COMPANIES WILL soon be making new disclosure about their ethics codes, according to proposals recently published by the SEC. Companies would have to disclose that they have adopted an ethics code for their senior financial officers and their principal executive officer or explain why they have not. Changes in the code or waivers from its applicability would have to be disclosed immediately on Form 8-K or by disclosure on the company's website. Electronic dissemination would be available only if the company had disclosed in its most recently filed annual report its website address and its intent to use the website as the disclosure vehicle for changes and waivers.
Companies would have to evaluate whether their codes comply with the definition in the proposed requirement. If a company's code differs from the definition, the company would not be able to affirm that it has the type of code described in the rule.
The proposed rule's definition of a "code of ethics" includes, from the Sarbanes-Oxley Act, full and fair disclosure, compliance with applicable rules and regulations, and honest and ethical conduct (including ethical handling of actual or apparent conflicts of interest between personal and professional relationships). The SEC proposal adds to this set "accountability for adherence to the code," prompt internal reporting of violations to an "appropriate" party identified in the code, and avoidance of conflicts of interest, including disclosure to "an appropriate person" identified in the code of any material transaction or relationship that might create a conflict.
The SEC believes, including principal executive officers in the group to whom these codes are applicable, is consistent with the purposes of the Sarbanes-Oxley Act. The proposal asks respondents whether still a wider group should be covered, giving as possibilities including the general counsel or all executive officers.
The ethics-code disclosure would apply to companies that file Form 10-K or 10-KSB, and the code would have to be filed as an exhibit. Foreign private issuers using Forms 20-F and 40-F would be covered by the basic disclosure requirement, with any changes to and waivers of the code required to be disclosed only on an annual basis. Registered investment companies would be required to make ethics-code disclosures on For N-SAR or proposed Form N-CSR, and the requirement would include disclosing similar information about their investment advisors and, in certain cases, its principal underwriter.
Mr. Raphael E. Gordon is the managing partner of KPMG Peat Marwick, Past Chartered Accountants of Jamaica a member of the Public Accountancy Board and Jamaica's representative on the Association of Chartered Certified Accountnats International Assembly.
