracity, timeliness,
and accuracy of company reports.
CFO certification of quarterly and
certify annually compliance with
and fairness of their companies'
"Knowing and willful" violations of
annual reports. (required by: done)
exchange corporate governance
public disclosures, including their
requirement subject to 20 years in
stds (effective within 6 months of
financial statements.
prison.
SEC approval).
NASDAQ: no proposal- considers
certification of financials an SEC
issue.
Going Concern
NASDAQ: A going concern
Qualifications
qualification in an audit opinion
must be disclosed by press
release.
Disclosure of
Firms must disclose material off-
material off-balance
balance sheet transactions
sheet transactions
(required by 1/26/03)
Listed foreign
NYSE: Listed foreign companies
companies
must disclose significant ways that
their corporate governance
practices differ from those
practiced by domestic companies
under NYSE standards (effective
within 6 months of SEC approval).
NASDAQ: disclosure of any
exemptions (GAINED THROUGH
APPLICATION PROCESS) to
exchange requirements, all interim
reports filed in home country be
filed with exchange and SEC.
Executive Compensation
Administration
Sarbanes-Oxley
SROs
Company Loans
Compensation committees of public
Prevents personal loans to corporate
NYSE: recommends corporations
companies called on to prevent
officers.
prohibit loans through statement of
corporate officers from receiving loans
conduct.
from their companies.
NASDAQ: Loans to officers and
directors prohibited.
Shareholder Approval of Stock
The President calls on the nation's stock
NYSE: requires shareholders approve
Option Plans
markets to require listed companies to
equity-compensation plans (effective
receive shareholder approval for all
upon SEC approval).
stock option plans.
NASDAQ: Requires shareholder
approval of all stock option plans or
meaningful adjustment to existing plans.
Approval of CEO
NASDAQ: Independent compensation
Compensation
committee or majority of independent
directors must approve CEO
compensation.
Independent Director
NYSE:
Compensation
NASDAQ: Independent directors must
not receive payments exceeding
$60,000 other than for board service.
Audit Committee
NYSE: Directors' compensation must be
Compensation
sole payment from listed company for
audit cmte members (effective within 6
months of SEC approval).
NASDAQ: same.
Accounting Board
Administration
Sarbanes-Oxley
SEC
Membership
Point 8: An indepenent regulatory board
Only two members can have been CPA.
Proposed rules for new independent
should ensure that the accounting
Chair may not have been CPA for five
accounting oversight board.
profession is held to the highest ethical
years prior to service.
standards.
Confidentiality
Board may compel information from
member-accounting firms and their
clients if the Board considers it "relevant
or material." Disclosures to board
remain confiderntial "unless and until
presented in connection with a public
proceeding."
Funding
Funded by accounting support fees
assessed on public companies.
Member Appointment
SEC will appoint five full-time members
SEC appoints members in consultation
in consultation with the Fed Chairman
with
(implementation: by
and Treasury Secretary.
10/28/02)
Accounting Standards
Point 9: Accounting standards must be
SEC may recognize as "generally
SEC has implemented procedures to
responsive to the needs of investors.
accepted" accounting principles
oversee FASB, broaden its funding
established by the Board.
sources, and promote principles-based
standards.
Penalties and Enforcement
Administration
Sarbanes-Oxley
SEC
Task Force
Corporate Fraud Task Force to provide
oversight and enable improved inter-
agency coordination of civil and criminal
investigations.
Mail Fraud
Double the maximum prison term for
Quadruple the maximum prison term for
mail fraud and wire fraud to ten years.
mail fraud and wire fraud to twenty
years.
Sentencing for Fraud
Requests U.S. Sentencing Commission
Imprisonment for up to 10 years.
to enhance prison time for criminal fraud
when committed by corporate officers
and directors.
Document
Up to 10 years imprisonment for
Destruction/Alteration
destruction of documents relevant to
bankruptcy or federal proceeding. Up to
five year imprisonment for destruction of
audit documents.
