Responses to ACSPC Request for Public Input
Corporate Governance/Listing Requirements
Question 23. Other than director independence and concerns related to SOX Section 404-mandated internal controls, do you believe other aspects of governance and disclosure reform are unduly burdensome for smaller companies, taking into account the benefits they provide to investors and markets? If so, please explain which items are unduly burdensome and the extent of such burden. How could the burdens be appropriately ameliorated?
The following answers have been received:
08/02/2005 17:44:12 Don't know yet
08/02/2005 23:36:32 Yes. You should be able to eliminate some of the requirements that are being applied to smaller companies. If they do not affect the quality of the financials, they should be eliminated.
08/03/2005 01:39:17 I don't have an informed comment. The entire SOX legislation was too hurriedly passed and implemented. However, the bigger problem is that there is a new set of regulations in a new aspect of corporate governance every two or three years. The total amount of regulation is overwhelming.
08/03/2005 08:55:04 Yes of course due to the cost for small companies such as ours.
08/03/2005 08:58:39 There is way to much burden on smaller banks. We just don't have the resources or the need. I am the President of the bank and everyone that works here is within 60 feet of me. I know what goes on.
08/03/2005 10:40:26 The requirement of quarterly reporting in a great burden. The un-coordinated requirements of the SEC, FRB, OCC, etc. that all recieve the same information but require their own forms to be completed.
08/03/2005 12:17:58 yes, most government is burdensome. no thought goes into business but, rather control by government
08/03/2005 15:01:40 Not aware of needed changes.
08/03/2005 15:22:49 Nothing to report
08/03/2005 18:01:35 Please look into item no 29
08/03/2005 18:30:29 x
08/03/2005 19:54:33 I take exception to your assumption that aspects of governance are providing benefits to the investors and markets, particularly in the small and micro-cap areas. I have observed how the regulations are frequently ignored, corruption appears to be rampant with respect to failures to cover and naked shorting of shares. Burdensome? IF THE "ASPECTS OF GOVERNANCE" WERE TRULY ENFORCED, IT WOULD MAKE LIFE MUCH MORE WONDERFUL IN THE WORLD OF MICRO-CAP COMPANIES.
08/04/2005 09:39:15 No
08/04/2005 12:09:05 Again, 8K disclosures have gone over the top. Also, the 10Q disclosures have exceeded practicality also. As stated earlier, a full disclosure for the Q at 6/30 (midyear) and full K disclosure at year end is enough.
08/04/2005 13:38:24 No comment.
08/04/2005 14:20:27 I will have our CFO give his opinion here.
08/04/2005 18:05:44 No
08/05/2005 10:54:31 Maintaing an ethics program for a small company can be very costly.
08/05/2005 12:38:34 Other aspects of governance and disclosure reform do not appear to be much of a deterrent! See item #5 above
08/05/2005 12:44:28 I have no comment.
08/05/2005 15:34:53 No
08/05/2005 15:43:46 As stated repeatedly, the burden in cost in a highly regulated industry like the small cummunity bank. To alleviate this problem the bright line provided by FDICIA on reporting on internal controls could and should be used. However, that is probably and issue for Congress and not solely in the realm of SEC rules.
08/05/2005 16:45:38 No, I do not believe that they are burdensome for public companies, and if they are, I question the need for that to be a public company in the first place.
08/05/2005 19:33:08 Not really. SOX in a burden that should be re-evaluated for small companies. Auditors should be able to work constructively with their small clients. The audit committee should have one inside director.
08/06/2005 13:52:06 No. 404 is the big issue.
08/08/2005 11:10:11 no.
08/08/2005 14:06:10 The other aspects of governance are already a part of the normal routines of smaller companies so I do not believe they are overly burdensome at this point. SOX 404 is another matter completely and that is the area where relief needs to be given to smaller companies. As for the Director rules, as I have said before, I think they are needed and should not be changed.
08/08/2005 15:43:24 Other than SOX 404, the burden is reasonable for smaller companies.
08/08/2005 21:39:10 We believe that investors and markets are best served by having companies provide pertinent, accurate, and timely information and that this information should be standardized amongst all companies of similar size. Regulation SB attempted to accomplish this to some extent, but additional regulations after SB have eliminated most of the benefits of having small business specific regulations. An updated SB that takes into affect the issues facing small businesses would be optimal.
