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Responses to ACSPC Request for Public Input

Corporate Governance/Listing Requirements

Question 22. Are the listing standards of the New York Stock Exchange, the American Stock Exchange, other exchanges or Nasdaq that require a majority of independent directors and independent audit, nominating and compensation committees (or in the alternative, in the case of Nasdaq, that nomination and executive compensation decisions at a minimum be recommended or determined by a majority of the independent directors) creating a hardship for smaller companies? Are there benefits to companies and investors of these listing standards in the context of smaller companies? Do the hardships outweigh the benefits in the case of smaller companies? If so, should these standards be revised for smaller companies, and, if so, how? In each case please explain.

a) Are smaller companies experiencing difficulty finding independent directors to satisfy these listing standards (including independent directors with the required level of financial literacy and sophistication for audit committee service)? What steps are being undertaken to meet these requirements?

The following answers have been received:

08/02/2005 13:57:44   NASDAQ requirements generally do not cause any problems for smaller or SB companies, almost none of which are listed on the Big Board.
a) Some smaller companies do indeed have problems finding, say, an expert for audit committee puposes.

08/02/2005 17:44:12   Once you able to get on an exchange, you should meet the requirements
a) Relax some of the independence standards to allow individuals with some type of relationship with the company to sit as a director and provide greater protection from litigation for independent directors.

08/02/2005 23:36:32   No There are benefits to this. Do not revise these standards.
a) Don't believe they are yet. Director compensation levels have risen.

08/03/2005 01:39:17   Yes. The key, I believe, is to not have the leadership of small companies be turned over to Boards of Directors. CEO's must be the decision-makers for most business decisions. However, it could be that these issues and those posed by 404 audits have become so established already, that a new method of raising equity and yet preserving the corporate leadership structure most effective, simply has to be pursued outside the US public capital markets. Committees of Board members cannot run companies effectively, and "outside" Board members are even less informed and experienced. The approaches to innovation and public company growth that worked for 100 years have not suddenly been obsoleted. However, there is little doubt that morality throughout our society has fallen over the last fifty years. Solutions like auditing are not likely to be a remedy.
a) Yes. Being a board member is illogical for a talented, experienced business executive. Finding talented board members with SOX in place and the personal liabilities set so high, is almost impossible.

08/03/2005 08:55:04   N/A at this point for our company
a) Yes, we do not know what qualifies as having the level of financial literacy so we state we have no one at the present time. Confusing to auditors as well.

08/03/2005 08:58:39   We are not listed and will never be. This does not pretain to us.
a) We have a hard time finding directors that are qualified even though we are not listed.

08/03/2005 10:40:26   No. We have always maintained independence in these areas; it is only good business practice.
a) Yes, but it is not because of the listing requirements, it is because of the liabilities associated with SOX and other regulations that are applied to all companies in general without considering size. Obviously, larger companies can afford to pay more for director services, which in part makes the risk more palable.

08/03/2005 12:17:58   yes. expense causes more hardship, simple. hardships outweigh the benefits.
a) yes. independtent directors and insurance to satisfy the government overkill is costly and effecting companies adversely.

08/03/2005 13:55:42   Pink sheet should be accorded the same as Nasdaq.

08/03/2005 15:01:40   No, The current rules are OK and prudent.
a) No problems in finding directors to meet the requirements.

08/03/2005 15:22:49   We have complied with all the Corporate Governance/Listing requirements without too many hardships.
a) Perhaps at issue is the increase in cost per Directorship resulting from the increased laiblity of being a Director. Today, many who before would be honored to serve as a Bank Director, now only will serve if the compensation makes it worth it. Directorship today carries a completely different set of responsiblities than a few short years ago.

08/03/2005 18:01:35   Please look into item no 29
a) Please look into item no 29

08/03/2005 18:05:44   a) It is difficult for smaller companies to find independent directors, especially with fiancial literacy and sophistication.

08/03/2005 18:30:29   x
a) x

08/03/2005 19:54:33   I have no opinion on this question.
a) I have no opinion on this question.

08/03/2005 19:55:50   NO! INTEGRITY!

08/04/2005 09:39:15   There is no hardship. Quite to the contrary, we see too many audit committees and boards which are nothing more than extensions of management. In small companies there is often nobody in the board room representing the investor.
a) No

08/04/2005 10:40:16   We are not listed on any exchange but we are trying to use their standards as best practices. We have a small Board and with the committees we have, we really work them. We had a difficult time finding 3 qualifited persons for the audit committee. We have recently appointed a CPA to the board who will be on the audit committee but he still does not meet the definition of a financial expert since he has no experience in bank accounting or auditing.
a) See above.

08/04/2005 12:09:05   Not really. I think compensation issues are often masked in a proxy, and requiring more accountability and reporting in the 8K's is a good thing. I think the 8K rules have gone overboard and now too much of ordinary operations are having to be reported. Again, too much info takes the integrity off of the 8K process.
a) Yes. Again, I can't believe any director would serve given the current risk/reward profile of directorships at small companies.

08/04/2005 13:38:24   Benefits outweigh the costs. The value of independent boards can never be mitigated!
a) Yes. Have to do more research in identifying candidates.

08/04/2005 14:20:27   I think the current independence rules are fine.
a) Yes, this it is extremely difficult to find independent directors, but I still feel strongly about keeping these rules as is.

08/04/2005 18:05:44   No Listing standards are ok.
a) No

08/05/2005 10:54:31   The indepedence requirements are needed
a) No

08/05/2005 12:38:34   NO! See item #5 above. It would appear that listing standards should at least stay the same if not be tightened.
a) Possibly so but, so what, investors need a level playing field!

08/05/2005 12:44:28   I have no comment.
a) I have no experience with this aspect.

