Information Technology Association of America
26 November 2002
Mr. Jonathan G. Katz, Secretary
Re: File No. S7-40-02
We are submitting these comments on behalf of the Information Technology Association of America (ITAA), the trade association representing the broad spectrum of the world-leading U.S. information technology industry, in response to the Notice of Proposed Rulemaking published in the Federal Register (17 CFR PARTS 210, 228, 229, 240, 249, 270 and 274), relating to the Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002.
ITAA is a trade association representing the broad interests of U.S. businesses engaged in the Information Technology (IT) industry. With over $800 billion in sales in 2001, IT is one of America's fastest growing industries, encompassing computers, software, telecommunications products and services, Internet and online services, systems integration, and professional services companies.
In response to the Commission's request for comment on its proposed rules implementing Section 407 of the Sarbanes-Oxley Act, the ITAA would like to comment specifically on the identification of members of a company's audit committee as financial experts.
ITAA's concerns with the proposed "financial expert" disclosure requirement of the SEC is that the required background of the financial expert is defined so narrowly that it would exclude qualified individuals like investment bankers, commercial bankers, government officials, and venture capitalists who have strong financial analysis credentials. Certainly, ITAA supports the notion that financial expertise is not just important but critical, yet some experts may be eliminated from consideration in favor of a small group of individuals who have received their CPA certification or have experience as a CFO at a public company. While these may in fact be qualifications, they should not be the only qualifications. The proposal would require that the "financial expert" have direct experience preparing or auditing financial statements, which may only lead to a shuffling of corporate boards but without any real chance at increasing oversight of the audit process and results, which should be the goal rather than merely a result.
The approach seems to set up a protectionist scheme around certain individuals, or certain organizations, and could be construed as an endorsement of those people or groups by the Federal Government. Selecting a board member to lead a public company is a very important and challenging assignment, and requires considerable attention to the overall makeup of the board and the industry knowledge and experience of specific individuals. To eliminate these important elements will cause continuing harm in the boardroom and in investors' portfolios.
By placing form over substance, these proposed regulations miss the broader point - finding real measures of a corporate board's effectiveness and ethical engagement. As has been seen in the immediate past, accounting expertise is not the differentiator between an engaged and ethical board member and one that is not.
ITAA very much appreciates the opportunity to submit comments and your consideration of these comments. If you have any questions, please contact me, or Bartlett Cleland of my staff at (703) 284-5310.