Topic_25_E1.doc

Topic 25, Exercise 1 International Compliance with the Sarbanes Oxley Act. The Sarbanes-Oxley Act has created concern in international businesses around the world. In "Will Foreign Boards Play by U.S. Rules?" BusinessWeek, December 6, 2002, BusinessWeek’s feel that the fallout over increased reporting requirements will cause a few large multinationals to delist their shares from U.S. exchanges and markets. Review the article and answer the following questions. 1. What is contained in the Sarbanes-Oxley Act that has upset many international businesses? The Sarbanes-Oxley Act, signed by President Bush in July, requires that the CEO vouch for financial statements and that boards of directors have audit committees composed of independent (non-insider) directors. Furthermore, the law now forbids loans to company directors. The intent is to direct the board actions to the interests of shareholders. These required practices are in conflict with practice and custom in many countries. The key to any law is the written regulations (SEC), so any compromise will likely appear in the "regs," not in an amendment to the law. 2. Why might compliance with Sarbanes-Oxley enhance the flow of capital from U.S. investors to international firm's securities? While information is not free, anything that would foster confidence in boards and managers' intentions to work for shareholders' interest will enhance capital flows to corporate securities, domestic and foreign. Any practice that keeps boards of directors independent of managers and working for shareholders will enhance financial integration. As financial markets have developed through time, there have been times, especially after corporate fraud, market collapse, etc., where laws have demanded more information and "transparency" from companies. The Sarbanes-Oxley Act is intended to impact structure and practice in order that boards and managers work for shareholders rather than themselves.