08/09/2005 09:30:31 This question assumes that "other aspects of governance and disclosure reform..provide [benefits] to investors and markets." Multiple officers' certifications and auditors' opinions, do not provide benefits. Much of the additional burden is a triumph of form over substance.
08/09/2005 16:26:34 We can live with the other issues...however, it is popular to keep them growing...eventually that will kill the smaller companies.
08/09/2005 17:25:10 No.
08/10/2005 09:04:41 no comment
08/10/2005 13:44:39 Sox 404 is overwhelming everything else, and we are a highly regulated bank.
08/10/2005 16:00:18 As I indicated in another answer, for small companies like ours, there don't appear to be any benefits to our shareholders.
08/10/2005 17:18:15 Not at all - this is the price to be a public company.
08/10/2005 22:09:27 Too much detail to answer
08/11/2005 20:27:22 As the CFO of a mid size company, I am very concerned that I have too much personal exposure. The rules preclude coverage from D&O policies or Indemnification Agreements for certain acts. Although I am confident that I would never be a party to such acts, one never knows whether a smart attorney might convince a jury to the contrary. The market and the current rule structure is most likely pushing good CFO candidates as well as good director candidate away from accepting certain positions.
08/12/2005 13:12:10 I believe the governance and disclosure rules in effect prior to SOX were adequate for smaller banking companies...my only perspective from an experience and education point of view. The burdens could be ameliorated by consideration being given to the fact that banking is so heavily regulated and reported already.
08/12/2005 14:46:45 No the benefits outweigh the burden.
08/12/2005 16:35:01 I believe companies should report as they deeem appropriate. Companies that "under report" will receive their punishment from the market.
08/13/2005 12:39:43 Don't know
08/15/2005 14:27:30 Outside 404 and Audit Committee qualification rules, I think most of it is a paperwork exercise. Bad news: no real benefit. Good news: very little actual cost.
08/15/2005 15:10:05 No
08/15/2005 15:13:01 I don't think so. These two issues are the primary ones.
08/15/2005 15:14:45 Not especially........
08/15/2005 16:33:43 no-
08/15/2005 16:41:14 No
08/15/2005 18:59:52 I think that financial statement note disclosure,the requirement a statement of stockholders' equity since formation are examples of unduly bursensome obligations. S
08/16/2005 09:51:21 No
08/16/2005 10:10:36 Yes. 123R is burdensome and masks the real performance of the company.
08/16/2005 10:21:17 No.
08/16/2005 10:26:28 rules for materiality and relevance should be amended on a regular basis, sometimes in an industry specific manner
08/16/2005 10:42:02 See above
08/16/2005 10:44:16 I think all public companies need to be subject to same rules. I think general corporate governance guidelines are reasonable. All the committees may be difficult for small companies At times we feel like the process has assumed a life of its own. On balance, however, I am satisfied with corp governance requirements.
08/16/2005 11:18:54 What benefits? Anything quantifiable by anybody?
08/16/2005 11:52:16 No
08/16/2005 12:40:54 No
08/16/2005 12:42:56 Yes, FAS123 is killing high-tech companies.
08/16/2005 13:04:14 We received an SEC comment letter stating that we should be reporting under the Investment Company Act of 1940 since we had over 40%of qualifying assets invested in non-gevernment securities. We obviously are not an investment company and should not be reporting as one. The only reason we have over 40% invested is due to the classification of Auction Rate Securities (ARS) as short-term investments instead of cash equivelents. The change in classification of ARS came about because of a Price Waterhouse Coopers white paper and not a change in accounting promulgated by the FASB or the SEC. In order to avoid 1940 Act reporting we have had to sell our ARS and invest in money market funds, loosing about 50 basis points interest income. I believe if the change in classification had been suject to exposure to businesses like ours and to the financial advisors that suggest ASR investments as a cash mangagement tool, this change would not have occured or at least the SEC would have been able to respond and exclude companies such as Image Sensing Systems from 1940 Act reporting.
08/16/2005 13:12:04 Reg FD is a major problem in competitive comtext.
