Jay Kelly Wright

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Jay Kelly Wright
March 10, 2003
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Captive Insurance Companies Association National
Risk Retention Association

• March 10, 2003
• Orlando, Florida
• Jay Kelly Wright
• Arnold Porter
• Washington, DC

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I. Overview of Sarbanes-Oxley
II. How Does S-O Affect People Who Arent
Directors and Officers of Issuer?
III. How Do You Protect Yourself After S-O?
IV. Policy Perspective
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I. Overview of Sarbanes-Oxley

• Political Climate

• Enacted Quickly, Opposition Caved In
• Process Like 1933 1934 Securities Legislation
• Broad Language, Implementation Left To SEC And
  Prosecutors

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• To Understand, Need Context Of Related SEC
  Action 

• SEC Release on Estimates in MDA
• Loss Reserves Methodology, Assumptions,
  Sensitivity Analysis

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• Regulation of Independent Auditors 

• Oversight Board
• Independence
• Audit Committee as Outside Auditors Client

• Scope of services
• Reports on critical accounting policies,
  alternative treatments, management letter,
  unadjusted differences ( 204)

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• Direct Regulation of Corporate Executive Conduct 

• No Personal Loans to Director of Executive
  Officer ( 402)
• Claw Back Bonuses ( 305)
• No Altering of Destroying Records (Dont Forget
  E-Mail) ( 802, 1102)
• No Attempt to Improperly Influence Outside
  Auditor ( 303)
• No Discrimination or Retaliation Against a
  Whistleblower ( 806)
• Audit Committee Must Establish Procedures for
  Complaints ( 301) (What is a Whistleblower?)

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• Direct Regulation of Corporate Executive Conduct
  (contd) 

• Important Features

• No Materiality Limitation on Any of Above
• Many Reach Below Directors and Officers of Issuer

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• Corporate Governance 

• CEO and CFO Certification

• Reports (not just F/S)
• Effectiveness of internal controls (not just
  accounting controls) ( 302, 404)

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• Audit Committee as Inspector General of Company

• First section in Title III Corporate
  Responsibility (301)
• Duty to set up complaint procedure ( 301)
• Required to be given info on internal control
  (NOT limited to accounting) ( 302, 204)
• Right to hire independent counsel and other
  advisers ( 301)
• Company must compensate members and advisors
  ( 301) (What about a staff?)

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• S-O Applies to Public Companies, But Practical
  Applications to Other Companies

• NYSE
• Regulators adoption of best practices

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II. How Does S-O Affect People Who Arent
Directors and Officers of Issuer?
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• Prohibitions Extend Through Entire Enterprise
  Including Subsidiaries

• Records policy
• Protecting whistleblowers

• Issuer Policies and Procedures to Implement
  Prohibitions Will Apply to Everyone
• CEO and CFO Certifications and Reports
  Diligence Procedures Will Involve Others
• Audit Committee in Role as Inspector General and
  its Advisors Will Seek Independent Source of
  Information and Staff
• Concerns About Departures From Policies and
  Procedures (Internal Controls) Will Rise to
  Higher Level Within Company

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III. How Do You Protect Yourself After S-O?
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• Objective Show Organization Took This Seriously
  And Acted Responsibly (Even If Not Perfectly)
• Prepare Policies And Procedures Before Trouble
  Starts

• Documents
• Whistleblowers
• Process For Reports And Certifications

• Put In Writing And Publicize
• Follow Them
• Get Counsel
• Tell The Truth

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IV. Policy Perspective

• Market v. Regulation
• Is S-O Like the Independent Counsel Laws?