08/05/2005 15:34:53   It is not a hardship for us.
a) It has not been difficult for us.

08/05/2005 15:43:46   In the case of small banks the majority of directors have always been outside directors and regulators have pressed to assure that condition. Therefore this question is not revelant in general.
a) The Audit Committee Financial Expert requirement has been a significant requirement for community. A number of small banks in outlying areas have chosen the option - initially - of disclosing that they do not have one (because they cannot find one.)

08/05/2005 16:45:38   The standrads for independence are not strict enough, and the independence of some boards is truly questionable at best and downright dishonest at worst. Most boards operate appropriately, but the influence of the dollar has proven too strong of a temptation to some to be anything more than a rubber stamp for whatever the executives do, without appropriate oversight.
a) Unsure.

08/05/2005 19:33:08   I think that in most of the cases listed above its not a problem. The main problem is that restricting the audit committee to independent directors certainly is a problem for the small entrpeneurial company. Certainly it would be benefical to everyone if one of the non-independent directors could be a member.
a) This is rather difficult. It would be nice to lighten this up a little. A requirement of basic balance sheet skills would suffice. Maybe a seperate three day class to certify compliance would be helpfull.

08/06/2005 13:52:06   Some problem finding enough qualified directors, but rules are ok.
a) See prior answer. I am not aware of what is being done.

08/08/2005 11:10:11   no. maintaining a board that is at least 51% independent and not tied to the company ensures that the investor's money will be used wisely and not just as a closely-related director sees fit. gives investors confidence that the company will be run to benefit all and not just the former owner who is now majority stockholder.
a) no, not in our experience.

08/08/2005 14:06:10   I think the listing requirements are beneficial to smaller companies and I do not believe they impose serious harships on smaller companies. If there is a company out there that thinks these rules are onerous, then I submit to you that company should not be a public company.
a) It may be difficult in some cases but this is one of those cases where the benefits do outweigh the costs or other difficulties involved. I think it is more critical for smaller companies to have independent directors on board.

08/08/2005 15:43:24   No.
a) Yes. We meet them. I don't know about those who don't.

08/08/2005 21:39:10   With the current cost of Director and Officer insurance, and the reluctance of independant Directors to be on the board of a company that does not have ample insurance, many small companies cannot justify the costs associated with listing on the larger exchanges.

08/09/2005 09:30:31   This may create a problem obtain board members for small companies.

08/09/2005 16:26:34   In banking, I do not take exception to these requirements.
a) The problem is not the number of independent directors...the problem is the burden and personal risk of being a director that results from the over zealous laws and regulations...it is becoming harder to find directors for these reasons.

08/09/2005 17:25:10   I believe independnet directors are important and wouldn't change anything in this regard. If we continue to place more and more burden for oversight on outside directors, we won't be able to get any "outside" persons to serve as the relative lack of pay vs. liability exposure will not be worth it.
a) I don't think so, at least not yet. Most CEO's know of talented outside executives who are willing to sit on the board. Many do it as a favor to the CEO as many wouldn't do it due to the liability - see 22. above.

08/10/2005 09:04:41   no comment
a) no comment

08/10/2005 13:44:39   We don't list, I am not familiar with this.
a) Our bank does not have anyone and cannot find anyone that has the high level of "financial literacy and sophistication" for the audit committee. They understand their position and financial statements, they just don't have an accounting or auditing background and are not CPAs.

08/10/2005 16:00:18   No. We've always had a majority of independent directors. Independent directors have always been responsible for nominations and executive compensation, etc.
a) Yes. As a small, independent community bank, our recruiting area is fairly limited. We were fortunate to find a strong CFO at one of our local manufacturing companies who agreed to serve on our board and as our financial expert.

08/10/2005 17:18:15   NO - this is the cost of their voluntary inclusion in these exchanges. If companies don't like such requirements, leave the exchanges.
a) No difficulties yet on our part.

08/10/2005 22:09:27   I think the term "independent" is misleading. For example there are discussions by various analysts that a member of the Board should have "x" amount of stock so they have some vested interest in making sure the compny is operated correctly. If the borad member has more then 5% then it must be reported to the SEC. Does this make that Board member independent or could one conclude that that member made a decision based upon his/her investment. I think it will always be better to have more independent directors.
a) I think it will be more difficult and nore costly. After all the position of chairman of the audit committee is a very taxing position since most of the time this type of person has a full time job some place else and yet has to be fully involved in all audit reports and any whistle blowing activity that may arise.

08/11/2005 08:35:22   No, the standards are needed, especially in smaller organizations.
a) No. The candidates are readily available, however they are "outside" the normal group organizations have used to provide candidates.

08/11/2005 20:27:22   All public companies should adher to such standards. No company should be excluded from having outside directors. Smaller companies need outside directors as much as larger companies. Smaller companies with only inside managment on their board could exert too much influence at the detriment to its shareholders. If the company doesn't want outside directors, they shouldn't have gone to the public market for their financing.
a) I would say YES. The rules make it more difficult for directors to protect themselves. Previously I wanted to be on a board and part of an Audit Committee but under the existing rules I wouldn't even consider exposing my limited personal assets by agreeing to serve on a board.

08/12/2005 13:12:10   I think they are a hardship on smaller companies, but they are not unreasonable in and of themselves as public companies grow to larger size. I think they should be revised to complement and fit smaller companies recognizing that those companies don't have or attract the resources to be in compliance until they grow and command the attention of such resources.
a) I don't see any way that they are not having some difficulty doing this, because the bar has been raised because of the actions of some huge companies. Those huge companies have always been able to attract such qualified directors...even if some didn't. There is just no substitute for good common business sense and ethics!

