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Harvey Pitt: Section 404 exemptions "too drastic and not necessary"

Filed in archive SOX by leon on April 28, 2006

Harvey Pitt: Section 404 exemptions "too drastic and not necessary"
Earlier this month, I posted an entry on Harvey Pitt's recommendations to fix Sarbanes-Oxley.

The former Securities and Exchange Commission chairman expands on it more here in this Q&A session with CFO.com.

Pitt's line, that there needs to be a way to make Section 404 work for small companies, is basically similar to the views taken by SEC chairman Christopher Cox.

He has recommended a "phase-in" period which would allow the SEC to perform a cost-benefit analysis, something that should have been done before the legislation was passed. While condemning the "one-size-fits-all-approach" of SOX, he says exempting smaller companies from Section 404 is too extreme and potentially destructive.

"I think that the problem with the Advisory Committee's proposals is that it adopts, if you will, an attitude of "let's throw out the baby with the bath water" philosophy...my hope is that we can get to where we need to be without having to take that kind of all-or-nothing approach."

As for the question of Sarbanes-Oxley driving listings away from US stock exchanges, Pitt suggests that the forces of globalisation have made it largely irrelevant.

"The fact is that dynamics in the marketplace are making the issue of where a company has its stock listed largely irrelevant. What's much more relevant is who owns it. What we've seen is that the Sarbanes-Oxley standard is effectively becoming the de facto world standard and therefore, I'm less concerned that we're going to lose listings...Lots of companies are becoming subjected to standards [like 404], whether or not their stock is listed in the U.S. I think we'll continue to see that, particularly when you get developments like Nasdaq acquiring up to 15 percent of the london stock exchangelinks. It's going to be very, very hard to imagine that the London Stock Exchange is going to have different standards from those that are going to be applied with respect to Nasdaq. I'm optimistic that we are headed toward a global standard for governance and transparency. All things considered, I think that's a good thing."


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