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Slugging It Out On SOX Exemptions
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Posted by: Jack Ciesielski 4/20/2006 6:13 AM
A couple of good articles on CFO.com in the past week, both about the SEC Smaller Public Company Advisory Board recommendations.

I didn't listen to the public broadcast of the April 12 conference where the committee spelled out its recommendations, but apparently Helen Shaw of CFO.com must have paid attention. Seems that one of the Advisory Board members - Drew Connolly of the IBA Capital Association - was miffed that some of the opposition to their suggestions sounds like the same points that have been raised by Lynn Turner, former SEC chief accountant and current research director of Glass, Lewis & Co:

"...We do know and can factually point out that the former chief accountant of the SEC, who is quoted in virtually every newspaper article I've seen, is organizing this commentary and has requested some of this commentary," stated committee member James "Drew" Connolly, president of IBA Capital Funding, during the committee's final public conference call Wednesday. Connolly said commentaries opposing the committee's proposals were solicited by Turner and "is not a groundswell of individuals coming together in opposition." Connolly added: "We should be aware there is a relatively broad-based coordination in and among these attacks on our work. And I for one resent it.""

Right. And all of the support from small companies for the committee's recommendations is a conspiracy, too? It's a ridiculous charge: Turner has certainly been visible on the issue and has certainly done some of the best research on why exemptions are a bad idea - so it stands to reason that the solid facts uncovered by his group should be cited in comment letters rather than generalities. (I did so myself, in my own letter. And nobody from Glass Lewis asked me to take a particular stance.)

In another article, Marie Leone chronicled the apparent growing divide between auditors and smaller public companies evidenced by the comment letters. And she quotes a highly asinine statement by committee Chairman Herb Wander:

"...Amid the volleys of comment letters fired off by companies and auditors, letters from institutional investors were largely missing in action. Wander called this poor turnout "disappointing" and suggested that perhaps the lack of opinion was itself a message. He also posited that the committee may want to consider a letter from the National Venture Capital Assn., which agreed with the committee's key recommendation on exempting smaller companies, as a proxy for the opinion of all professional investors."

Come again? Consider the letter from the National Venture Capital Association - agreeing with the committee's recommendations on exemption, of course - as a proxy for the opinion of all professional investors?

How about this letter from the CFA Institute, which might serve even better as a proxy for the opinion of all professional investors:

"The Council strongly opposes the major thrust of the ACSPC's report, which is to provide most SEC registrants partial to full exemption from the requirements in Section 404 of the Sarbanes-Oxley Act of 2002. Furthermore, we find the Committee's primary (or first tier) recommendation to establish a scaled system to determine whether individual securities regulations should be scaled based on the company's size to be most troublesome. As investors, as well as investment professionals, we view any scaling system for securities regulation to be a “slippery slope” which will lead to less reliable, relevant and timely financial reporting and disclosures. Overall, we believe that if this recommendation is implemented there would most likely be a decline, and/or no improvement, in the quality of information available to investors of smaller public companies."

The NVCA letter is sympathetic to the views of the Committee; the CFA Institute letter is not. THe NVCA represents the views of venture capital investors; the CFA Institute represents the views of all sorts of capital market participants. Yet the chairman of the committee tries to position the NCVA letter as representing the views of all professional investors.

Hmm... sounds like a conspiracy to me.
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