The Securities and Exchange Commission adopted rules reducing the time companies have to report quarterly and annual earnings and requiring executives to disclose stock trades in two days.
The SEC voted to shorten the deadlines for quarterly reports to 35 days from 45 days, and for annual reports to 60 days from 90 days. Coca-Cola Co, Eastman Kodak Co and at least 50 other US companies objected to the tighter deadlines, which will be phased in over three years.
"The SEC feels pressure to do something," said Alan Bromberg, a law professor at Southern Methodist University. "The pressure's coming from Congress and it's coming from the administration." The SEC's votes came as it began implementing parts of an accounting oversight law enacted last month and continued its own actions to restore investor confidence after scandals at Enron Corp, WorldCom Inc and other companies.
As called for in the new law, the SEC adopted a rule to force executives of overseas companies listed in the US to certify their financial statements the same way US executives must.
Mutual funds effected
The SEC also voted to require top executives at mutual funds, such as Fidelity Investments and Vanguard Group, to certify the accuracy of their semi-annual financial reports. The first mutual- fund certifications are due at the end of September, though most will be due at the end of next February, said Paul Roye, the SEC's investment management director.
"We are determined to give real teeth and meaning to the protections of the new law," SEC Chairman Harvey Pitt said.
Today's SEC meeting was the first by a full complement of five commission members in more than two years. Four commission members -- Democrats Roel Campos and Harvey Goldschmid and Republicans Cynthia Glassman and Paul Atkins -- were confirmed by the Senate last month, joining Republican Pitt.
SEC vacancies had become a concern to Congress and President George W. Bush as some commission actions were challenged for lacking a legal quorum.
In the next few months, the SEC will consider another rule that would force companies to electronically file their insider-trade reports, totaling about 200,000 a year, said Alan Beller, the agency's corporation-finance director.
"The current, largely paper environment is very difficult," Beller said.
The SEC also is studying how to "tag" trading figures in these electronic reports so the figures can be extracted and compiled in a database, Beller said. SEC investigators and economists could use this data in analyzing trading patterns at individual companies, he said.
The SEC's proposal to accelerate reporting of quarterly and annual results drew criticism from at least 50 companies in the Fortune 500. Tighter deadlines will lead to erroneous and incomplete reports at a time when the SEC is pushing for fuller and more accurate disclosure, they said.
Faced with this opposition, the SEC voted to phase in the shorter deadlines for quarterly and annual reports. Those deadlines will remain the same for the first year. In the second year, quarterly reports will be due in 40 days and annual reports in 75 days. In the third year and later, the deadlines will be 35 days for quarterly reports and 60 days for annual reports.
Time pressure
"Thirty-five days is a very short time frame to prepare financials, obtain a review by the auditors, draft disclosure, engage the audit committee, and still have time to double-check everything for accuracy," said Brian Lane, a lawyer with Gibson, Dunn & Crutcher in Washington, which represents corporate clients.
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