VIA FACSIMILE & U.S. MAIL
July 14, 1999
Mr. Richard A. Grasso
Chairman and CEO
New York Stock Exchange, Inc.
20 Broad Street, 17th Floor
New York, NY 10005
Re: Comments on the Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees
Dear Mr. Grasso:
We have received a copy of your letter dated June 18, 1999 asking for listed company comments on the Exchange’s proposals with respect to the recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. For your reference, I have attached a letter we previously sent to the Exchange outlining our concerns. This letter updates our previous letter in light of the Exchange’s proposals.
Recommendation 1. We support the Exchange’s alternative approach with regard to this recommendation.
Recommendation 3. The Exchange proposes that the determination of what constitutes "financial literacy" or "accounting or related financial management expertise" be determined by the listed company’s Board of Directors. As noted in the Blue Ribbon Committee’s report, "accounting or related financial management expertise" signifies past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a CEO or other senior officer with financial oversight responsibilities. We are comfortable with the requirement that an Audit Committee have at least one member with this experience. However, is our position that the overall "financial literacy" requirement for all members should be dropped because this standard is vague and difficult to define and implement. The adoption of such a standard for audit committee membership could create enhanced liability for committee members, and will certainly create substantially increased concern about potential liability for those who serve or are considering serving on audit committees. Furthermore, as recognized by the Committee, a director’s ability to be an effective audit committee member may not, in fact, require any particular expertise.
The Exchange’s proposal that the Boards of listed companies be given responsibility for defining this term does not resolve these fundamental problems with the standard. It is still our position that the vague and subjective "financial literacy" requirement should be eliminated from Recommendation 3 and that the "accounting or related financial management expertise" standard be defined by the Committee.
Recommendations 5, 8, 9 and 10. We understand that the Exchange will not be endorsing these recommendations and we concur with the Exchange’s position.
Thank you for the opportunity to express our views. If you have any questions or comments, please do not hesitate to contact me.
Very truly yours,
David A. Rane
Chief Financial Officer
cc w/enc: Brian Lane, Securities and Exchange Commission