Obstruction of Justice
Strengthening laws that criminalize
Orders review of sentencing guidelines.
document shredding and other forms of
obstruction of justice.
Conspiracy
Amends conspiracy law to impose
sentence equal to the greater of 5 years
or maximum penalty of underlying
offense. Current maximum for
conspiracy is 5 years.
SEC Temporary Freeze
New provisions to strengthen the ability
Allows SEC to request in court a 45-day
of the Securities and Exchange
freeze on payments to executives under
Commission (SEC) to freeze improper
investigation.
payments to corporate executives while
a company is under investigation.
Penalties and Enforcement (cont'd)
Administration
Sarbanes-Oxley
SEC
SEC Funding
$20 million funding increase requested
Additional $776 million in FY03 for
earlier this year so that the SEC can hire
technology and at least 200 new
100 new enforcement officers. Also
enforcement officers.
request an additional $100 million in FY
2003 to enable the SEC to hire more
enforcement officers. and provide them
with state-of-the-art technology.
Non-dischargeable claims
Securities fraud claims non-
dischargeable under Bankruptcy Code.
Whistleblowers
Creates private right of action (if DOL
does not respond within 180 days) for
whistleblowers so they are shielded from
retaliatory action if the disclose
information to assist a "judicial
proceeding."
Disgorgement
Point 4: CEOs or other officers should
Following restatement of earnings,
Has sought appropriate disgorgement of
not be allowed to profit from erroneous
executive must forfeit bonuses, incentive-
compensation and/or stock options from
financial statements.
based compensation, and profits from
senior management.
stock sales for the previous year.
Director and Officer Bars
Point 5: CEOs or other officers who
SEC may bar officers and directors.
Under current legislative authority,
clearly abuse their power should lose
seeking to bar officers and directors
their right to serve in any corporate
appropriately in a record number of
leadership positions.
federal cases.
Expansion of Plaintiff Actions
Expands actions that can be brought by
plaintiffs, in civil cases. Extended statute
of limitations on securities fraud.
4
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Draft
[Letter] - To: POTUS - From: Harvey Pitt
5
06/14/2002
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Kroszner, Randall (Randy) - Subject Files
FOLDER TITLE:
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
FRC ID:
FOIA IDs and Segments:
5789
2014-0373-F
OA Num.:
2841
NARA Num.:
2740
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 5/28/2015
by erl
5
DRAFT- 8/1/2002
PUBLIC COMPANY ACCOUNTING REFORM AND INVESTOR PROTECTION ACT
LIST OF ACTIONS EXPRESSLY MANDATED BY ACT2
ACTIONS REQUIRED WITHIN 30 DAYS (August 29, 2002)
Matter
Obligation
Act Provision
Timetable for SEC Action
CEO and CFO
Commission to
Section 302 - Commission "shall, by rule," (1)
"The rules required by
certification
adopt rules
require certification of financial statements by
subsection (a) shall be effective
requirements
CEOs and CFOs of public companies, and (2)
not later than 30 days" after
require CEOs and CFOs to certify to the
enactment
effectiveness of internal controls and that the
auditors and audit committee are aware of
significant deficiencies in the controls
ACTIONS REQUIRED WITHIN 90 DAYS (October 28, 2002)
Matter
Obligation
Act Provision
Timetable for SEC Action
Appointment of
Required
Section 101(e)(4)(A) - Commission "shall
Appointments made "not later
Board members
appointments after
appoint the chairperson and other initial members
than 90 days" after enactment
consultation with
of the Board" and "designate a term of service
the Fed and
for each." Under Section 101(e)(4)(B), the SEC
Treasury
also fills vacancies on the Board.
