US: Panel of Executives and Academics to Consider Regulation and Competitiveness

A committee filled with business leaders and academics was created yesterday to consider changes in the Sarbanes-Oxley Act and other laws and regulations governing securities markets and companies, with the intention of improving competitiveness for American markets.

The group, called the Committee on Capital Markets Regulation, has no official status but the announcement of its creation included praise from Treasury Secretary Henry M. Paulson Jr., who said that the issue of American competitiveness “is important to the future of the American economy and a priority for me.”

Hal S. Scott, a Harvard law professor who will be the committee’s director, said in an interview that he had begun working a year ago to form the group because he was concerned that American markets were losing competitiveness. He said its members had been chosen by himself and the two co-chairmen, R. Glenn Hubbard and John L. Thornton.

Mr. Hubbard is dean of the Columbia Business School and a former chairman of President Bush’s Council of Economic Advisers. Mr. Thornton is board chairman of the Brookings Institution and a former president of Goldman, Sachs, where he reported to Mr. Paulson.

Among the issues to be considered are whether laws need to be changed to limit both civil and criminal liability for companies, auditors and directors. One matter Mr. Scott cited is the proper role of state governments in financial market issues, including the cases brought by Eliot Spitzer, the New York State attorney general.

The committee will consider whether Section 404 of the Sarbanes-Oxley Act, which requires audits of internal controls at corporations, should be changed. Critics say that such audits are too expensive and have kept foreign companies from listing their securities in the United States.

Mr. Scott said the committee would also review whether the Securities and Exchange Commission needed to adopt better procedures to weigh the costs and benefits of its regulations, and whether some other government agency should be charged with reviewing those decisions.

The final area to be discussed, he said, is shareholder rights, including the efforts of hedge funds to force changes in corporate policies, and whether shareholder approval should be required for takeover defenses.

While the committee includes many officers of companies that are subject to regulation by the S.E.C., it includes no former agency chairmen or commissioners, or people who held major S.E.C. staff positions.

“We generally tried not to include regulators,” Mr. Scott said. “We would not want to put people in the position who had formulated these rules in the past. They may have a lack of objectivity.”

He noted that one member, Robert Glauber, a visiting professor at Harvard Law School and a former chairman of NASD, did have experience in regulation.

“Anybody on this committee is in the real world and will bring with them real-world perspectives,” he said.

Mr. Hubbard said the committee would be knowledgeable about regulation. “Many of these people have S.E.C. interaction on a regular basis,” he said, adding that the academics involved, either as members of the panel or as advisers, were experts in many areas of securities law and regulation.

Among the committee members are Samuel A. DiPiazza Jr., chief executive of the accounting firm PricewaterhouseCoopers, and Donald L. Evans, the former commerce secretary who is now chief executive of the Financial Services Forum, a lobbying group for major insurers, banks and investment banks. Mr. Paulson is a former chairman of the group.

There are also chief executives of DuPont, Office Depot and the CIT Group, and top officers of mutual fund companies, Lehman Brothers and the New York Stock Exchange. William G. Parrett, chief executive of Deloitte Touche Tohmatsu, another major accounting firm, is also a member, as is Ira M. Millstein, a leading corporate lawyer.

Accounting firms have been seeking legislative relief from liability suits over failed audits, a matter the committee will consider. Asked if the chairmen of such firms might lack objectivity, Mr. Scott said that they might also oppose some issues the committee planned to consider. “These big auditing firms have been the big beneficiaries of 404,” he said. “We are thinking of changing 404.”

The group plans to have an interim report in November, a date Mr. Hubbard said Mr. Paulson had requested. That could allow its recommendations to be considered at post-election meetings of Congress, although Mr. Scott said he thought the idea was to have proposals ready for the new Congress in January.

Mr. Scott said that academics would prepare papers for the committee, and that those papers could form the basis for parts of the report. Luigi Zingales, a professor at the University of Chicago business school and a committee member, will prepare a report on the overall issue of competitiveness.

Robert E. Litan of Brookings will report on liability matters, Mr. Glauber will discuss the regulatory framework and Andrew Kuritzkes of Mercer Oliver Wyman, a consulting firm, will assess the Sarbanes-Oxley Act.

Allen Ferrell of Harvard Law School will report on shareholder rights, John C. Coffee Jr. of Columbia Law School on securities class-action suits, and Kenneth E. Scott of Stanford Law School on federal-state conflict in regulation.

Reinier H. Kraakman of Harvard Law School will report on liability issues involving directors and investment banks, and John K. Villa, a criminal defense lawyer and a partner in the firm of Williams & Connolly, will discuss criminal enforcement of securities laws.

• 208 Regulation