U.S. Multinationals Make Sweeping Changes in Corporate Governance

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The relationship between management and boards of directors at U.S. multinational companies has been changed dramatically through an array of corporate governance initiatives begun in response to corporate scandals, the Sarbanes-Oxley Act, and other requirements.

According to the PricewaterhouseCoopers Management Barometer:

  • 88 percent of senior executives report that directors at their company are expected to have more input on a variety of issues.
  • 73 percent say their board will be more vocal on risk identification and risk management.
  • 72 percent say their company has established a "whistleblower" complaint process, as required by Sarbanes-Oxley, even though this provision is not yet in effect. Five percent of these report an increase in the number of complaints received and addressed by the audit committee.
  • 64 percent report that their audit committee reviews the company's 10-Q prior to filing with the SEC.
  • 63 percent have made changes or improvements in the skill sets of their audit committee.
  • 57 percent of audit committees and 47 percent of boards have performed a self-assessment in the past 12 months.

"Boards and audit committees at large corporations have responded actively to the call for change and have accomplished a lot," said Garrett Stauffer, of PricewaterhouseCoopers' U.S. corporate governance practice. "We expect the increased attention and focus on governance will continue."

Among other governance initiatives in place:

  • 46 percent have a formal process for evaluating auditor performance.
  • 43 percent have revised their audit committee charter as a result of Sarbanes-Oxley or proposed stock exchange listing standards.
  • 31 percent of audit committees have engaged outside advisors to assist in meeting new requirements.
  • 28 percent have appointed, or plan to appoint, a lead director or non-executive chairman, since passage of Sarbanes-Oxley.

Areas to Receive Increased Board Attention - Most senior executives expect their board will have more to say in five critical areas:

  • Auditor independence issues 61%
  • Reviewing quarterly earnings 60%
  • The code of conduct 58%
  • The company's business structure and transactions 55%
  • Analysts, investors and the media 32%
  • Liquidity issues 28%
  • Off-balance-sheet reporting 24%
  • Related party transactions 24%

"Management expects the greatest increase in board attention in the areas of corporate risk, financial reporting, ethical issues, and regulations that have sprung up in response to recent corporate scandals," Stauffer said.

Changes for Audit Committees

Post-Enron, changes or improvements by audit committees have primarily involved longer or more-frequent meetings. Only one in four companies has made changes in audit committee composition:

First Number = Total; Second Number = Completed; Third Number = Planned

  • Holding longer meetings 55% 51% 4%
  • Holding more-frequent meetings 49% 45% 4%
  • Changes in committee composition 26% 23% 3%

Other activities aimed at improving the skill sets of their audit committee include:

First Number = Total; Second Number = Completed; Third Number = Planned

  • External director education programs 26% 19% 7%
  • Internal director education programs 23% 21% 2%
  • Replacing members 22% 20% 2%
  • Changing size of the audit committee 12% 11% 1%

"Audit committees have stepped up and given extensively of themselves under a very bright spotlight," said Stauffer. "The focus on the committee's skill sets will pay off in a sharper perspective and recovery of some of the extra time that members have invested."

PricewaterhouseCoopers' "Management Barometer" is an established quarterly survey in the U.S. These surveys are developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.

PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. "PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Direct questions about Management Barometer to Pete Collins, survey director and publisher, at 646-394-4496 or e-mail to: [email protected].

For more information about Barometer surveys, including recent economic trend data and topical issues, visit www.barometersurveys.com.

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