(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

Panelists Say Sarbanes-Oxley Is Working

Sen. Chuck Hagel said the real challenge for America is not terrorism but enhancing competition in the world. If we over-regulate and develop a risk-free culture, it would, in the senator's view, be a major problem for the competitive position of the United States in the global economy. Public Company Accounting Oversight Board Chairman William McDonough believes there may be a degree of risk aversion in the business community as a result of the Sarbanes-Oxley Act. If that is the case, he said that it is important to get business leaders back to the business of taking risks.

Sen. Hagel believes that the act has worked in relation to its objective. It is no different from any other piece of complex legislation, he said, which may need re-calibrating. For now, Sen. Hagel said the SEC and the PCAOB should play it out and Congress should not attempt to regulate the regulators. He said the SEC did the right thing when it extended some of the compliance deadlines for smaller companies. Considering that the act was the most significant change in the securities laws in decades, Sen. Hagel said it has gone amazingly well. There is no interest in Congress now in making any changes to the act, he advised.

John Castellani, president of the Business Roundtable, agreed that the act has worked to restore investor confidence in corporate governance. The self-regulatory organization's adoption of new listing standards has also helped, he said. Mr. McDonough said that great progress has been made in protecting investors. Mr. Castellani also pointed to the tremendous activity of boards of directors to ensure compliance with the act. Boards are spending more time on governance issues, he said. The challenge going forward is finding the right balance and companies must retain the ability to take risks and fail.

The act included new and difficult requirements that the large, mature companies were able to handle, he said, but it also raised cost concerns. Mr. McDonough acknowledged that the act will not prevent another Enron, but said it will make it less likely. The fear quotient was very low in the 1990s, he added, and it is very high right now.

Alyssa Machold Ellsworth, managing director of the Council of Institutional Investors, said the costs of the act should go down enormously in coming years. Shareholders are not complaining about the costs, she said, and they are the ones who ultimately pay for it. She reported a degree of anxiety among investors about the consideration by the Advisory Committee on Smaller Public Companies to recommend a version of "Sarbanes-Oxley light" for small companies that constitute 85 percent of all public companies.

Mr. McDonough said there is no question that the first year of implementation for the Section 404 internal control requirements did not go so well, but believes it should be left alone. Most companies will be able to implement the provision. He urged patience while the SEC and the PCAOB work to make the act more efficient for smaller companies. The SEC and the PCAOB believe they can work with the private sector to improve it.

In response to a question about corporate pay, Sen. Hagel said that shareholders will have the last say on CEOs' salary and benefits. As long as the compensation is transparent, it is up to shareholders to make their views known, he said. Mr. McDonough agreed. The amount that a CEO gets paid is unique to each company, he said, but everyone should be able to understand the pay package. The last thing that is needed is legislation, in his view. Ms. Ellsworth advised that executive pay is the one issue that concerns most shareholders. There is a perpetual race to the top to have the most egregious pay package, she said. The tax change that was aimed at exploding corporate salaries resulted in every company paying their CEO the threshold amount of $1 million, with the rest in often undeserved "performance pay." CEOs should be rewarded for good performance and should not take away a good portion of the company when they leave, she said.

The Sarbanes-Oxley Act was a wake-up call, according to Mr. McDonough. He said that executives, in general, now "get it," with the possible exception of compensation, which is a disclosure issue.

On the question of whether businesses are now more risk-averse, Mr. Castellani agreed that boards are spending large amounts of time on compliance. We don't want to end up with the best governed but worst managed companies, he said. Companies must be able to invest in a product or a market without fear that a failure will be translated into a failure of their governance system.