Corporate governance issues: United States and the European Union.

(US) corporate governance environment. We fail to see why EU

companies and auditors should be overburdened with such duplicative

requirements compared to their US counterparts.... Bearing

this in mind, the SEC should recognize the equivalence of E.U.

corporate governance systems and thus fully exempt not only EU

lawyers but also EU companies and auditors from the [provisions

of Sarbanes-Oxley], also with regard to audit committee

requirements.

Id.

The SEC has, however, generally attempted to accommodate concerns of foreign issuers. With respect to the audit committee independence requirements, the SEC has clarified that employee representatives sitting on the board, of directors or audit committee pursuant to home country law or listing requirements will count as independent. See Greene & Boury, supra note 11, at 30.

(73.) "In the past, foreign companies benefited from a general exemption from the application of American corporate governance rules[;]" foreign listed companies in the United States were "simply required to disclose their corporate governance arrangements[,] a solution that created no interference with the internal organization of most foreign issuers." See Cardilli, supra note 71, at 792. The underlying premise for this was the recognition of other national legal systems' ability to assure equivalent levels of investor protection. Id. This practice encouraged the listing of these foreign companies in the U.S. markets without necessarily triggering the complications that adapting to a system different from their own would have created. Id.

(74.) Dewing & Russell, supra note 61, at 318. It has also been said that the Act was passed with such haste (in an election year) that Congress did not apparently take the time to consider whether it was appropriate to include foreign issuers in the statutory framework. See Karmel, supra note 9, at 862.

(75.) Dewing & Russell, supra note 61, at 318.

(76.) Karmel, supra note 9, at 891.

(77.) Cardilli, supra note 71, at 791. European businesses, while in favor of improved corporate governance standards, were not very happy with the applicability of SOX to their companies. Id.

(78.) Id. Such concerns were expressed by the Union of Industrial and Employers' Confederation of Europe (UNICE)--an authoritative representative of business in Europe. Id.

(79.) See Karmel, supra note 9, at 887 (noting a February 2003 comment letter from the NYSE regarding the SEC's proposed audit committee standards).

(80.) Troy A. Paredes, Enron: The Board, Corporate Governance, and Some Thoughts on the Role of Congress, in ENRON: CORPORATE FIASCOS AND THEIR IMPLICATIONS 495, 516 (Nancy B. Rapoport & Bala G. Dharan eds., 2004); see Florence Shu-Acquaye, The Independent Board of Directors and Governance in the United States: Where Is This Heading?, 27 WHITTIER L. REV. 725 (2006) [hereinafter Where Is This Heading?] (discussing the interplay of the Sarbanes-Oxley Act, fiduciary duties, and corporate governance on the whole); Smith v. Van Gorkom Revisited, supra note 17.

(81.) See discussion supra Part III.A.

(82.) Cardilli, supra note 71, at 793. Also, the only exemptions from such executive certification requirements are employee benefit plans and 8-K reports. See id. at 794 n.41 (citing JAMES D. COX ET AL., SECURITIES REGULATION: CASES AND MATERIALS 675 (3d ed. 2001)).

(83.) Id. at 794; see also id. at 794 n.43 (referring to the French Code de Commerce L225-251, and in particular Article L232-1, concerning the preparation of the corporate balance sheets by the board of directors). In the same vein, the German Stock Corporation Act (Aktiengesetz) 93-11 recognizes the responsibility of the whole Vorstand. Id.

(84.) Id. at 794.

(85.) Id.

(86.) Id.

(87.) Paredes, supra note 80, at 516; Sarbanes-Oxley Act of 2002 [section] 304(a)(1)-(2), 15 U.S.C.S. [section] 7243(a)(1)-(2) (LexisNexis 2005).

(88.) Cardilli, supra note 71, at 797.

(89.) Id. at 797-98.

(90.) Id. at 798.

(91.) Id.

(92.) See Paredes, supra note 80, at 516; DORSEY & WHITNEY LLP, SARBANES-OXLEY ACT OF 2002: WHAT YOU NEED TO KNOW 5 (2002), http://www.abanet.org/rppt/publications/edirt/2002/sarbanes/dorsey.pdf.

(93.) 15 U.S.C. 77t(e), 78u(d)(2), (2000), amended by Sarbanes-Oxley Act of 2002 [section] 305(a)(1)-(2), 15 U.S.C.S 77t(e), 78u(d)(2) (LexisNexis 2005). However, it is not clear from the legislative history that the change in language from substantial unfitness to unfitness was intended to reduce the quantum of proof required of the government. See Smith v. Van Gorkom Revisited, supra note 17, at 41 n.153 (citing Jayne W. Barnard, SEC Debarment of Officers and Directors After Sarbanes-Oxley, 59 Bus. LAW. 391, 408 (2004)).

