Southern Company

Tommy Chisholm

November 24, 1999
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-6009
Re: Audit Committee Disclosure [File No. S7-22-99; Release No. 34-41987]
Dear Secretary Katz:

The Southern Company is pleased to have this opportunity to comment on the proposal to require additional disclosure related to audit committees (Release No. 34-41987; File No. S7-22-99). We support the Commission's efforts to encourage better communications with investors. However, we believe that the present proposal would impose substantial burdens on issuers and their directors without improving the quality of disclosure to investors.

Southern Company (NYSE: SO) is an international energy company with $35 billion in assets through regional utilities and operations around the world. We are the largest producer of electricity in the United States and one of the world’s largest independent power producers. Southern is the parent firm of Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric. Through our Southern Energy, Inc. subsidiary, we supply electricity in 10 countries on four continents. We also provide energy-related marketing, trading, and technical services and wireless telecommunications through Southern LINC ®.

Southern has approximately 690 million shares of common stock outstanding that are owned by over 180 thousand record stockholders.

Pre-Filing Review of Quarterly Financial Statements

Southern's independent auditors routinely review our quarterly financial statements in accordance with SAS 71 procedures. For large issuers, the task of auditing the annual financial statements requires the year-round involvement of independent auditors, and the proposal would not significantly change our practices. However, for many companies, a pre-filing review requirement likely would delay disclosure of quarterly financial information.

We believe that companies should be permitted to disclose whether independent auditors have reviewed their quarterly financials without any requirement for filing an auditor's report. Any requirement that an auditor's report be filed with the Form 10-Q would increase costs and further increase demands on independent auditors and our staff at the same time that these people are being asked to provide more thorough and thoughtful review, thus making timely disclosure more difficult to accomplish.

Audit Committee Report

We oppose any requirement of an audit committee report in the proxy statement. The proposal states that the Commission is "not placing any substantive requirements on audit committees or their members" in requiring such report. Proposed Item 306(a)(4) requires the audit committee to state whether they believe that the audited financial statements included in the company's Annual Report on Form 10-K contains an untrue statement of a material fact or omits a material fact. Alternatively, the Commission poses another possible report based on awareness of whether any material modifications should have been made. Both such reports are to be placed over the individual names of audit committee members. The proposal also notes that the current rules require the board members to sign the Form 10-K, implicitly indicating that they believe that the filing is accurate and complete.

In spite of the Commission's attempts to provide comfort to audit committee members, we believe that these requirements impose new primary responsibilities on audit committee members far beyond mere disclosure about the credibility of the financial statements. These responsibilities would increase directors' personal liability without enhancing investor protections. If the proposals place no substantive requirement on audit committee members, then they would fail of their stated purpose. If the proposals do create new primary duties for these members, then the proposed safe harbors cannot insulate them from liability for these responsibilities. These responsibilities for credibility of financial statements already exist and reside very clearly in the company's management and outside auditors. The role of the directors is one of oversight, making judgments as to the credibility and competency of management in various regards, including the preparation of the company's financial statements.

The purposes of the proposed rules would be adequately served by merely supplementing Item 7(e) to require the company to disclose more generally whether the audit committee has met with management and the independent auditors to discuss significant accounting issues. The requirement of a separate report of the audit committee in the proxy statement and other requirements that certain disclosure be signed, certified, or issued over the names of certain individuals, could tend to diminish the credibility of other disclosure that is not afforded similar assurances.

We believe the substantive and qualitative elements of the proposed report by audit committee members to be unnecessary and essentially redundant of duties of management and outside auditors. We believe these report duties impose new substantive liability for directors serving on the audit committee, and we conclude that these initiatives are disruptive to well-accepted state law principles regarding the duties of directors.

Audit Committee Charter

For more than a decade, Southern's audit committee has been governed by a charter and guidelines adopted by the full board of directors. We question what the inclusion of the charter as an appendix to the proxy statement accomplishes since Item 7(e) of Schedule 14A presently requires description of the functions performed by the committee. We oppose any requirement to include the charter as an appendix to the proxy statement.

Disclosure About Independence of Audit Committee Members

We support disclosure of the lack of any committee member's independence. No disclosure need be made if all audit committee members are independent.

Proposed Safe Harbors

We appreciate the Commission's intent to limit increased liability of directors as a result of these proposals. The proposed safe harbors should be adopted even though they afford only minimal protection from such increased liability. Any required disclosure should not be considered "soliciting material" or "filed" with the Commission or subject to the liabilities of Section 18 of the Exchange Act. Other than for possible Section 10 (b) liability, this proposal would seem adequate to provide protection from liability under the 34 Act.

We recognize that the Commission has no authority and does not intend to provide protection for liability under state law. We would note that the business judgment rule and ordinary care standards might be higher for experts under state law than for non-experts. Consequently, directors' liability for breach of fiduciary duties under state law may be increased by the heightened financial literacy expertise standard coupled with the representations that would be required by proposed Item 306.

Securities litigation continues in spite of attempts by the Congress to thwart unreasonable numbers of claims being asserted in volatile market situations. It is reasonably likely that such litigation would include audit committee members whose duties include assessing materiality in financial statements in accordance with SAB 99.

Although a safe harbor is not necessary for a pure statement of fact (e.g. that the committee met with the independent auditor), the factual statements in proposed Item 306 are somewhat ambiguous and so intertwined with non-factual statements that the safe harbor should apply to these. For example, proposed (a)(1) of the item requires the audit committee to state whether it "reviewed and discussed" the audited financial statements with management. No definition or guidance is provided on what these words mean. Does "review" mean that every word of the financial statements was read or that the math was checked? Does the word "discussed" imply how much time was spent or the depth of discussion? Those who might seek to make these statements the basis of a claim for liability under the 34 Act would surely seek to place the most expansive reading on these terms, especially in the context that the "review" and the "discussion" must be sufficient to lead to the judgment which must be made in (a)(4) of the item. Accordingly, the safe harbor proposed should cover all of the statements in proposed Item 306.

Thank you for the opportunity to express our views.


 /s/ Tommy Chisholm