08/16/2005 13:20:23 No
08/16/2005 13:25:32 I really do not believe they are unduly burdensome. Director independence is appropriately burdensome. SOX 404 is a boondogle.
08/16/2005 13:27:00 SOX, other than 404, is not unreasonable.
08/16/2005 13:30:33 No
08/16/2005 14:08:05 No.
08/16/2005 14:23:10 The most significant and most unreasonable burden is interpretation of the SOX 404 requirements by the PCAOB and the public accounting firms. They have created a system that requires a blank check payable to the auditors with an unlimited budget for the audit engagement.
08/16/2005 15:15:12 All reporting carries a certain amount of burden with it. SOX is especially burdensome on small companies given the limited value of the generated information. I realize that some reporting is necessary, I just don't believe in the one size fits all. Reporting requirements need to be tailor to fit the usefulness of the data and the ability of the company to produce it economically.
08/16/2005 16:09:47 No.
08/16/2005 16:16:04 See above.
08/16/2005 16:45:09 We see many of the requirements burdensome and of marginal value, at best, to the investor. Again, we think that the investor needs need to be defined by the investor and not by the accounting or regulatory world. Some of burdensome rules are necessary for some companies and not for others. Again, a company who doesn't provide the "appropriate" data will loose investor interest and value. Let the company decide what is important to their investors.
08/16/2005 18:35:41 No in any way that I think of.
08/16/2005 21:29:07 No.
08/17/2005 12:28:22 no.
08/17/2005 12:36:00 I am concerned with talk regarding reducing the time for filing quarterly and annual reports. Frankly, it's not a problem for management to prepare those reports in a shorter time frame, but my concern is on the added pressue on the accountants and attorneys who must review them. More time allows for more attention and less chance of error.
08/17/2005 12:48:33 Over regulation is always burdensome.
08/17/2005 18:49:20 I don't think it is a problem
08/17/2005 18:49:27 No, I think independence is good value for money
08/17/2005 19:31:08 I don't think the other changes are overly burdensome.
08/17/2005 21:27:12 No.
08/17/2005 22:55:14 No, other than the prohibition on loans to officers.
08/18/2005 08:03:31 Plse see answer before.
08/19/2005 02:56:12 The non-404 areas are fine - most of these are things that ethical corporate managers will do anyway. We probably already followed 95% of the new rules before SOX simply because it was the "right thing to do."
08/19/2005 11:44:44 The other aspects of compliance pale in comparison to the burden of Section 404. Small companies should be considered for exemption from 404.
08/19/2005 13:49:01 One aspect of reform that has created the most burden is the accelerated reporting on Form 8K. Though the frequency of required reporting of applicable events is limited at the company´s international locations, it is often difficult, or even impossible, to assess whether or not an event meets the reporting criteria. We have informed our international managers about the legal reporting requirements on Form 8-K and can only rely on them remembering this requirement later on when necessary. International locations for our company are sales offices with no compliance personnel to ensure that all reporting requirements are met, making the compliance effort that much more difficult to monitor. Because of the limited amount of time to file the 8-K legal counsel must get involved at a high billable rate to meet the deadline. Reverting to the prior required reporting timeframe would help to limit the cost and ease the internal burden of immediate response.
08/19/2005 14:40:28 I do not believe that governance issues are unduly burdensome for smaller companies.
08/19/2005 14:50:07 No opinion at this time.
08/21/2005 22:19:50 I think Section 404 is the most burdensome by far for smaller companies.
08/22/2005 14:21:23 Difficult to determine exactly what other aspects of governance and disclosure are burdonsome but I believe most are worthwhile.
08/22/2005 15:20:23 Can't think of any.
08/22/2005 15:47:02 No additional comment.
08/22/2005 15:47:34 No.
08/22/2005 17:54:28 This is somewhat of a philosophical question. I do not believe more regulation is beneficial to investors. An investor has an obligation to be informed, and there is already plenty of information. "A fool and his money are soon parted". Thus "disclosure reform" is not useful.
08/22/2005 17:56:59 No
08/22/2005 19:27:18 I think it might be better to standardize what directors get from management and who boards talk to. Boards are very dependent on 2-3 employees at most small companies! There shoudl be a requirement to increase there interaction with the general employee population
08/22/2005 20:10:17 ?