08/12/2005 14:46:45   It may be difficult for some smaller companies to find independent directors but it is in the best interest of a company. If even in companies with independent directors, one or more directors can have an unequaled influence on Board memebers, it is critcal to have an outside voice to the shareholders.
a) Not in our case.

08/12/2005 16:35:01   We are not listed on any exchange but we do have independent directos/audit committee that participate but provide no substantive benefit to investors
a) These are difficult standards to apply but we have managed although, again, at a cost with little or no benefit to investors

08/13/2005 12:39:43   Don't know
a) Don't know

08/15/2005 13:08:27   All companies should maintain a majority of independent directors although I'd opt for looser standards for defining independence.
a) I hear that anecdotally, but I've not seen any company announce that it had failed to satisfy listing standards due to an inability to find a suitable candidate.

08/15/2005 14:27:30   So far, these standards have been more annoying than problematic and (dare I be an advocate for regulation) have in some cases resulted in a better quality of board level analysis, particularly for smaller companies. What would cause this to change for the worse in a hurry would be any success by regulators or plaintiff's lawyers in applying unfair judgments after the fact to honest attempts by directors to act properly.
a) Not, so far in my experience. But see response to above question.

08/15/2005 15:10:05   I don't think the listing requirements are hardships.
a) Yes because no independent director wants to take on that level of responsibility based on the litigation related to the new standards.

08/15/2005 15:13:01   It's certainly harder for small companies to retain good board members now that all of the litigation and SOX issues are on the front pages of the business publications. This has cased issues with the make-up of various committees - the independent committees in particular. I'm not a proponent of changing anything here because I don't know of a better solution.
a) See answer above.

08/15/2005 15:14:45   Yes, generally the Boards are smaller and it imposes a great deal more time by the board member. The benefits are the standardization. The benefits of industry knowledge may be more beneficial than the requirement for a "financial expert" on the Board, tho, if the audit firm is validating finacial reporting that is being done.
a) Absolutely. We are "hiring" financial experts for their masthead value.

08/15/2005 16:33:43   not really- I think it was a good change to have independent directors be in charge of audit committee and compensation committee.
a) yes- it is difficult to find anyone that wants to serve as an independent director given what we pay. Why take the risk for $20K per year? But this is all a small company can afford.

08/15/2005 16:41:14   No
a) Not that I know of

08/15/2005 18:59:52   I think the benefits of an independet board far, far outweigh the difficulty of impelentation. What happened far too often was that the board and management were the same. No board will fire the senior for managers for underperforming when they *are* the senior managers.
a) Yes, it is difficult finding people, particularly for the audit committee.

08/16/2005 09:51:21   Listing requirements are fine.
a) Quality companies do not have problems finding directors.

08/16/2005 10:10:36   No.
a) Not all. But, the smaller company had better provide low risk.

08/16/2005 10:21:17   No opinion.
a) No opinion.

08/16/2005 10:26:28   not an issue although, in small companies, chairmen like to be involved in everything, they are after all small companies !
a) not a problem for us so far

08/16/2005 10:42:02   The hardship is created by the risks borne by today's directors, which makes finding quality board members very difficult.
a) Yes

08/16/2005 10:44:16   I think all public companies need to be subject to same rules. Independent directors are an important part of our governace process.
a) Audit committee financial expert is a tough requirement even for some larger companies. It is something we have been able to deal with effectively, however.

08/16/2005 10:45:16   no
a) yes

08/16/2005 11:18:54   We have been able to comply with the listing standards without a lot of difficulty.
a) We have not had trouble finding directors to this point.

08/16/2005 11:52:16   No. I believe that this is a excellent provision. It cuts the nepotism issue at the quick for small companies which were started by family members. It makes the company accept alternative view points and helps it grow. I believe this is a very good provision and should not be removed. As a matter of fact I would go further and have public companies manditorly have a nepotism policy.
a) We have not had problems getting directors. I do not know if others are or not.

08/16/2005 12:15:34   a) Yes they are. With all of the new rules involved and all of the compliance issues, I think that people are less likely to want to be on a board of directors than in the past. We have had a difficult time finding new board members.

08/16/2005 12:40:54   Yes. yes. Probably. The market has been pretty good at judging small company abuses
a) Great difficulty

08/16/2005 12:42:56   No, these are not a hardship for us.
a) We have not had a problem finding independent directors. It is difficult for us to find a "financial expert" as defined by the SEC.

08/16/2005 13:04:14   The NASDAQ standards are fair and meaningful and I see no reason to revise them.
a) We have not had to face this problem.

08/16/2005 13:12:04   I am not troubled by this; we were already "there" before SOX and we were "there" (independent directors in major majority, etc) because we belived that was just good business practice.
a) Yes.. the risk of serving on a Board is just too high

08/16/2005 13:19:29   These corporate governance rules have not been nearly the burden that 404 has brought. They certinaly do seem unnecessary for a small company, but they are not so overwhelmingly burdensome.
a) As a bank, we had a fairly strong group of directors to start with, and it is probably not as dificult to find someone willing to be a bank director as it may be in other industries.

08/16/2005 13:20:23   Absolutley not. I am at a small company that complies and it has made our board and company better governed as a result. It is not a "cost" above anything else and has not added any additional hardship to our company. I would oppose different practices for smaller companies.
a) Possibly - but its because of the legal risks and current corporate environment, not due to the size of the Company

08/16/2005 13:25:32   The issue with smaller companies is in finding qualified outside directors for these posts, and with the time commitment of those directors, given that smaller companies don't reward outside directors very well. But smaller companies are much more apt to be founder/entrepreneur driven, therefor these areas of governance are needed more, not less. Many larger, well run companies adopted these practices before compelled to do so by regulation. The benefits to our company outweigh the hardships,where decisions effecting all stockholders must be vetted by independent directors.
a) Yes, definitely. Smaller companies must search harder, and accept less in terms of credentials from their outside directors (some are quite pleasant surprises, however). Generally, Boards are kept smaller, reducing recruitment.