Rules prohibiting
Commission to
Section 303(a) - Commission "shall prescribe"
"Commission shall (1) propose
improper influence
propose and adopt
rules "as necessary and appropriate in the public
the rules or regulations required
on audits
rules
interest or for the protection of investors" to
by this section, not later than 90
prevent fraudulent influence for purposes of
days" after enactment, and "(2)
rendering financial statements materially
issue final rules
not later than
misleading
270 days" after enactment3
Code of ethics for
Commission to
Section 406 - Commission "shall issue" rules to
"Commission shall (1) propose
senior financial
propose and adopt
require disclosure of whether a company has a
rules to implement this section,
officers
rules
code of ethics for senior financial officers and, if
not later than 90 days" after
not, the reason why it does not. Commission to
enactment, and "(2) issue final
also revise rules for disclosures on form 8-K, to
rules
not later than 180 days"
require immediate disclosure of any changes in,
after enactment
or waivers to, a code of ethics
Disclosure of audit
Commission to
Section 407 - Commission "shall issue rules, as
"Commission shall (1) propose
committee "financial
propose and adopt
necessary or appropriate in the public interest and
rules to implement this section,
experts"
rules
consistent with the protection of investors, to
not later than 90 days" after
require each issuer" to disclose whether the audit
enactment, and "(2) issue final
committee has at least one member who is a
rules
not later than 180 days"
"financial expert," as defined by the
after enactment
Commission, and to give reason why not if one is
not present
1
Enacted on July 30, 2002 (Pub. L. No. 107-204). General rulemaking authority is included in section 3(a) of the
Act.
2
This chart does not include rulemakings and other actions not expressly required by the Act.
3
Items with multiple statutory deadlines are only listed once, under the earliest deadline specified.
1
DRAFT- 8/1/2002
ACTIONS REQUIRED WITHIN 180 DAYS (January 26, 2003)
Matter
Obligation
Act Provision
Timetable for SEC Action
Rules to implement
Commission must
Sections 201, 202, 203, 204, 206, 208(a) -
"Not later than 180 days after
auditor
propose and-adopt
"Commission shall issue final regulations"
enactment of this Act, the
independence
rules to carry out
regarding prohibited non-audit services,
Commission shall issue final
provisions of Title
preapproval requirements, audit partner rotation,
regulations to carry out each of
II
reports to audit committees and conflicts of
subsections (g) through (1) of
interest. Commission must amend rules to
section 10A
as added by this
require disclosure in reports under section 13(a)
title"
of approvals by the audit committee of auditor's
performance of non-audit services.
Prohibition on
Commission shall
Section 306(a)(3) - "Commission shall, in
No deadline in Act, but rules
insider trades during
issue rules in
consultation with the Secretary of Labor, issue
presumably need to be effective
blackout periods
consultation with
rules to clarify" the prohibition on insider trades
before section takes effect 180
the Secretary of
during pension fund blackout periods, and to
days after enactment
Labor
"prevent evasion thereof"
Minimum standards
Commission to
Section 307 - "Commission shall issue rules, in
"Not later than 180 days after
of conduct for
propose and adopt
the public interest and for protection of investors,
the date of enactment of this Act,
attorneys
rules
setting forth minimum standards of professional
the Commission shall issue
conduct for attorneys appearing and practicing"
rules"
before the Commission, which shall include a
rule requiring an attorney with evidence of a
material violation to report it to company's chief
legal officer or CEO and, if necessary, the Board
Disclosure of
Commission to
Section 401(a) - "Commission shall issue final
"Not later than 180 days after
material off-balance
propose and adopt
rules providing that each annual and quarterly
the date of enactment of the
sheet transactions
rules
financial report required to be filed with the
Sarbanes-Oxley Act of 2002, the
Commission shall disclose" all material off-
Commission shall issue final
balance sheet transactions and other relationships
rules"
with unconsolidated entities having a material
effect on condition, capital, liquidity, results of
operations, revenues or expenses
Pro forma financial
Commission to
Section 401(b) - "Commission shall issue final
"Not later than 180 days after
information
propose and adopt
rules providing that pro forma financial
the date of enactment of the
rules
information included in any periodic or other
Sarbanes-Oxley Act of 2002, the
report filed with the Commission pursuant to the
Commission shall issue final
securities laws, or in any other public disclosure
rules"
shall be presented in a manner that" is not
misleading, and reconciles it with the financial
condition and results of operations of the issuer
under GAAP
Record retention
Commission shall
Section 802 - "Commission shall promulgate
"Commission shall promulgate,
propose and adopt
such rules and regulations, as are reasonably
within 180 days, after adequate
rules
necessary, relating to the retention of relevant"
notice and an opportunity for
audit records
comment, such rules and
regulations, as are reasonably
necessary"
2
DRAFT- 8/1/2002
ACTIONS REQUIRED WITHIN 270 DAYS (April 26, 2003)
Matter
Obligation
Act Provision
Timetable for SEC Action
Determination that
Required planning
Section 101(d) - "Commission to determine" that
"Not later than 270 days after
Board is properly
for establishment
the Board is organized and can carry out the
enactment"
organized
and administrative
purposes of the Act.