08/23/2005 15:56:30 Its all about SOX 404.
08/23/2005 16:49:34 The cost of EDGAR reporting is quite burdensome
08/23/2005 18:10:00 No.
08/23/2005 21:11:03 first, qualify and quantify the "benefits they provide to investors and markets". There is an anecdotal case for strong governance but not an objective repeatable economic case.
08/24/2005 16:19:27 There should be no personal liability.
08/24/2005 16:26:56 No opinion.
08/24/2005 16:54:47 No
08/24/2005 20:16:09 10K and 10Q's are very burdensome to small public companies. We need to expand the qualifications for SB filers to more companies.
08/25/2005 15:23:41 No.
08/25/2005 16:26:29 Required government census reporting is extremely burdensome for small companies.
08/25/2005 17:02:43 No.
08/26/2005 12:41:42 The whistle blower rules and codes of conduct are not necessary. Since implementation no one has contacted our compliance officer. Upon issuing the code of conduct - I find them in the shred box. Most employees forget that we have a written code. It is appropriate to realize that we conducted business in an ethical manner for many years without a written code of conduct - which no one refers to. For example - most employees do not have to refer to a code of conduct to know that they should not take a kickback from a vendor.
08/26/2005 13:07:22 No.
08/26/2005 15:31:29 No
08/26/2005 16:22:08 No.
08/27/2005 11:21:03 Auditor independence is a huge problem. Fraud at the smaller company level is almost never at the financial reporting level (it is at the stock trading and promotion level), so preventing auditors from providing the practical day-to-day solutions to accounting problems simply drives the cost up without improving quality or integrity. There should be an exemption from the auditor independence rules for providing answers to smaller company accounting problems.
08/28/2005 23:37:43 Vendor contract management severely penalizes small vendors who are handlers of customer information.
08/29/2005 10:21:15 SOX 404 is our main concern at this time. While some other reporting requirements or the frequency of such requirements may seem unnecessary at times, nothing has been as costly and time-consuming, without providing a universal solution to the ethical problems within some companies that ultimately drive large-scale accounting and reporting fraud, as SOX 404.
08/29/2005 10:21:25 SOX 404 is our main concern at this time. While some other reporting requirements or the frequency of such requirements may seem unnecessary at times, nothing has been as costly and time-consuming, without providing a universal solution to the ethical problems within some companies that ultimately drive large-scale accounting and reporting fraud, as SOX 404.
08/29/2005 11:21:29 No
08/29/2005 14:18:47 I don´t believe that being a public company is supposed to be easy, or necessarily even cheap. To tap into the richest markets in the world, a firm has to be prepared to spend some effort and money. I do not support making it easier for firms to be a public firm simply because of their size.
08/29/2005 15:31:21 No opinion
08/29/2005 17:09:27 The requirement to convert reports to EDGAR format is costly for smaller companies to have to outsource this service to a third party firm. The 2 day reporting requirement on Forms 3/4 (insider trades) is restrictive for smaller companies with a limited staff.
08/29/2005 17:12:26 No.
08/29/2005 17:36:32 We believe that if the company management is honest the burden is much too high. If the management is dishonest then it isn't in that case. Its like the war on drugs, somebody will always find a way to circumvent the rules no matter how many you make. You could continue on the current course and ultimately nobody will want to be public in the USA.
08/29/2005 19:02:32 This is too general for me to answer. Anything extra is a burden. I believe the existing reporting is sometimes burdensome. A majority of outside directors has decreased the quality of the board of directors and committees.
08/29/2005 19:05:24 Disclosure reform related to Form 4 and 8-K´s are unduly burdensome. For example, a small company may have a single employee responsible for Form 4 filings. Providing a week rather than 2 business days to make these filings would be a significant relief. Similarly, the 8-K events have been significantly expanded and the filing times shortened. A small company doesn´t have legal staff dedicated to monitoring and evaluating potential 8-K events. Additional time and flexibility related to the 8-K filing requirements would also be helpful.
08/29/2005 21:00:01 No.
08/30/2005 15:04:16 SB filings, 10Q and 10K filings are all redundant and excessive. Information on shares, options, compensation, financial statement comparisons could all benefit from improved and significant disclosures in spreadsheets and matrixes. The verbiage on data comparisons are often incomprehensible.
