Monday, August 28, 2006

SOX Consequences: Another Look?

In a prior post (here), The D & O Diary fretted that Sarbanes-Oxley compliance costs could be driving foreign companies away from U.S. exchanges or encouraging existing public companies to delist their shares. An August 21, 2006 op-ed piece in the Wall Street Journal written by Maurice Greenberg and entitled “Regulation, Yes. Strangulation, No.” (here, subscription required) made similar points.

But two articles in the August 28, 2006 Wall Street Journal suggest that perhaps these concerns could be overstated and that there are reasons to interpret the situation more positively.

First, in an article (here, subscription required) entitled “Foreign Companies Cash in on U.S. Exchanges,” the Journal reports that 2006 YTD, non-U.S. companies have sold $5.8 billion in stock through U.S.-listed IPOs, which is already the highest annual total since 2000, and double the amount of money raised by non-U.S. companies at this point last year. Larger non-U.S. IPOs may be going to other markets, but that is not to say that deals are not getting done in the U.S.

Second, in an August 28 op-ed piece (here, subscription required) entitled “Good Governance is Good Business,” Neeraj Bhargava, the CEO of WNS (Holdings) Limited , a company that recently listed ADRs on the NYSE, lays out the reasons why his company chose a U.S. exchange listing notwithstanding the burdens of SOX compliance. Among other things, he feels that his company’s ability to clear the high regulatory burdens gives his company credibility and global visibility. He also says that as a result of greater visibility and transparency for companies traded on U.S. exchanges, his company enjoys a higher valuation and its shareholders enjoy greater liquidity for their shares. Bhargava states that he also believes that satisfying the regulatory requirements, while undeniably costly and burdensome, affords numerous benefits including “lower cost of capital, smoother follow-on financing and greater flexibility in future M & A activities.” As a result, “the benefits continue to outweigh the challenges and to drive companies toward greater efficiencies, stability and long-term growth.”

So while there may well be evidence to suggest that companies are selecting away from the U.S. exchanges (as reported in the prior post), there may also be reason to conclude that there are still companies that will see the benefit of listing on U.S. exchanges.

The Governance News Watch has a post (here) on Bhargava's op-ed piece. (The Governance News Watch is an excellent online resource with daily posts on corporate govenance news.)

Lawyer/Directors on Boards with Options Issues: Law.com has an August 28, 2006 post (here) entitled “Prominent Corporate Lawyers Didn’t Stop Shady Options Deals,” in which it reports on its analysis of options practices at 17 Silicon Valley firms that had Valley lawyers on their boards. The article reports that it found “questionable grant dates” at five companies (out of the 17 studied), none of which previously has been associated with backdating questions. Each of the five has a prominent Valley lawyer on its board: Amylin Pharmaceuticals, James Gaither (Cooley Godward); Heartport, Robert Gunderson (Gunderson Dettmer); LSI Logic, Larry Sonsini (Wilson Sonsini); Lattice Semiconductor, Larry Sonsini; Echelon, Larry Sonsini. The article states that “the awards may also spur new questions about the multiple roles these directors played at a host of Valley startups now under the close scrutiny of regulators, prosecutors and plaintiffs lawyers.”

A WSJ.com law blog post commenting on the Law.com article can be found here.

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