Former SEC head Arthur Levitt dismissed a question about non-US investor displeasure over Sarbanes-Oxley and fears that foreign issuers would de-list when he spoke at a Thomson Financial- sponsored breakout session at last year’s annual national meeting of the National Investor Relations Institute (Niri). His response? That he had seen no evidence to warrant these concerns.
It’s impossible to dismiss the evidence now, however. Just a few weeks ago European issuers very publicly presented their frustrations in a highly publicized letter to US corporate regulators, making plain their concerns.
During European visits early this year, US Treasury secretary John Snow was quoted frequently, saying the US was reexamining the impact of the application and enforcement of Sox on non-US issuers.
The SEC has given small and non-US issuers a one-year reprieve from complying with the act’s Section 404 requirements. The commission has also said it will look at ways to change the deregistration process to ease the current burden on non-US issuers that can prove they have fewer than 300 US shareholders. The SEC’s other concession is to establish an advisory committee on smaller public companies to examine the longer-term impact of Sox and other aspects of the federal securities laws on smaller firms.
This is happening in the context of an active US legal and academic debate. According to Merritt Fox, the Michael E Patterson Professor of Law at Columbia Law School, it is the global market for shares in the world’s approximately 41,000 publicly traded issuers that raises questions about what US policy should be regarding the regulation of disclosures.
He breaks the debate into five possible approaches: issuer nationality, transaction location, investor residency, international uniformity and issuer choice. Fox suggests current policy is a mix of the first three approaches with a bit of the fourth thrown in, but argues that US regulations should apply to US issuers only.
His limited exceptions are for US IPOs by non-US issuers, new issue and periodic disclosure by issuers from developing countries and newly emerging economies, and by non-US issuers who want to comply with US regulations.
‘It is the issuer’s home country government that represents the greatest concentration of persons who bear both the benefits and the costs of the level at which the issuer discloses,’ Fox argues. ‘The greater relative importance of securities markets in the US means the benefits from more disclosure in the US are greater. This in turn means that a more costly, higher level of required disclosure is optimal in the US.’
There are vast differences between allowing non-US companies to de-list and exit the US market, and employing an issuer nationality attitude in which the US takes a hands-off approach to the regulation of international issuers. Count on the former as part of the ‘work out’ stage of Sox regulation. I’m not holding my breath on a rethinking of the latter in the next few years.