08/16/2005 13:27:00   There is no burden from the listing standards.
a) No. Good companies can always find directors.

08/16/2005 13:30:33   The listing standards are fine.
a) We are not.

08/16/2005 14:08:05   This does not seem to be a widespread problem.
a) No. There are many ex-CFO's available for board seats.

08/16/2005 14:23:10   The listing standards related to governance are not a siginficant burden. The need for independent directors is critical and the cost compared to the audit fees related to SOX 404 is insignificant. The benefit of independent oversight should add real value to investors. I do not recommend that the governance standards be changed.
a) I do not believe that there is a shortage of qualified independent directors. There are pleanty of active financial experts including CFOs of public companies and retired finance professionals who are qualified to be board members.

08/16/2005 15:15:12   We are not a "Listed" company, so I have no knowledge of the requirements and therefore an unable to comment.
a) Finding qualified directors is always difficult for small companies. Financial expertise is even more difficult. I believe most small companies are simply doing without financial experts and explaining this in their reporting.

08/16/2005 16:08:50   Finding qualified people that want to serve on boards of small companies is difficult given the current regulatory/legal environment. The only negatives are that smaller companies are having to pay their independent directors larger fees and D&O Policy limits and costs are on the rise as well.

08/16/2005 16:09:47   No.
a) No opinion.

08/16/2005 16:16:04   Yes, they are creating a hardship as it is becoming difficult to attract qualified directors at an affordable level of compensation.
a) YES!

08/16/2005 16:45:09   The independence requirements are creating a real hardship for smaller companies in getting the required talent and paying for it. There are benefits to smaller companies for independence. However these benefits do not outweigh the costs. Large companies have not benefited from these indepedence rules. Just look at the compensation levels of top executives of some of our largest companies compared to compensation of lower levels within those companies and compensation levels in companies in other countries.
a) The independent financial expert for small companies is extremely hard to find. Many qualified to meet the definition can add little to the Board beyond being the financial "expert" duties. We see nothing being done beyond piling more "compliance" duties on small companies.

08/16/2005 18:35:41   No hardship for us. Compliance with the requirments listed here bring a small company expert resources that should be beneficial. I see no need for revision.
a) We fortunately have independent directors of long tenure. I cannot predict how difficult replacing them will be as they retire, but am hoping that our track record of good governance, adequate D&O insurance, and trustworthy executive management will enable us to recruit high quality replacements.

08/16/2005 21:29:07   These requirements do not need revision.
a) Not a problem.

08/16/2005 21:40:38   a) Yes. Who wants to be a director nowadays? Too much time is spent on accounting window dressing.

08/17/2005 10:59:57   The independent standards for our company do create a hardship. we have one shareholder that has more than 50% control, management has 20% ownership and the independent directors have a very small minority intrest along with all other shareholders. The independent directors and structure has the potential to give too much influence in operations, strategey, compensation to independent directors that may or may not be aligned with the majority ownership.
a) Not really. Independent directors want more compensation and higher DNO insurance.

08/17/2005 12:28:22   No, I don't know, no,
a) We are not finding it difficult to recruit. We pay our Directors a fair compensation package and that attracts them.

08/17/2005 12:36:00   I applaud the concept of independence. Smaller companies generally want smaller boards, to keep costs down if nothing else, so the practical result is that all independent directors find themselves on all three committees. It would probably be easier to designate a full board and an independent board, and assign the tasks of the audit, compensation, and nominating committees to that independent board. The one hardship I see is that the indpendence parameters should be eased to where the company is not prohibited from doing business with a director thus jeopardizing his independence. We've had the thought of whether or not we could buy a screwdriver from our director's hardware store or whether the company can advertise on a director's radio station and that director remain independent. It's also quite common for small companies to have their primary legal counsel on the board, and assuming the company does not make up a majority of that attorney's revenue, it would be very helpful if he or she could serve as one of the independent directors.
a) Yes. I feel very fortunate that we were able to find a financial expert after our former expert died in a traffic accident. If this director had been unwilling to serve (and he had reservations), we had no other alternatives.

08/17/2005 12:48:33   It is costly and not always positive to get independent directors.
a) It is very difficult. We are giving retired accountants the greatest 'MULLIGAN' since the Senior Golf tour.

08/17/2005 18:49:20   The hardship is that it is more difficult for smaller companies to attract independent directors. However, if the rules are loosened as it relates to SOX for smaller companies, I think it will be harder based on higher risk.
a) We have not seen that as an issue in smaller companies.

08/17/2005 18:49:27   It is definitely harder to get the independence but it is doable, adds a lot of value to stockholders and is not expensive for teh company. It is a very good reform that was long overdue.
a) yes it is hard, we have had to pay more to our directors to do it, but his part is worth it.

08/17/2005 19:31:08   Yes. The number of committees required is getting onerous. As a small company, we basically have every one of our outside directors on every committee.
a) Altough some probably have, we have not had any difficulty in finding independent directors.

08/17/2005 21:27:12   This does not present a substantial hardship.
a) Unsure.

08/17/2005 22:55:14   No there are no significant hardships to smaller companies from these requirements. Yes, there are significant benefits to investors, especially investors of smaller companies. The benfefits far outweigh the hardships, in my opinion. These standards should not be revised.
a) It is challenging to find independent directors, especially thoise willing and able to sit on the audit committee. Small companies are addressing the issue through more agressive recruiting efforts and board compensation.

08/18/2005 08:03:31   Yes, independent directors gain full control over a company with whom have no relationship. New system can easily be abused. Prior system users as control organs of management. New system has a full control with our supervising organ. It effectively deletes a good control system.
a) Yes, it is difficult to find capable independent directors at reasonable cost.