transition to Board
prior to
appointment of
Board, and
determination that
Board, once in
place, has capacity
to carry out its
obligations.
Standards relating
Commission to
Section 301 - "Commission shall by rule,
"Effective not later than 270
to audit committees
direct the
direct" the national securities exchanges and
days after the date of enactment
exchanges to
national securities associations to prohibit the
of this subsection, the
amend audit
listing of any security of an issuer that is not
Commission shall, by rule,
committee rules
incompliance with" new standards of audit
direct" the exchanges and
committee responsibility and independence
associations to prohibit certain
listings
ACTIONS REQUIRED WITHIN ONE YEAR (July 30, 2003)
Matter
Obligation
Act Provision
Timetable for SEC Action
Analyst conflicts of
Commission to
Section 501 - "Commission, or upon the
"Commission, or upon the
interest
adopt, or have
authorization and direction of the Commission,
authorization and direction of
securities
a registered securities association or national
the Commission, a registered
associations and
securities exchange, shall have adopted not
securities association or
exchanges adopt,
later than 1 year" after enactment, "rules
national securities exchange,
rules on analyst
reasonably designed" to address, and limit,
shall have adopted not later
conflicts of interest
securities analyst conflicts of interest, and to
than 1 year" after enactment,
require public disclosure of analyst conflicts of
"rules reasonably designed" to
interest
achieve goals of section
3
DRAFT- 8/1/2002
ACTIONS REQUIRED WITHOUT SPECIFIC DEADLINE
Matter
Obligation
Act Provision
Timetable for SEC Action
Commission
Commission to
Section 104(h) - "A registered public accounting
No deadline in Act, but
procedures for
promulgate
firm may seek review by the Commission,
presumably needs to be done
review of disputes
procedural rules
pursuant to such rules as the Commission shall
shortly after the Board is
over Board
promulgate," of certain Board determinations
operational
inspection reports
concerning inspections of public accounting
firms
Commission
Commission shall
Section 105(e)(2) - "Commission shall establish
No deadline in Act, but
procedures for
establish
for appropriate cases an expedited procedure for
presumably needs to be done
determining length
procedures for
consideration and determination of the question
shortly after the Board is
of stay in certain
appropriate cases
of the duration of a stay pending review of any
operational
reviews of Board
disciplinary action of the Board under this
disciplinary actions
subsection"
Recognition of
Commission shall
Section 108 - "Commission shall promulgate
No deadline in Act
accounting standards
propose and adopt
such rules and regulations" to implement
such rules and
provision for recognition of generally accepted
regulations to
accounting principles, "as it deems necessary or
implement new
appropriate in the public interest or for the
statutory provision
protection of investors"
Internal control
Commission to
Section 404 - "Commission shall prescribe rules
No deadline in Act
report as part of
propose and adopt
requiring each annual report
to (1) state the
annual report
rules
responsibility of management for establishing an
maintaining an adequate internal control structure
and procedures for financial reporting; and (2)
contain an assessment
of the effectiveness of
the internal control structure and procedures of
the issuer for financial reporting. With respect to
the internal control assessment required
each
registered public accounting firm that prepares or
issues the audit report for the issuer shall attest
to, and report on, the assessment made by the
management of the issuer"
4
DRAFT- 8/1/2002
COMMISSION STUDIES - SIX MONTHS OR 180 DAYS (January 26, 2003)
Matter
Obligation
Act Provision
Timetable for SEC Action
FAIR Funds for
Commission must
Section 308(c) - Study and report on civil
Report to Congress within 180
investors
conduct study and
