November 29, 1999 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549-0609 Re: Proposed Rules on Audit Committee Disclosure File No. S7-22-99 Dear Mr. Katz: Exxon Corporation, a company subject to the disclosure requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), wishes to make the comments contained in this letter on the rule proposals contained in Release No. 34-41987 (the "Release"). Regulation S-K, Item 306(a)(1) as proposed would require a statement by the audit committee as to whether it has reviewed and discussed the audited financial statements with management. It has long been our practice to have financial management and the independent auditor review and discuss Exxon's audited financial statements with the entire board. We believe that it is appropriate to provide every director the opportunity to participate in such discussions. As a result, we do not repeat that discussion in an audit committee meeting. We should note that Exxon's audit committee meets several times a year. At each meeting the committee is given the opportunity to discuss any matters it desires with financial management and the independent auditor (together, and each separately as a routine procedure). As presently drafted, clause (a)(1) would appear to require a negative response in our audit committee's report along with the foregoing explanation or, to avoid that, an i! nefficient repeat of the board m eeting discussion. Therefore, we recommend that clause (a)(1) be revised to require a statement as to whether the audit committee or the full board of directors has reviewed and discussed the audited financial statements with management. Regulation S-K, Item 306(a)(4) as proposed would require proxy statements to include an audit committee report stating whether anything has come to the attention of the audit committee members that caused the committee to believe that the audited financial statements included in the company's Form 10-K for the most recently completed fiscal year contain an untrue statement of a material fact or contain a material omission. We believe the requirement to refer to the Form 10-K can cause an unnecessary process problem. In a typical corporate disclosure schedule, the proxy statement for the company's annual meeting must go to the printer before the Form 10-K for the most recent fiscal year has been filed. As a result the members of the audit committee would be required to make their report in an SEC filed document before the Form 10-K is filed. The clear implication is that they had seen the Form 10-K as filed. In fact, that will not have been possible. We believe this prob! lem can be avoided without detra cting from the proposal's purpose. In the typical schedule for corporate disclosure documents, the text of the annual report to shareholders (including the report of the independent auditor) would be available to the members of the audit committee by the time the proxy statement containing the audit committee report must be printed. We, therefore, recommend that the requirement in clause (a)(4) of Item 306 be revised to replace the reference to the company's annual report on Form 10-K with a reference to the company's annual report to shareholders required by Rule 14a-3(b). Regulation S-K, Item 306(c) as proposed provides that the audit committee report would not be deemed to be "soliciting material" or to be "filed" with the Commission or subject to Regulation 14A or 14C or subject to liability under Section 18 of the Exchange Act (with exceptions not relevant for this discussion). Part III.E of the Release notes that the Commission intends to follow the Blue Ribbon Committee's recommendation to adopt liability "safe harbors" to cover the new disclosures. It further notes that the new safe harbors track the treatment of the compensation committee report under Regulation S-K, Item 402. We believe that the comparison to the safe harbor provided for the compensation committee is inappropriate and that the proposed "safe harbor" provides no safe harbor at all. The compensation committee report may be a report from another board committee. However, it is a very different matter so long as the audit committee must make its material misstatements and omissions response. The compensation committee is simply stating its own reasons for the action it took. Each member should be able to read the report and easily conclude whether or not the report reflects what they thought. The potential for liability should be rather limited. The audit committee, on the other hand, must almost totally rely on discussions and documents from a variety of third parties in order to certify that it is not aware of any material misstatements and omissions. It is significantly more exposed to liability. We recognize that the members of the committee are only addressing whether any matters have come to their attention. However, we are confident that the Commission recognizes that the litigation will concern whether they have been reckless in failing to do enough to uncover material misstatements and omissions. The language required by clause (a)(4) looks like a combination of the language used by accountants in comfort letters and lawyers in Rule 10b-5 opinions. Much litigation has flowed from such statements. Both the Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees and the Release propose a safe harbor. We think it is disingenuous at best for the Commission, which demands such a high standard of disclosure from reporting companies, to suggest that the proposal offers a safe harbor. Providing that the audit committee report is neither soliciting material, nor filed, nor subject to Regulations 14A or 14C or Section 18 of the Exchange Act leaves the Release with a material omission of the real liability exposure under Rule 10b-5 and state corporate law. If the Commission is not going to provide a safe harbor from those real liabilities, it should at least disclose that material fact. If the Commission really does want to provide a safe harbor, it can at least address the Rule 10b-5 concern. It is clear from prior court cases that the availability of a right of action for private plaintiffs can be denied where o! n the same set of facts the Comm ission can have the right to an enforcement action. We believe that most issuers are far more concerned about creating another claim for class action lawyers and significantly less concerned about a potential abuse of power by the Enforcement Division. The Commission clearly has the rule making and exemptive authority to set forth that distinction. We recommend that it do so. In any event, the audit committee will still be left with a corporate law liability for which the Commission can do nothing more than disclose its existence. Members of audit committees will be exposed both to a corporate law claim of breach of fiduciary duty for not having done enough (with hindsight) before stating that they were aware of no material misstatement or omission. Furthermore, many of them will be directly exposed to the Delaware decisions establishing liability for misleading disclosure (whether or not action is being requested based on such disclosure). Audit committee members of corporations incorporated in other states will, as is always the case, be exposed to liability since most other state courts cite Delaware law for issues not previously decided in their own state. Part III.E. of the Release starts by stating that the Commission does not intend to increase director liability under Federal securities law or state corporate law. As indicated above the Commission either cannot or will not prevent increased liability. Therefore, we ultimately conclude that the best solution is for the Commission to recognize the liabilities it is creating and delete the requirement for the report. At the very least, the Commission should delete clause (a)(4) of Regulation S-K, Item 306 and its requirement that the audit committee address material misstatements and omissions. The Release similarly describes proposed Schedule 14A, Item 7(e)(3) as creating a safe harbor from liability. For all the reasons described above with regard to Regulation S-K, Item 306(c), it offers no safe harbor. It should at least be revised to exclude Rule 10b-5 liability to private plaintiffs. Schedule 14A, Item 7(e)(3)(iii) as proposed would require the inclusion of the committee charter in the proxy statement every three years. We believe there is a better way to provide the language of the charter. The proposal, which originated with the Blue Ribbon Committee, appears to recognize the need for some compromise between unnecessary annual disclosure of the document and the desire to make it publicly available. We recommend that instead of the current proposal the audit committee charter be one of those items which is required to be filed as an exhibit to the company's Form 10-K each year. It would be an actual filing if there has been a change. If unchanged, it would be incorporated by reference to the last time the charter was filed. While each shareholder is already entitled to request a copy of any exhibit to the Form 10-K, that could be a required statement in the proxy statement. The statement could further provide that this particular exhibit was avai! lable free of charge. We believ e our suggestion provides a better balance. The charter that is publicly available will never be more than a year old. Companies and their shareholders will not be unnecessarily burdened with additional proxy material. The important issue is that the charter is available to those who are interested. The undersigned will be happy to discuss any of the foregoing issues with the staff of the Commission if they so desire. Very truly yours, /s/ D. D. HUMPHREYS Donald D. Humphreys Vice President & Controller /s/ T. P. TOWNSEND T. Peter Townsend Vice President & Secretary /s/ RICHARD E. GUTMAN Richard E. Gutman Assistant General Counsel