U.S. Legislative Developments On Internal Controls And "Say On Pay"

Two important developments have recently taken place in the U.S. legislature. The first relates to a proposed exemption from the internal control rules under section 404 of the Sarbanes-Oxley Act of 2002, and the second relates to shareholder voting on executive compensation.

Senate Defeats Internal Controls Exemption for Smaller Reporting Companies

The U.S. Senate recently voted against a proposed amendment to the internal control requirements of section 404. The amendment would have made compliance with section 404 voluntary for Exchange Act reporting companies with a market capitalization of less than $700 million.

Section 404 has been criticized for reducing the competitiveness of U.S. capital markets through excessive regulation that is overly costly for public companies, particularly smaller companies, to comply with. However, supporters of section 404, who favor maintaining the status quo, argued that many public companies have already been complying with the internal