penalties and disgorgement, to determine how to
days of enactment
report on previous
maximize efficiency, including recommendations
five years' civil
to address any concerns noted in the study
penalty and
disgorgement cases
Study and report on
Commission to
Section 702 - Commission is to report on study
Report to the President and
credit rating
conduct study
of the role and function of credit rating agencies
Congress within 180 days of
agencies
in the operation of securities markets
enactment
Study and report on
Commission to
Section 703 - Commission must conduct a study
Report to Congress within 6
aiding and abetting
conduct study
of securities professionals who have "aided and
months of enactment
liability
abetted" violations of federal securities laws
between 1998 and 2001, and report to Congress
Study of
Commission to
Section 704 - Commission shall conduct a study
Report to Congress within 180
enforcement actions
conduct study
of all of its enforcement actions involving
days of enactment
violations of reporting requirements and
restatements, within the previous five years, to
identify areas most susceptible to fraud or
manipulation
COMMISSION STUDIES - ONE YEAR OR MORE (July 30, 2003)
Matter
Obligation
Act Provision
Timetable for SEC Action
Study and report on
Commission to
Section 108(d) - Commission to conduct a study
Report to Congress within one
principles- based
conduct study and
of principles-based accounting
year of enactment
accounting
report
Study and report on
Commission must
Section 401(c)(1) -- Commission to complete a
Study to be completed within
special purpose
conduct study and
study and report on off-balance sheet transactions
one year after the adoption of the
entities
report on off-
and special purpose entities to ascertain the
off-balance sheet disclosure
balance sheet
extent of their use and whether the accounting
rules. Report and
transactions and
treatment afforded them results in transparency
recommendations to the
special purpose
President and Congress based on
entities
the Commission's findings must
be made within six months of
the completion of the study
5
DRAFT- 8/1/2002
GAO STUDIES - 180 DAYS (January 26, 2003)
Matter
Obligation
Act Provision
Timetable for SEC Action
Study of investment
None
Section 705 - GAO to conduct a study on
GAO to report to Congress
banks
whether investment banks and financial advisers
within 180 days of enactment
assisted public company earnings manipulation,
especially with regard to Enron and Global
Crossing
GAO STUDIES - ONE YEAR (July 30, 2003)
Matter
Obligation
Act Provision
Timetable for SEC Action
Report on potential
None
Section 207 - GAO to report on audit firm
GAO to report within one year
effects of mandatory
rotation
of enactment
rotation of public
accounting firms
Study and report of
Commission to be
Section 701 - GAO to report on study of
Report to Congress required
consolidation of
consulted on study
consolidation of accounting firms
within one year of enactment
accounting firms
6
6
SEC Funding
The President is committed to ensuring that the SEC has the resources it needs to crack down
on corporate wrongdoing and restore corporate accountability.
During the summer, the President asked SEC Chairman Harvey Pitt what additional
resources were necessary to get the job done. Chairman Pitt informed the President that he
needed supplemental funding to hire an additional 100 personnel immediately. Chairman
Pitt also requested an additional $100 million on top of the President's original '03 budget to
aggressively fulfill the SEC's mission.
The President delivered. The President asked for a supplemental appropriation for the SEC
and amended his 2003 budget request to reflect Chairman Pitt's request. We stand by our
commitment to ensure that the SEC has the fund necessary to get tough on corporate crime
and increase corporate responsibility.
If approved by Congress, the President's request would raise the SEC's funding for FY 03 to
$567 million (this represents more than a 25 percent increase over FY02 levels).
