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When the Securities and Exchange Commission invited comment on its proposed rules implementing the Sarbanes-Oxley corporate reform bill last year, lawyers for foreign companies listed on U.S. stock exchanges wasted no time in airing their views. They posted feedback on the SEC’s Web site objecting to new requirements regarding board composition and attorney conduct rules. They weighed in, too, on the now-notorious “noisy withdrawal” proposal for lawyers who become aware of wrongdoing at a client and on the new obligation that executives must certify financial results. In the months after Sarbanes-Oxley came out, other companies took the opportunity to grandstand publicly on corporate reform. Famed sports car maker Porsche AG, scoffing at the proposed rules and others that are under consideration by the New York Stock Exchange, said it would delay listing there. (Not every company protested; Rupert Murdoch’s News Corp. announced in February that it would adopt stricter board committee standards than the SEC required, in anticipation of more restrictive rules by the NYSE.) Apparently, the SEC heeded the furor, and softened two key rules. The first, which would bar company insiders from serving on audit committees, was loosened for foreign companies in order to take into account the laws of Germany and other countries that require employer representation on corporate boards. And under the final SEC rules adopted in late January, non-U.S. lawyers who primarily practice abroad and deal only indirectly or “incidentally” with the SEC would be exempt from attorney conduct rules. The companies lost a couple of battles, too. The commission holds out little hope that many of the rules it has already issued � such as the ones on company loans and CEO certification, for instance � are open for debate. And the SEC has put off issuing final regulations on the attorney conduct rule that drew the most heated response from both foreign and homegrown lawyers: the noisy withdrawal provision, which requires lawyers to resign publicly if their clients engage in illegal activities. Lawyers for foreign businesses aren’t shy about taking credit for the SEC’s change of heart. “Every lawyer in Europe shrieked,” says Raymond Russo, a corporate governance specialist with New York’s Paul, Weiss, Rifkind, Wharton & Garrison. Adds Todd Malan, executive director of the Organization for International Investment, whose Washington, D.C.-based lobbying group represents more than 100 foreign companies with businesses in the United States: “The final rules are much better than [those proposed] in the summerthat’s for sure.” With at least a partial victory, foreign companies are, for now at least, settling down to working with the new order. Says Elizabeth Wall, the London-based chair of the American Corporate Counsel Association, who once headed Cable and Wireless plc’s legal department, the main feeling among her in-house counterparts across the continent is “resignation.” She adds that “boards and lawyers alike are wrestling to come to terms with it.” Signing On But even though the SEC softened a few rules, the foreign companies that took their grievances to the commission, such as Deutsche Bank AG, DaimlerChrysler AG, and Siemens AG, have not quit grousing altogether. The final SEC regulations still contain provisions that they aren’t happy about, including a ban on company loans to executive officers. Europeans say that they already adhere to strict rules governing such loans. In Germany, for example, executive loans must be approved by the board in advance. “Some people regard [the rule] as a drastic intrusion into the affairs of foreign companies,” says Joe McLaughlin, a Sidley Austin Brown & Wood partner. He serves as outside counsel to the Organization for International Investment. Similarly, McLaughlin adds, the SEC rules requiring CEOs and CFOs to certify financial results don’t take into account the fact that foreign companies have their own ways of keeping honest. In Germany, he notes, a board of company managers takes collective responsibility for reporting accurate financial results. “They all physically sign the documents,” says McLaughlin. He adds that the SEC shouldn’t be forcing German companies to single out individuals to certify results. Such large German companies as Deutsche Bank, BASF AG, and DaimlerChrysler asked unsuccessfully to be exempted from those individual reporting requirements. Some lawyers representing foreign companies assert that even the new, improved attorney conduct rules are problematic. For instance, they complain that the SEC failed to fully define what it means for foreign lawyers to “appear or practice” before the commission, while others say the new rules will force foreign companies to rely more heavily on U.S. counsel (and pay steeper outside legal bills), even for routine filings. “You have to shelter yourself by co-counseling with an American lawyer,” says Allan Siegel, a partner in the Washington, D.C., office of Akin, Gump, Strauss, Hauer & Feld. Lost in the Translation In the meantime, some in-house lawyers abroad, such as Mitchell Shelowitz, general counsel of the Israel-based wireless equipment maker Ceragon Networks Ltd., say they’re busy just trying to digest the new requirements. That, as Shelowitz notes, can be especially challenging, given that foreign company officials don’t typically speak English as a first language. “It’s challenging to translate [the rules] in an understandable way,” he says. But Shelowitz and others say they’ve quickly come to understand one key fact about the post-Sarbanes-Oxley world. All the new requirements mean a mountain of paperwork � and that means a longer workday for in-house legal staff, especially for chief legal officers. “This is generating a huge amount of work,” says ACCA chair Wall, noting that in-house staffers will now have to conduct extra due diligence to ensure that their companies fully comply with the rules. Of course, that burden may not seem as great after foreign companies submit their first post-Sarbanes-Oxley 20-F or 40-F foreign issuer filings and put new compliance procedures in place. But for now, anyway, lawyers for some foreign companies warn that the prospect of all that extra work is going to cause more of their clients to steer clear of the U.S. capital markets. “This could be the straw that breaks the camel’s back,” says Sarah Hanks, a partner in Clifford Chance’s Washington, D.C. office. For all their bluster, though, foreign companies may not have any choice but to conform, especially once capital markets revive and they once again try to issue shares in the United States. As ACCA’s Wall puts it: “If you want to be in the U.S capital markets, [the Sarbanes-Oxley rules are] a necessary evil.”

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