Brian L. Henry
Senior Counsel and Assistant Secretary
Phone: (423) 229-1295
FAX: (423) 229-4137

November 29, 2002

      VIA E-MAIL ("rule-comments@sec.gov")

Mr. Jonathan Katz
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549

RE: Comments of Eastman Chemical Company to Proposed Item 309 of Regulation S-K ("Audit Committee Financial Experts") under Section 407 of the Sarbanes-Oxley Act of 2002 (Release No. 33-8138, File No. S7-40-02)

Dear Mr. Katz:

I write on behalf of Eastman Chemical Company to comment on the recent Securities and Exchange Commission proposal to implement the Sarbanes-Oxley Act's provisions relating to audit committee "financial experts". Eastman Chemical is a Delaware corporation that is subject to the reporting requirements of the Securities Exchange Act of 1934 and that has its common stock listed on the New York Stock Exchange. I and Theresa Lee, our General Counsel and Corporate Secretary, work closely with the Eastman Chemical Board of Directors and Audit Committee and with other members of management in the areas of disclosure, financial reporting, and corporate governance.

We commend and support the Commission's continued and timely efforts to implement the Sarbanes-Oxley Act and otherwise clarify and enhance disclosure standards to strengthen investor confidence in public companies and U.S. capital markets.

In the main, the new requirements of proposed Item 309 appear consistent with the letter and spirit of Section 407 of the Sarbanes-Oxley Act, and would provide investors with information that should assist them in evaluating the oversight of a company's management and auditors by the boards of directors and audit committees of public companies. We do, however, ask that the Commission take into account the following specific recommendations, observations, and concerns before adopting final rules for disclosure concerning audit committee "financial experts."

Proposed Disclosure Requirements

Proposed Item 309 would require companies to disclose the number and names of persons that the board of directors has determined to be the "financial experts" serving on the company's audit committee. This is in addition to the disclosure mandated by Section 407 of the Sarbanes-Oxley Act, which only requires disclosure of "whether or not ... the audit committee ... is comprised of at least 1 member who is a financial expert."

We believe that specific information about the background and business experience of audit committee members related to their financial and accounting qualifications would assist investors in evaluating the oversight by the board of directors and its audit committee of the company's management and auditors. However, identifying how many or which individual directors have been judged to meet the SEC definition of "financial expert" would not, we believe, provide investors with information that would allow them better to evaluate whether the members of the audit committee have the requisite background and experience properly to monitor the performance of the independent auditors and the internal accountants.

Furthermore, designating certain directors as "financial experts" seems contrary to the state corporate law notion that boards of directors (and their designated committees) act as a whole, not as individuals, and would suggest that certain "expert" audit committee members are somehow more qualified, with perhaps more responsibility and different fiduciary and legal obligations, than other directors. (Persons identified as "financial experts" could be expected to garner the attention of plaintiff's lawyers and be named individually as defendants in lawsuits that allege accounting improprieties, notwithstanding the Commission's belief that "the mere designation of the financial expert should not impose a higher degree of individual responsibility or obligation.") The role of an audit committee and its members is not to audit the company, but to help monitor the work of the outside auditors, evaluate the adequacy of the company's internal controls and procedures, and assess the overall adequacy and completeness of the company's financial statements and other financial information. And, the suggestion of a "special status" for certain identified members, with all of its implications, would be expected to add to the challenge of finding and retaining audit committee members -- especially those who might qualify as "financial experts" -- and the competition for qualified, willing individuals would likely become even more intense.

None of these consequences is necessary, however, since neither the mandate of Section 407 of the Sarbanes-Oxley Act nor the Commission's determination that investors should receive additional information concerning the financial expertise of audit committee members requires disclosure of the number and names of the "financial experts" on the audit committee. Instead, the Sarbanes-Oxley requirement could be met by requiring a company to disclose whether, in the business judgment of the board of directors, its audit committee includes at least one member who is a financial expert. The additional disclosure that the Commission seeks for investors could be provided by requiring information concerning the background and business experience of audit committee members relevant to their qualifications for service on that committee. In this manner, disclosure of the names and number of audit committee members meeting the "financial expert" criteria, with the attendant potential problems discussed above, would become superfluous and unnecessary.

Proposed Definition of "Financial Expert"

Section 407 of the Sarbanes-Oxley Act specifies several attributes, gained through a person's education and experience as an accountant or senior financial officer "or from a position involving the performance of similar functions", that the Commission "shall consider" in developing a definition of "financial expert." Under proposed Item 309, however, an audit committee member would meet the definition only if he or she satisfies each of the attributes listed in Section 407 for the Commission to consider. The proposal also would require that financial experts have experience both preparing or auditing financial statements that present accounting issues that are "generally comparable" to those raised by the company's financial statements and applying generally accepted accounting principles in connection with the accounting for estimates, accruals, and reserves that are "generally comparable" to those used in the company's financial statements. These requirements also go beyond Sarbanes-Oxley Section 407, which indicates only that a financial expert should have experience in "the preparation or auditing of financial statements of generally comparable issuers" and "the application of [generally accepted accounting] principles in connection with the accounting for estimates, accruals and reserves."

