The Securities and Exchange Commission on Tuesday said it was seeking ways to ease the burden on foreign companies of new U.S. corporate governance rules.
William Donaldson, chairman of the U.S. regulator, said in a speech at the London School of Economics that he had asked the SEC's staff “to consider whether to recommend that we delay the effective date of the internal control on financial reporting requirements for non-U.S. companies.”
This follows lobbying by British and German business leaders concerned that foreign companies with shares traded in the U.S. cannot avoid costs associated with the Sarbanes-Oxley reforms — even if they are willing to give up their U.S. listing.
The main focus of their anger has been the act's Section 404, which requires managements to state, in year-end filings, the adequacy and effectiveness of internal controls.
International companies with U.S. listings are currently required to meet these expensive requirements from July 15 onwards.
Several European companies said the high cost outweighed the benefits of maintaining a dual listing in New York, but delisting was pointless because the SEC still required compliance by any company with more than 300 U.S. shareholders — a difficult threshold for any large company to avoid.
Though stressing the continued importance of Section 404 as a gold standard for investors, Mr. Donaldson is now thought willing to compromise by providing an easier exit for foreign companies.
One insider said the SEC was anxious to address criticism that the New York Stock Exchange had become like a “Roach Motel” — a reference to a famous U.S. brand of cockroach traps that promises pests “can check in, but cannot check out.”
The question has become increasingly sensitive for the NYSE because potential overseas clients claim Sarbanes-Oxley is deterring them from coming to the U.S.