08/18/2005 14:30:38   NO
a) NO

08/19/2005 02:56:12   These requirements pose no significant problems for us. The related party rules are a bit frustrating - particularly for estranged family members. Would like to see more reality in those requirements.
a) No.

08/19/2005 11:44:44   In our industry (banking) it hasn't been as big an issue, as typically we've had a majority of independent directors. It's more a matter of keeping up with all of the requirements.
a) The financial expert requirement is the most challenging. Most small businesses I would suspect operate in smaller cities, which can be a limiting factor in finding qualified candidates. We haven't experienced this problem yet, but it becomes a big factor is director succession planning.

08/19/2005 13:49:01   We have not experienced any difficulty recruiting qualified BOD and/or committee members thus far, however, with the additional time required and the fiduciary responsibility associated with being a member of any of these committees the Company has increased its insurance coverage and its compensation for directors. The expectation is that if an opening occurs this will help to minimize the difficulty with recruiting. However, in industry it appears that companies are experiencing difficulty in both recruiting new, qualified BOD members who are willing to accept the fiduciary responsibility that comes with the job and qualified “financial experts” to staff the board committees.
a) See prior response.

08/19/2005 14:40:28   No comment
a) No comment

08/19/2005 14:50:07   The independence requirement does place a burden on our outside board members. Along with monthly meetings which often take an entire afternoon, they each serve on several committees. As this may detract from their primary business responsibilites, it could be difficult to fill vacancies especially considering the level of board compensation and heightened personal liability.
a) See #22 above.

08/19/2005 17:03:28   I haven't seen the independence rules create too much of a hardship.
a) Not that I've seen.

08/21/2005 03:34:34   It does create hardship for smaller companies as it becomes extremely difficult to recruit such independent directors who are not interested in becoming involved with small companies. It should be revised for smaller companies - so that there is a must for independent directors but they domn't have to be the majority, and may be in some important resolutions such independent directors should be part of the majority required (like veto rights).
a) Yes, it became fairly difficult to recruit external directors to smaller companies. The steps that are taken that some existing directors who are connected to management resign to have the required majority.

08/21/2005 04:46:26   Independent directors find themselves managing the company instead of the CEO and Chairman.
a) Difficult to find good people who agree to serve as independent directors.

08/21/2005 22:19:50   No. I think the standards provide benefits that outweigh any hardships.
a) No.

08/22/2005 14:21:23   Only to the extent that everyone is scared out of their wits of being a director! I am not even sure outside directors help that much. Afterall internal ones are closer to the action and have an eaiser time detecting trouble. Again "a crook is a crook" and they will find a way to hide information but it is harder when individuals are closer to the organization.
a) YES! Big time! We are relaying on friends and still struggling.

08/22/2005 15:20:23   The independent director requirement is a hardship for smaller companies. Often smaller companies have funding that comes with a board seat that may not be considered independent. This causes the company to have to hire additional directors to meet the independence standards. Board seats have become more and more expensive, especially with the implementation of SFAS 123R. I don't think the benefits of independence are significant enough to justify the hardships. Generally, the directors who are not independent have the same interests as indendent directors when it comes to financial statement accuracy, executive comp, etc. I think the standards should be relaxed for small companies to broaden the definition of independent directors. Directors who are also executives of the company should not be considered independent, but directors who have a business relationship with the company, such as an investor or joint venture partner, should be considered independent.
a) Yes. For the most part, it is just becoming more expensive to lure people with the appropriate background. I also believe that the definition of financial literacy and sophistication is being stretched. Audit committee members/financial experts often don't have an adequate level of expertise to be effective.

08/22/2005 15:47:02   No opinion.
a) Yes. Candidates are reluctant to come forward because they fear that they don't have the necessary experience.

08/22/2005 15:47:34   No.
a) Not to my knowledge.

08/22/2005 17:54:28   I don't think the current standards for corporate governance are a problem. They do create somewhat of a burden, but I think they might be positive overall.
a) The biggest problem arises from the tone of SOX and other recent events raising the perceived liability of directors. Personal legal exposure is the biggest issue, not accounting literacy.

08/22/2005 17:56:59   This area is fine
a) This area is fine

08/22/2005 19:27:18   It good to have the indepedence, but all the rules create a smaller circle of qualified directors. Just like the board has financial experts, I think you should allow some people who might be excellent board members longer-term, but might not have the intial creditenails
a) I think you are going to face more and more "professional" directors. THis will promote even more of the "good old boys" network.

08/22/2005 20:10:17   Yes, definitely. It is almost impossible for a small company to have independent, non affiliated directs, audit comittee and nominating committee members. The only way to do this is to "pay" for services, and this may defeat the purpose of independence.
a) It is almost impossible without a "major" financial incentive.

08/23/2005 00:42:38   these are reasonable requirements
a) no

08/23/2005 15:56:30   I think these standards are fair. They do much more to protect investors of smaller companies than SOX 404 ever will
a) Talented people are out there willing to participate on boards...assuming they are not scared out of it by overbearing regulation.

08/23/2005 16:06:08   a) Yes, truly qualified individuals are incredibly hard to find. This is particularly true in rural areas.

08/23/2005 16:49:34   Hardships outweigh the benefits.
a) No opinion

08/23/2005 18:10:00   not sure.
a) not sure

08/23/2005 21:11:03   Yes... most small companies were founded and grown by a small group of individuals. The independent director burden often creates more trouble than benefit. The nature of "financial expert" and the need for truly indpendent directors willing and qualified to be directors is an increasing burden on small companies.
a) Yes.... responses vary

08/24/2005 08:50:18   No.
a) Yes, but it can be managed.

