Ticker Tapeworm

Will the Sarbanes-Oxley Act signed on July 30 make a real difference to federal securities law? “Yes, absolutely,” says Bruce Beebe, editor of Directorship, a monthly newsletter on corporate governance issues. Although the new law also gives the Securities and Exchange Commission a 66% budget increase, it remains debatable just how that body will choose to flesh out the changes that have been mandated, Beebe says.

Key provisions of the new law would create an SEC oversight board — probably the single most drastic structural change — increase penalties for CEOs and CFOs who make false statements, hike the maximum penalty for securities fraud, and prohibit auditors from offering certain consulting services to corporate clients.

According to Credit Suisse First Boston Corp. analyst Tony Shiret, one of the biggest effects of Sarbanes-Oxley will be to allow outsiders a clearer view of any contingent liabilities in a company. But, Shiret says, understanding of long-term contracts will ultimately depend on auditors and the honesty of the companies. “And clearly,” he adds, “a few guys getting bracelets slapped on them is going to be quite helpful in that respect.”

The New York Stock Exchange and The Business Roundtable have moved to implement significant changes in their own guidelines, emphasizing the importance of independent directors on boards and giving shareholders more say in such issues as stock options and equity-based compensation plans.

These reforms are designed to force executives to be far more careful about financial statements. This may sound positive to a scandal-jaded public, but Beebe points out a possible drawback. “These executives will be looking so carefully behind them, they may have trouble focusing on strategic issues,” he says.