SEC wants CEOs to 'certify' reports
Thu Jun 13, 9:03 AM ET
Adam Shell USA TODAY
NEW YORK -- Wall Street's top cop has a message for CEOs and corporate number crunchers: Don't even think of signing off on financial reports unless you can vouch for what's inside.
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In the ongoing effort to rebuild investor confidence and trust in the numbers that companies report, the Securities and Exchange Commission ( news - web sites) proposed rules Wednesday that would require chief executives and chief financial officers to ''certify'' the contents of quarterly and annual reports.
The latest move to strengthen corporate governance comes amid the backlash caused by major accounting lapses at Enron and other com-panies that resulted in heavy losses for investors. Last week, the New York Stock Exchange ( news - web sites) proposed rules that would make corporate boards more independent.
''If we don't learn from history, we're doomed to repeat it,'' said SEC Chairman Harvey Pitt.
Before signing off on quarterly and annual reports, CEOs and CFOs would be required to certify that they've read the report, that the content is truthful and that all pertinent information deemed important to shareholders is disclosed.
Arthur Bowman, editor of Bowman's Accounting Report, says the rules send a forceful message to executives who might consider signing off on numbers they don't understand or know are false: ''Beware of giving false information. There are repercussions.''
Still, he says, it's unlikely the rules will eliminate future scandals like Enron. ''People who want to defraud the investing public will continue to do so,'' Bowman says. ''When you leave for work in the morning, you lock the door to your house. Does that mean you'll keep out all burglars? No.''
Nell Minow, an expert in corporate governance and editor of TheCorporateLibrary.com, also thinks the SEC move will better protect shareholders. ''Anything regulators can do to remind CEOs that the buck stops with them is a step in the right direction,'' she says.
The measures will undergo 60 days of public discussion with a possible vote by year's end. If the measures pass, executives who file false certifications face legal action. But Gidon Caine, partner at Oppenheimer Wolff & Donnelly, a Palo Alto, Calif., law firm that defends corporate directors, says the SEC is interested in deterrence, not exposing CEOs to more lawsuits. ''The SEC rules are not intended to expand liability for officers that sign financials. They're intended to remind them of their responsibilities to shareholders.''
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