08/24/2005 10:14:02   This will be an issue for us when we attempt to move from the OTCBB to small cap.
a) See 22

08/24/2005 12:24:07   there should be more freedom for smaller boards and management involvement for smaller companies on these issues. independence is not as important as disclosure.

08/24/2005 14:30:13   No. We've not had issues fortunately.
a) Fortunately, we have not.

08/24/2005 16:19:27   Of course. With directors now having personal liabilty many of us are having a difficult time finding board members at all. The only important control is to ensure that audit comittes are not captive. Comp committes should have some outside standard or regulations to follow.
a) yes. Many must compensate their board members well to get them to stay on or join.

08/24/2005 16:26:56   We do not believe the listing requirements create a hardship for smaller companies. Although not due to the listing requirements, we hear and read that prospective directors are more cautious when contemplating a directorship, due to the increased time commitment required to comply with additional regulations, and the prospect of exposure of personal assets. It has become more difficult to attract as Directors individuals who are currently active in a business.

08/24/2005 16:54:47   Some but this is a good rule
a) Yes, but no good answer to this

08/24/2005 20:16:09   a) We are not listed.

08/25/2005 15:23:41   The independence issue is relative to any company owned by the public, therefore I do not believe it causes a hardship, however the American Stock Exchange understands that many of its companies are smaller in size and has more lenient guidelines related to Corporate Governance.
a) No, not to my knowledge. Directors understand what requirements are needed to sit on the board.

08/25/2005 16:04:36   No, if so it's probably a good thing. Yes, there are benefits of the listing standards with resepct to independent directors and financial experts. Different rules for different size companies on the same exchange is not a good idea.
a) No. Some of our clients have asked us to perform training sessions for their audit committee on SOX and internal audit concepts.

08/25/2005 17:02:43   No. Yes. Yes. No.
a) Yes.

08/26/2005 12:41:42   This has been difficult but workable for Synthetch. I can see where a small company could quickly have problems if an independent Board member were to suddenly leave. We have been carful to keep our independent board members independent, with a back-up financial expert.
a) Synthetech has been fortunate in this area. We have been able to attract an outstanding Board.

08/26/2005 13:07:22   In our experience the "hardship" does not outweigh the benefits.
a) No, so long as the "financial expert" provisions do not become mandatory.

08/26/2005 15:31:29   Independence outweighs the costs.
a) Don't know

08/26/2005 16:22:08   Yes.
a) No.

08/26/2005 17:46:13   Smaller companies have little to offer to independent directors for the risks these people are taking on their behalf. Money resources are limited, stocks are not so liquid, profitability suffers from the costs of the SOX implementation. Yet, these companies need to recruit such directors and burden them with all the risks of the reposibilities associated with their position as independent directors. The independent directors, in turn, have limited time resources to allocate. As a result, the quality of the execution of the audit and the comp committees suffer. These hardships by far outweigh the benefits . These regulations should change.
a) Of course it is EXTREMELY difficult today to find independent directors. And as for lietracy - even well educated directros find it extremely difficult to understand what SOX is really all about, and what oit menas to implement it properly.

08/27/2005 11:21:03   Yes. Obtaining that level of competence is nearly impossible for smaller companies. Of course, they already have D&O insurance because no independent director would even serve without it. More $$ in paying them is the problem. Benefits are negligible - the control persons of smaller companies are going to do and take what they're going to do and take, regardless of the opinions of such persons. So adding such persons means adding 'rubber stamp' people for compensation, not adding effective controls. Small businesses are run by entrepreneurs, not professional managers. Entrepreneurs can be coaxed into full and fair disclosures, but not into relying on such board advisors. The full and fair disclosures are almost always happening anyway. Requiring a reliance on board advisors will never happen more than such is now. Don't change the listing standards - it will just cheapen the Exchanges. Just be aware that such controls don't really operate effectively for smaller companies.
a) Yes. Offering more $$ is the answer. Any company that wants such a listing badly enough simply pays for it. Improved controls really don't happen at the smaller company level, because those persons are 'rubber stamps' for the control person activities.

08/29/2005 07:07:37   There is no problem finding independent directors, but the burden by far outweighs the benefits. Investors in small companies look up to involvement, leadership, and ability to manage the company by major shareholders rathar than by mediocre independents.

08/29/2005 10:21:15   We are an over-the-counter bulletin board company, so some of the provisions of the NYSE, NASDAQ, etc. are not applicable. However, we do have some independent board members and particularly an independent audit committee. This measure of independence, particularly on the audit committee, seems to be a positive and appropriate aspect of SOX as it relates to publicly-traded companies.
a) We have not yet experienced these difficulties, although we can understand how certain companies may have such difficulties.

08/29/2005 10:21:25   We are an over-the-counter bulletin board company, so some of the provisions of the NYSE, NASDAQ, etc. are not applicable. However, we do have some independent board members and particularly an independent audit committee. This measure of independence, particularly on the audit committee, seems to be a positive and appropriate aspect of SOX as it relates to publicly-traded companies.
a) We have not yet experienced these difficulties, although we can understand how certain companies may have such difficulties.

08/29/2005 11:21:29   Listing standards need not be changed.
a) Sox may make it difficult for small companies to find directors because of the perceived increased personal liability.

08/29/2005 14:18:47   I believe that it has been difficult in recent years for firms of all sizes to find qualified directors - reason being that, because of the need for more effective directors, there´s a real shortage. I believe that over time, there will be more directors available than in the current squeeze. I don´t think that corporate governance is any less important for small firms than large firms and I don´t think the standards on independent directors should be loosened for smaller firms. In fact, given that small firms are often dominated by the firm´s founder or family, independent directors are possibly more important in smaller firms than larger ones.
a) As I said before, I believe all firms are having difficulty finding independent directors - not just small firms.