In addition, Chairman Pitt has said that, at his request, McKinsey and Co. is conducting a
comprehensive study to review the efficiency and needs of the Commission, which is
expected to be completed soon. If, at that time, Chairman Pitt determines that additional
resources are necessary to conduct the SEC's business, the White House will review that
request.
Congress has failed to pass all but two of the appropriations bills for 2003. The President is
hopeful that when the Congress returns for the Lame Duck session that it will quickly and
responsibly pass his budget requests so that all agencies, including the SEC, can operate at
the funding levels necessary to fully execute their missions.
7
Withdrawal Marker
The George W. Bush Library
FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
Report
SROs and Corporate Governance
2
11/01/2002
P5;
This marker identifies the original location of the withdrawn item listed above.
For a complete list of items withdrawn from this folder, see the
Withdrawal/Redaction Sheet at the front of the folder.
COLLECTION:
Council of Economic Advisers
SERIES:
Kroszner, Randall (Randy) - Subject Files
FOLDER TITLE:
Corporate Governance Briefing Book: Summer/Fall 2002 [1]
FRC ID:
FOIA IDs and Segments:
5789
2014-0373-F
OA Num.:
2841
NARA Num.:
2740
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act [5 U.S.C. 552(b)]
P1 National Security Classified Information [(a)(1) of the PRA]
b(I) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would:disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
This Document was withdrawn on 5/28/2015
by erl
8
Summary of NYSE Proposals Made August 1, 2002 and submitted to SEC on
August 16, 2002.
AL RECOMMENDATIONS
CURRENT RULES
IMPLEMENTATION TIMETABLE
Require corporate boards to have a majority of
Audit committee must be composed of at least three
Within 24 months of the date that the standard is
independent directors. Companies with a controlling
independent directors.
approved by SEC (except majority owned).
shareholder are exempt.
Require listed companies to have audit, compensation
and nominating committees composed entirely of
Effective within 6 months of SEC approval for audit
Require audit committee to be composed of at least
independent directors. Companies with a controlling
committee; effective within 24 months of SEC approval
three independent directors. No existing rules requiring
shareholder are exempt but must have a minimum
for nominating and compensation committees.
compensation and nominating committees.
three-person audit committee composed entirely of
independent directors.
Require non-management directors to meet at regularly
No existing requirement.
Effective within 6 months of SEC approval
scheduled executive sessions without management.
For a director to be deemed independent, the board
Existing definition precludes any relationship with the
company that may interfere with the exercise of
must affirmatively determine that the director has no
Effective upon SEC approval.
director's independence from management and the
material relationship with the listed company.
company.
Former employees of the company or the independent
auditor of the company-and their family members-
Three-year "cooling-off" period for former employees
Effective upon SEC approval.
may not be considered independent until five years
and business relationships.
after their employment ends.
Director's compensation must be the sole remuneration
from the listed company for audit-committee members.
No existing restrictions.
Effective within 6 months of SEC approval
Require listed companies to have an internal audit
Effective within 6 months of SEC approval
function.
No existing requirement.
Require shareholder approval of all stock-option plans,
Require shareholder approval of equity-compensation
ept employment-inducement options, option plans
Effective upon SEC approval.
plans for directors and officers, but broad-based plans
fuired through mergers, and tax-qualified plans such
and one-time employment inducements are exempt.
401(k)s.
Require board to adopt and approve a written charter
Effective within 6 months of SEC approval
Require companies to adopt and disclose governance
for the audit committee, which must be reviewed
guidelines, codes of business conduct, and charters for
annually. No existing rules requiring compensation and
their audit, compensation and nominating committees.
nominating committees, governance guidelines, or
codes of business conduct.
Require foreign private issuers to disclose significant
ways in which their governance practices differ from
Effective within 6 months of SEC approval
NYSE rules. A brief, general summary of significant
No existing requirement.
differences is sufficient to meet this requirement.
Allow the NYSE to issue a public reprimand letter to
No current provision.
Effective upon SEC approval.
listed companies in violation of a corporate-governance