08/30/2005 15:07:00 The timing for reporting is an area that is more difficult for smaller companies with less staff and less sophisticated automated systems.
08/30/2005 17:08:46 Do not believe that other aspects of governance and disclosure reform are unduly burdensome for smaller companies.
08/30/2005 18:26:14 Compliance with the cooling-off period for employment with a client negatively affects smaller companies due to the shortage of qualified personnel which has been created by SOX. Investors in small companies would benefit from the hiring of highly qualified individuals with existing knowledge of the company.
08/30/2005 18:48:02 All governance and disclosure rules are more expensive to fulfill for a small company than for a large one because it takes a larger percentage of the company budget. However in most cases the benefits outweigh the cost. For example, small companies reporting to the SEC have their financials displayed publicly right alongside the giants of industry. The overall burden of governance could be reduced by increased efficiency and reduced red tape in our system. As mentioned elsewhere, the ability to send all financial notices and reports to shareholders via email (when the shareholder requests it) is a logical step. Also, we need an overhaul of our patchwork system of individual states each enforcing their different registration and blue sky laws. In our connected/wired era the states should unite behind one, overall policy.
08/30/2005 18:51:48 We don´t believe that the other governance and disclosure requirements are unduly burdensome.
08/30/2005 21:07:56 NO.,
08/30/2005 21:39:41 Primary burden is costs of SOX 404 assessment and compliance.
08/30/2005 23:57:28 No
08/31/2005 10:19:14 Director independence is paramount for all publicly traded and non-publicly traded companies. Compliance with SOX 404 internal controls and the other aspects of SOX regulations is important for publicly traded companies; perhaps smaller companies should be granted an extended implementation timeframe and auditor testing of controls every 2-3 years instead of every year. Compliance with SOX 404 internal controls abd other provisions of SOX is not necessary for non-publicly traded companies. Accredited investors and other private investors should take it upon themselves to understand what is going on.
08/31/2005 14:00:16 I don't have any problems with other aspects of governance - committee charters, etc. This is relatively inexpensive to create and maintain. All companies should understand this is a minor cost of being public.
08/31/2005 14:25:37 The biggest problem is the asinine low standards for a whistleblower suit and the criminal penalty for providing and certifying a report. It is one thing if there is fraudulent intent and another for an honest mistake. SOX makes no distinction. The restictions on audit and accounting firms working with management is unbelievable
08/31/2005 15:19:27 Yes, many of the disclosure requirement are tough on smaller companies who cannot afford the personnel with SEC reporting experience.
08/31/2005 16:13:45 The expected acceleration dates for reporting for smaller companies is unduly burdensom for smaller companies which have smaller staffs.
08/31/2005 16:16:33 23. A primary burden for all companies, whether small or large, is the decreased time frame given to file the 10-K and the 10-Q. Companies currently have a difficult time in completing the filing on time, let alone the planned acceleration over the next year. Smaller companies have an increased difficulty due to the lack of resources and manpower enjoyed by larger companies. . Our investors seem to be comfortable with the current time frame, and they have not requested information any earlier than the current deadline
08/31/2005 17:16:33 I think reporting a section 16 transaction with in 48 hours is too short. By the time a broker tells you about the trade its already one day. It's difficult to get the attorneys to respond in one day. The time period should be increased to one week.
08/31/2005 18:22:30 No
08/31/2005 18:23:08 No response.
08/31/2005 19:16:05 23. The requirements on accelerated quarterly and annual report filings are unrealistic. More analysis and better disclosure in a shorter period of time is not an attainable goal for a company with our resources. Rules that require audit committee review and auditor review lengthen the process and will ultimately lead to more estimating in the financial closing process in order to meet the time objectives. In the end, these types of rules will lead to more misstatements rather than less.
08/31/2005 20:55:07 I think that the increased governance requirenmnets are fair, however when a company is small the number of board members is small. Therefore a smaller subset of committees would make more sense.
09/01/2005 14:30:54 The effects and costs of Rule 404 clearly outweigh any of the other provisions of SOX. Other provisions although burdensome may have benefit to the market place in the long-term.
09/04/2005 07:42:16 No