The effect of recent US legislation and rule making on corporate compliance and ethics programmes

Abstract

The Sarbanes–Oxley Act of 2002, the Securities and Exchange Commission's regulations to implement certain provisions of the Sarbanes–Oxley Act and recent changes to listing standards adopted by the two most important US exchanges (the New York Stock Exchange and the NASDAQ) all contain important implications for the corporate compliance and businessethics efforts of affected companies. This paper discusses those aspects of recent legislation and rule making relating directly to corporate compliance, including (i) the requirement that companies implement (or explain why they have not implemented) codes of conduct and ethics; (ii) the requirement that the national securities exchanges and associations prohibit the listing of any company's securities if the audit committee of the company has not established procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and (iii) oversight by the board of directors of a company's compliance with applicable law and regulations. This paper sets forth a short description of the recent history of government incentives for compliance in the USA and explains that, while government initiatives to date with respect to compliance programmes have tended to be incentive based, recent legislation and rule making place compliance requirements on some companies, putting a new spin on the US government's compliance initiatives. Recent legislation and rule making may produce greater communication in at least some affected companies about compliance generally and, more specifically, how to report suspected wrongdoing; this could lead to less corporate malfeasance, or at least to earlier detection. Recent requirements and proposals may also increase and formalise boards of directors' oversight of affected companies' compliance efforts; this could strengthen those companies' compliance efforts substantially.