As written, the proposed definition of "financial expert" would appear to suggest that every public company should have on its audit committee someone who either has played a senior role in a public accounting firm's audit, or has been the chief financial or chief accounting officer, of a public company in the same or a similar industry as the company. Under this definition, many companies that maintain effective audit committees with members who meet or exceed current NYSE and NASD financial expertise standards will likely not have audit committee members who qualify as "financial experts." And, directors who do qualify as "financial experts" may find themselves designated as permanent audit committee members, unable to serve on other committees and provide valuable insight to the board on other significant matters. In addition, as proposed, the language of Item 309 requiring the designated expert or experts to have experience with "generally comparable" estimates, accruals, and reserves and accounting issues, if read as requiring experience in the same industry as the company, would be expected to raise serious independence and antitrust concerns because such a requirement could restrict the pool of eligible experts to those who are working or have worked for competitors, suppliers, or customers of the company.

Finally, the proposal would not permit boards to consider candidates who, while not certified public accountants or senior financial officers, have other experience that should qualify them as financial experts. For example, a chief executive officer with years of experience supervising the preparation of financial reports, or an investment banker or professional investor with years of experience using and making strategic or financial decisions based upon financial statements, might not meet the rule's requirement that a financial expert have direct experience "preparing or auditing" financial statements or "performing" similar functions.

We suggest that the Commission replace its list of mandatory attributes with a more flexible standard that will allow boards to consider candidates with supervisory or other relevant experience (including perhaps professional training and experience in using financial statements or in making strategic or financing decisions based upon financial statements), and that the Commission clarify that experience in the same industry as the company is not required. The purpose of the statute, and of any standard adopted by the Commission, should be to provide investors with adequate information to evaluate the financial expertise of public company audit committees, not so tightly to define what constitutes such expertise that it will be difficult, if not impossible, for many companies to attract and retain committee members who meet the standard. Members of audit committees do not, and should not be required to, function as auditors or accounting experts; rather, they should have the background and the experience necessary to monitor the performance of those performing those functions -- the independent auditors and the internal accountants.

Location of Disclosure

The Sarbanes-Oxley Act expressly states that companies must include the financial expert disclosure in their periodic reports required pursuant to the Securities Exchange Act of 1934, and the proposed Commssion rules would require companies to include the new disclosure in their annual reports on Form 10-K. As discussed above under "Proposed Disclosure Requirements," additional information about the background and business experience of audit committee members related to their financial and accounting qualifications would assist investors in evaluating the oversight by the audit committee of the company's internal accountants and outside auditors. Accordingly, the most appropriate place for this disclosure would appear to be the annual meeting proxy statement, as part of the information required under "Item 7. Directors and Executive Officers" of Schedule 14A and "Item 401(e). Business Experience of Directors" of Regulation S-K. Such information could also be included in the annual report on Form 10-K in Part III by incorporation by reference to the information in the proxy statement pursuant to General Instruction G to Form 10-K.

Transition Period and Coordination With SROs

We believe that the Commission should provide a transition period of at least one year, making the rule effective no earlier than for Forms 10-K filed for years ending after December 15, 2003. The statutory deadline for final rulemaking (January 26, 2003) falls too close to the 2003 proxy season to impose new "financial expert" qualification and disclosure requirements within such a short timeframe.

Equally important, to avoid the possibility of confusing or conflicting requirements, the Commission should to the extent possible seek to coordinate with the NYSE and the NASD to reconcile the various definitions of "financial expert," and the effective date of the financial expert disclosure requirements should be coordinated with the effective dates of the proposed NYSE and NASDAQ listing standards for audit committee membership. Companies need clear and uniform guidance as to what both the SRO listing requirements and the SEC disclosure requirements on audit committee membership will be before corporate governance/nominating committees and boards recommend director nominees to stockholders and make decisions about the composition of board committees.

Thank you for the opportunity to provide our views on the proposed new audit committee "financial expert" disclosure requirements. If you have any questions about our comments or would like additional information, please contact me at the above direct-dial telephone number or e-mail address.


/s/ Brian L. Henry


cc: J. Brian Ferguson, Chairman and Chief Executive Officer
James. P. Rogers, Chief Financial Officer
Theresa K. Lee, General Counsel and Secretary

bcc: Betty DeVinney
Mark Joslin
David Cotey
Greg Riddle
Martha Lawson
Nancy Ledford
Joy Glenn
Lizanne Thomas, Jones, Day, Reavis, and Pogue
Saverio Fato, PricewaterhouseCoopers