08/29/2005 14:53:30   Yes. Are there benefits to companies and investors of these listing standards in the context of smaller companies? I do not know of any benefits to anyone except to people who wish to be independent directors. Do the hardships outweigh the benefits in the case of smaller companies? The principal hardships are the costs and the time spent by the non-independents to get the independents to understand the business in adequate detail to make intelligent decisions. If so, should these standards be revised for smaller companies, and, if so, how? Yes, the standards should be revised. I would recommend that they be turned upside down. That is, the standard should require that a majority of the directors of small companies be dependent. Preferably with a further requirement that they have at least 20% of their personal net worth invested in the Company on which board they serve. In each case please explain. I believe that what makes small companies successful is the dedication of their leadership. This dedication results not from their extraordinary skills but from their dependency on the success of the Company to achieve their personal success.
a) Yes.

08/29/2005 15:31:21   I feel that the biggest benefit to these requirements is the fact that they have to be disclosed, and this may be somewhat of a deterrent to fraud or other questionnable practices.
a) Independent directors are not as difficult to find in general as Audit Committee members. The financial expert requirement for the Audit Committee is hard to meet for small community-based businesses. However, the benefit of having a knowledgable individual on the Audit Committee far outweighs the difficulty in finding a candidate. Should litigation begin to have negative impact on independent board members, the difficulty finding directors will increase dramatically.

08/29/2005 16:20:53   I don't believe it is hardship although finding a director with enough financial background to serve on the audit committee can be difficult in small communities.
a) Yes. Directors are being solicited for their financial background and history without regard to finding directors whose philosophy coincides with the company's philosophy.

08/29/2005 17:09:27   The hardship for smaller companies is finding directors willing to serve who meet the independence criteria, especially for the financial expert on the audit committee.
a) Yes - especially in smaller companies/markets where the the pool of candidates is limited.

08/29/2005 17:12:26   I think they are reasonable.
a) I am sure some companies are experiencing difficultites, but we have not at this time.

08/29/2005 17:12:43   I think the benefits of having an independent board outweigh the costs. A savvy, independent board will accomplish much of what the spirit of Sarbanes-Oxley is about.

08/29/2005 17:36:32   Due to the potential negative and legal exposure it is difficult for a small company to attract outside directors. We can't afford to pay them and they see the risk as one they are not comfortable with.
a) As explained above. It is difficult to comply.

08/29/2005 19:02:32   Outside directors need to spend quite a lot of time to keep up with the operations of a business and most small companies don't pay well enough to allow them to do so. The hardship is that someone who has little knowledge of the business is making policy for the business.
a) Yes - we just need to make enough money to increase compensation enough attract qualified directors. Now, the only qualified outside directors are major stockholders, a conflict of interest possibly.

08/29/2005 19:05:24   a) The perception of increased legal liability exposure combined with the bureaucratic entanglements created by SOX 404 have created an environment in which it is extraordinarily difficult to find qualified and dedicated independent directors.

08/29/2005 21:00:01   No I don't believe it does.
a) We have not experienced any difficulties.

08/29/2005 22:40:58   It is more difficult and expensive for small companies to recruit qualified independent directors due to these listing standards and the introduction of SOX.
a) Yes it is difficult to find new independent directors that meet the requirements for audit committee service and the related liability involved.

08/30/2005 15:04:16   Independence is a good thing. But, for small companies, the number of combinations of independent directors being on committees to assure independence is difficult to achieve - especially recognizing that - it is now harder to attract board members to small public company boards.
a) The standards should be revised to allow non-independent directors to serve on committees. The managers who are directors are often better qualified and certainly have a vested interest in fairness and ethical behavior. It is very difficult to find independent directors. Any company considering going public may chose not to go public because of this burden

08/30/2005 15:07:00   I don't believe it is creating a hardship. I believe that most companies would use independent directors for at least the audit and comp committees anyway. I think the standards here are fine.
a) I don't see this as an issue.

08/30/2005 17:08:46   We do not believe that the listing standards re independent directors poses a harship to smaller public companies, other than the difficulty to locate qualified directors that are willing to take on the risk in the current environment. Yes, we believe that there are benefits to companies and investors of these listing standards. The difficulty to locate qualified directors is offset by the benefits of having qualified independent directors serving on your board.
a) Do not know. So far we have been able to overcome those difficulties.

08/30/2005 18:26:14   N/A
a) N/A

08/30/2005 18:48:02   The NYSE, AMEX and NASDAQ listing requirements are not creating a hardship as long as the OTCBB is available as a simpler alternative. The NASDAQ Small Cap and the AMEX standards are OK as is and adequately provide the next step up from the OTCBB for growing companies.
a) Finding knowledgeable independent directors is a good idea and worth the bother. The real problem is in the cost of liability insurance to cover the directors.

08/30/2005 18:51:48   We believe that the listing standards of the exchanges are relevant and do not cause a hardship for smaller companies. We believe that a diverse, independent board of directors with financial expertise goes a long way in establishing an environment of control.

08/30/2005 21:07:56   No and No
a) No.

08/30/2005 21:39:41   We do not believe that listing standards, such as independence of majority of Board, create an undue hardship for public companies.
a) Our company has not had any such difficulty identifying directors that satisfy independence requirements.

08/30/2005 23:57:28   No. it will not creat hardship. It is benenfits to companies and investors.
a) Not difficult if you are willing to spend money.

08/31/2005 08:31:59   Yes. Its hard to find qualified candidates willing to accept the responsibility and the liability. The hardships do not outweigh the benefits.

