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Thursday, Jan 15, 2004

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Opinion - Corporate Governance

More work in the boardroom

IN THE wake of corporate scandals, the new Sarbanes-Oxley law and other governance and accounting requirements, nearly two-thirds of corporate boards of directors spent more time on their duties during the past year, according to the PricewaterhouseCoopers Management Barometer.

Despite the added workload, board compensation increased at only 20 per cent of companies, and remained the same at 47 per cent. The remainder was either uncertain about board compensation or did not report. For those receiving a raise, the average increase was 17.9 per cent.

The survey of senior executives at 177 large, US multinationals found that 62 per cent of boards increased the time and effort spent on corporate governance over the past year — including 30 per cent that spent much more time; and 32 per cent, somewhat more. Fourteen per cent spent about the same amount of time, and 2 per cent less time. The remainder did not report. Eighty-nine per cent of boards receiving increased compensation had put in additional time and effort. However, only 29 percent of boards putting in more time were rewarded with increased compensation.

Looking ahead, only 10 percent of companies plan to increase board compensation over the next 12 months, with an average increase of 10 percent. Compensation will stay about the same for 42 per cent, and none will receive a pay cut. The remaining 48 per cent were either not certain or did not report.

Boards at 94 per cent of companies planning an increase had put in added time and effort, but only 16 per cent of boards putting in more time and effort are slated for a raise. Of those, more than half received a raise in the past year.

Between the past year and the next 12 months, a net of only 24 per cent of boards will have received increased compensation, 92 per cent of which put in added time and effort. Increased board responsibilities had a mixed impact on recruiting new board members. While 28 per cent reported no problems, 18 per cent described recruiting as difficult. Twenty-seven per cent did not need to recruit new members, and 27 per cent did not report.

"Although there is a substantial amount of interest about increased compensation to boards, few companies are making the commitment to raise board pay. I don't expect this to continue," said Mr Garrett Stauffer, leader of PricewaterhouseCoopers' US Corporate Governance Practice. Increased commitment for audit committees: For board audit committees, whose duties have been significantly increased by the Sarbanes-Oxley Act, 68 per cent spent more time, including 42 per cent much more time, and 26 per cent somewhat more, the survey found. Five per cent spent about the same time, and none less time. The remainder did not report. Despite the added workload, total compensation for audit committee members stayed about the same for 41 per cent of companies surveyed.

Film on SEC

AS THE Securities and Exchange Commission (SEC) comes under increasing fire for failing to properly regulate the mutual fund industry, the environmental sector is now sounding off as well, claiming the commission has failed to enforce its own rules requiring companies to disclose environmental and social liabilities.

Mr Sanford Lewis, an environmental and corporate accountability attorney, has made a film about the issue with the SEC refusing to be interviewed on camera, reported

Mr Lewis began working on corporate underreporting of environmental and social liabilities in 1997, when he prepared a report on such obfuscation by the mining company Phelps Dodge for the United Steelworkers of America, reported.

"The United Steelworkers filed a petition for enforcement with the SEC, and then I began to look at one company after another, filing a whole series of letters with the SEC asking them to take enforcement action," said Mr Lewis. "The word we got back from the SEC on all these letters was, `thank you very much, we received your note, our process is secretive from this point on,' and then we never heard back from them."

"The letters fell into the SEC black hole," Mr Lewis told

The scandals surrounding Enron and other companies prompted Lewis to make his movie, called Off the Books! Environment & Human Rights, to raise awareness of the problems surrounding corporate reporting and accountability.

"I basically suspended my legal work for a few months and just worked on this film without pay because I felt so strongly that this issue needed to be addressed and a film could be a powerful way to get the point across to more people," said Mr Lewis.

CPA disbarred

AN ADMINISTRATIVE law judge has issued a decision and ordered that Joseph R. Banister be disbarred from practice before the Internal Revenue Service. Banister is a CPA from San Jose, CA, and a former IRS criminal investigation agent.

The IRS Office of Professional Responsibility, in a complaint against Banister, alleged that he was misrepresenting the law to taxpayers and that he failed to file his own federal income-tax returns for tax years 1999-2002.

OPR investigates allegations of disreputable conduct and incompetence against tax practitioners and enforces the standards of practice for those who represent taxpayers before the IRS, as detailed in Treasury Department Circular 230.

According to public documents, the judge found that Banister provided erroneous advice to taxpayers, including improperly advising them that they were not required to file returns because the 16th Amendment to the Constitution was not properly ratified.

Banister also provided erroneous advice that returns were not required because Sections 861 through 865 of the Internal Revenue Code define "income" in a manner which excluded their earnings. The original complaint against Banister was later amended to charge Banister with not filing his own returns for tax years 1999-2002.

Judge William B. Moran in his December 24, 2003, decision said that "the very significant problem with Banister's advice to his clients is that it is absolutely wrong."

Judge Moran further noted that "Banister's assertions have been addressed by so many federal courts that they are no longer afforded the dignity of repeating the explanations as to why the claims are meritless."

The decision followed a public hearing requested by Banister, which was held in San Francisco on December 1, 2003.

The judge could have ordered disbarment, suspension or a reprimand, but he determined that nothing short of disbarment was appropriate under the facts. The judge's decision will become the final decision of the agency unless it is appealed within 30 days.

In an unrelated case, the Department of Justice announced, on December 31, 2003, that a preliminary injunction has been issued barring a lawyer and a certified public accountant, and organisations that they are affiliated with, from representing taxpayers before the Internal Revenue Service, preparing Federal tax returns, and otherwise obstructing IRS tax administration through frivolous and harassing tactics.

The Justice Department has sought and obtained injunctions recently against a number of tax-scam promoters. More information about these cases is available on the Justice Department Web site.

(Source: AccountingWEB.)

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