(94.) Sarbanes-Oxley Act of 2002 [section] 906, 18 U.S.C.S. [section] 1350(c)(1)-(2) (LexisNexis 2005).

(95.) [section] 906(c)(1)-(2).

(96.) This federal agency is responsible for establishing sentencing policies and practices for the federal courts. See U.S. Sentencing Commission Homepage, http://www.ussc.gov/ (last visited Apr. 1, 2007) (giving news on, links about, and the history and practices of the U.S. Sentencing Commission).

(97.) Greene & Boury, supra note 11, at 25.

(98.) Id. at 25-26.

(99.) Where Is This Heading?, supra note 80, at 739-40.

(100.) Id. at 739-40: see Jonathan D. Glater, New Rules Make it Easy to Charge Executives, but Not to Send Them to Prison, N.Y. TIMES, July 2, 2005 at C5 (noting the jury could not find Scrushy guilty under charges of fraud, and therefore could not find him guilty under section 906).

(101.) EUR. COMM'N, REPORT, supra note 4, at 43.

(102.) Id.

(103.) Id; see also COMM'N OF THE EUR. CMTYS., supra note 1, at 10-11 (discussing how recent scandals in the U.S. affected the E.U.'s approach to corporate governance).

(104.) Sarbanes-Oxley Act of 2002 [section] 301, 15 U.S.C. [section] 78j-1(m) (LexisNexis 2005). See also discussion on corporate auditing supra Part III.A.

(105.) See Paredes, supra note 80, at 518 n.99. An "affiliated person" is one who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the company or its subsidiary. Id. '"Control' means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through ownership or voting securities, by contract, or otherwise." Id. However, a person who is not the beneficial owner of at least 10% of the voting securities of the company and is not an executive officer of the company is not considered an "affiliated person," Id.

(106.) Cardilli, supra note 71, at 802.

(107.) Id.

(108.) Karmel, supra note 9, at 874.

(109.) Id.

(110.) Cardilli, supra note 71, at 803.

(111.) See Duane Windsor, Business Ethics at "The Crooked E," in ENRON: CORPORATE FIASCOS AND THEIR IMPLICATIONS, supra note 80, at 659, 676 (citation omitted).

(112.) ROBERT BRYCE, PIPE DREAMS: GREED, EGO, AND THE DEATH OF ENRON 12 (2002).

(113.) Windsor, supra note 111, at 677. The cost that must be incurred by the corporation is monitoring management to ensure their interests are aligned with those of the shareholders. Hence, shareholders may be able to reduce agency costs by devising incentives that would motivate management to maximize shareholder wealth. Such incentives include stock options and bonuses. See Reinier H. Kraakman, Corporate Liability Strategies and the Costs of Legal Controls, 93 YALE L.J. 857, 888-96 (1998).

(114.) Windsor, supra note 111, at 677. The author goes on to say the "machine" was built around elements such as:

1) a shared ideology of free markets, deregulation and innovation; 2) systematic attempts at political influence of legislation and regulation; 3) Lay's philanthropic activities as (perhaps genuine) evidence of corporate citizenship and community leadership; 4) a cynical view that greed is good, personally and for society; 5) strong financial incentives for suborning checks and balances; and 6) hardball tactics.

Id.

(115.) In the May 6, 2002 report of the Chairman of the Senate Committee on the Judiciary, Senator Patrick Leahy recommended the proposed Corporate and Criminal Fraud Accountability Act of 2002. Id. at 673. A review of Enron's behavior revealed, inter alia, "imprudent behavior, self-dealing, defects of moral character, company code of conduct relaxation or violation, defects of corporate culture, and defects of corporate governance." Id. at 673-74.

(116.) Sarbanes-Oxley Act of 2002 [section] 406(a), 15 U.S.C.S. [section] 7264(a) (LexisNexis 2005) (entitled "Code of Ethics for Senior Financial Officers"). The Act also required the Commission to revise its requirements for prompt disclosure on Form 8-K by the issuing company to also include disclosure of any change in or waiver of such code of ethics for senior financial officers on a filed Form 8-K, or by dissemination on the Internet or other electronic means. [section] 406(b).

(117.) Karmel, supra note 9, at 869.

(118.) [section] 406(c).

(119.) Sarbanes-Oxley Act of 2002 [section] 307(1), 15 U.S.C.S. [section] 7245(1) (LexisNexis 2005).

(120.) [section] 307(1)-(2).

(121.) [section] 307(1).

(122.) [section] 307(2); Cardilli, supra note 71, at 813.