08/31/2005 10:19:14   No, the hardships do not outweigh the benefits in the case of small publicly traded companies. The independence of the Board of Directors and the authority of these independent Borads in key areas is critical to prevent unbridled actions by executive management that can lead to public company debacles like Enron, WorldCom, HealthSouth and Tyco.
a) I do not believe this is the case. One suggestion is that a shareholder committee be formed to find qualified independent directors so that the directors are more direct representatives of the shareholders.

08/31/2005 10:21:37   In our case, it has not been a hardship. The independent directors provide necessary oversight, if not pressure, on management. The independent directors are more likely to ask the tough or uncomfortable questions.
a) I am not in a position to address.

08/31/2005 14:00:12   Audit Commmittes need to be independent. However, a majority of independent direcors and compensation committee doesn't seem necessary when a company has high insider ownership. If investors are buying a company with 50% insider ownership I don't believe an expectation of a majority independent Board is realistic.
a) Yes. The financial literacy requirement particularly is too restrictive. The NSD definition of financial literacy seems more approprite.

08/31/2005 14:00:16   We are not having difficulty maintaining an independent board. However, I can see how directors' fees are going to rise significantly going forward in order to attract and retain qualified directors. This results in additional pressure on earnings as discussed (see my comments re SOX 404 in question #10).
a) Small companies can attract independent directors as long as they're willing to pay them. A directorship with a small company isn't nearly as attractive on a resume as a directorship with a Fortune 500 company. The perception is that small companies have greater risk for the director. That isn't always the case.

08/31/2005 14:25:37   The standards for classifying a director as independent as defined by the major exchanges are completely unrealistic for small companies, such as to say that a director is not independent because he receives a fee for legal work or teaching a class.
a) Our bank has had a problem - in a small community there are alot of good people - experts are not so readily available. The standards for experts and independence are too high. We are taking steps to solve the problem. 1. We will deregister or 2. We will sell the bank.

08/31/2005 14:32:46   Doesn't apply to our operation.
a) Doesn't apply to our operation.

08/31/2005 15:19:27   No this is a good practice that should have been in place anyway.
a) Sometimes yes, although the issue is more about the risk that the availability of such directors.

08/31/2005 16:13:45   A majority of directors should be independent. A majority of independent directors is preferable for committees and the financial expert but can be a hardship for smaller companies in some cases. The benefits outweigh the hardships but some allowances should be made for situations where smaller companies have unusually situations in finding qualified directors.
a) The most difficult requirement is finding qualified independent directors with the required financial literacy and sophistication for audit committee service. We attempt to be aware of possible candidates in the course of our interaction in our communties and business associates.

08/31/2005 16:16:33   22. Smaller companies may be more susceptible to fraud and other issues due to the size and less exposure of the companies compared to larger companies. It is imperative that the audit committee has a level of financial literacy and sophistication, due to the nature of the responsibilities of that committee. The audit committee has an extremely important role in the review of the financial statements and other roles as determined by their associated Board. There is a greater risk associated with independence and financial expertise among small companies, and the listing requirements help balance out this risk. These requirements do not create a burden on smaller companies. Companies are finding if difficult to attract independent directors to satisfy the listing standards. It is important for companies to recruit the right person for the job, and the compensation package should be appropriate. Companies also need to carry strong D&O insurance policies. Litigation risk is a major concern to potential candidates for these positions.

08/31/2005 16:29:59   a) Yes, another higher cost.

08/31/2005 17:16:33   No.
a) Yes. I think all companies are finding it more difficult. We will probably expand our board by one outside director just to protect ourselves from illness, death or other.

08/31/2005 18:22:30   Our listed clients have not found compliance with these rules to be overly difficult. In most cases the board members added to comply with the requirements have strengthened the overall oversight capabilities of the boards. In a few cases there have been realignments of directors, but most of our public clients are financial institutions which have had reasonably diverse boards for some time.

08/31/2005 18:23:08   No, listing standards are appropriate.
a) No response.

08/31/2005 19:16:05   22. The current rules of the exchanges and NASDAQ are putting all of the focus on independence of the Board instead of the talents of the Board or the needs of management from the Board. This is very negative. The Board is being isolated by these types of rules from the operations of the company and input from a variety of management on a routine basis. Isolation of the Board from inside participation will not lead to better diligence or properly informed decisions. In the case of our company, it has become extremely difficult to recruit new outside Board members and we just barely comply at this time.
a) The search for potential Board members is an ongoing process, but the risks of participating on a small public board lead those that may be candidates to be advised by their own legal counsel not to participate.

08/31/2005 20:55:07   We are fine with the governance standards. Maybe there should be a stair step approach to number of committees and board members. This would allow a smaller company to be effective and a path for it to follow as it gets larger.
a) We have been able to find the necessary directors who are both independent and in some cases meet the financial literacy requirements.

09/01/2005 00:55:31   Don't think this is a big hardship.
a) Am aware of some issues in getting qualified audit committee members

09/01/2005 11:40:19   a) Difficult to assess for all companies. I believe there are less candidates interested in taking a Board position in today's environment.

09/01/2005 14:30:54   The risks of being a director of a public company has increased steadily and so has the compensation required to attract directors. The “handholding” of directors by management has also increased. One can posit that directors are not now required to do much more than they were in the past and there is some truth to that. But, we all know that there are lawyers lurking in the background who are eager to file sometimes baseless lawsuits naming directors. This risk has made attracting directors to small companies much more difficult and expensive.

09/01/2005 17:12:34   Independence is important and sets up a very important check and balance. The issue is finding those independent directors. Some way of limiting their liability would be a good step.
a) They are having a hard time finding independent directors. These directors are concerned about liability in a small company. There needs to be a better balance for those small companies.

09/04/2005 07:42:16   Yes. Smaller companies will usually tend to have smaller board and management. There are benefits to these standards which result from higher supervision but such supervision can be obtained in legal ways.
a) No

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Main Survey



Modified: 10/13/2005