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January 26, 2005
More Pressure on SOX from Abroad
According to an article in Monday's Financial Times, China Construction Bank, one of China's "Big Four" state lenders, is considering shelving its plans for listing its shares on the New York Stock Exchange. Presumably, the reason for skipping the NYSE listing is the expense and trouble of compliance with Sarbanes-Oxley.
There could also be another side to the story, according to the FT article. It is also possible that Sarbanes-Oxley would shed light in dark corners that the bank might like to keep dark. Other Chinese banks have had large amounts of assets tied up in non-performing loans and have run into obvious problems with corporate governance. For example, according to the FT article, "Chinese media reported on Monday that two officials at Bank of China - another Big Four lender which is planning a $3-$4bn international IPO - had fled the country following the disappearance of up to Rmb1bn ($121m)." Yep, looks like an internal control problem to me.
So, maybe the problem with Sarbanes-Oxley is that it might do what we would expect it to do -- protect investors.
Anyway ... China isn't the only place outside the US to have trouble with Sarbanes-Oxley. According to a Tuesday Financial Times article, SEC Chairman William Donaldson gave a speech that day at the London School of Economics in which expressed willingness to try to find ways to ease the burden of filing requirements for foreign companies. Under current rules, foreign filers must meet Section 404 requirements for reports filed after July 15 of this year.
To me, this ties back into the thinking expressed in yesterday's post on "Bad News or Benefit." It seems likely that the details of SOX compliance will get tinkered with over the next year or so as the SEC works to find the balance between the cost of the regulations and the benefits that they deliver. If a company approaches Sarbanes-Oxley strictly from the standpoint of meeting compliance requirements, these changes will be frustrating, adding to the cost of compliance.
On the other hand, if a company takes a broader view--moving beyond mere compliance--and approaches internal control as part of a plan to improve performance and governance--then the potential changes in deadlines and modifications of requirements are just noise of on the side of the arena--the goals and direction of the bigger game are not changed.
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Posted by Bill Zoellick at January 26, 2005 3:49 PM
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Comments
A few foreign registrants are using Sarbanes-Oxley as an objective hurdle to further affirm their effective financial management - and by extension - the value of their company. For example, Novartis recently announced that they received a "clean opinion" on Sarbanes-Oxley section 404 only three weeks after their year end close and one year ahead of their SOX filing deadline. This was emphasized by their CEO in his webcast to shareholders - so for well-managed businesses overseas, Sarbanes-Oxley is proving to be (dare I say) a welcome opportunity to further strut their stuff. (Note, I have no association with Novartis and all that I have shared is available on their website in the webcast to shareholders held in late January of 2005).
Posted by: Sebastian Holst at February 4, 2005 1:05 PM
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