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Q: “In light of Enron and the push by Congress and the SEC to revise accounting rules, what do you think the impact ultimately will be on in-house legal departments?” Ellen Taubenblatt Harmon, Metallurg Inc., New York The immediate response to the Enron collapse will include: scrutinizing corporate policies and controls (authorization levels, document retention and destruction policies, approval and conflicts of interest policies); reviewing the composition of the company’s audit committee; focusing on more comprehensible disclosure of all relevant related transactions and other matters affecting the company’s financial condition; and examining any restrictions on investment selection or transfer within the company’s 401(k) plan. On a more enduring basis, I suspect that in-house lawyers will tend to apologize less for their lack of accounting sophistication, ask critical questions with increased skepticism and urge greater disclosure of questionable material matters. Unfortunately, an inordinate amount of time and money will have to be spent complying with, or searching for, loopholes around the complex labyrinth of essentially useless new regulations (such as SEC Press Release 2002-22, Feb. 13) that will be promulgated in a predictably knee-jerk, misguided reaction to the largely insoluble problems of corporate fraud and mismanagement. Robert W. Hollweg, Weight Watchers Int’l Inc., Woodbury, N.Y. As I see it, the Enron debacle will have a fourfold impact on corporate law departments. First, I believe that board[s] of directors will be looking to the general counsel for greater assurance that management is operating both legally and ethically, particularly as it pertains to the entering and reporting of certain financial transactions which tend to inflate revenue or understate expenses or are tax driven. Second, I think that there will be an increase in law department due diligence as it pertains to such transactions and clearly greater disclosure to shareholders and potential investors. Third, management and a company’s independent accountants will be looking for greater comfort from corporate attorneys that proposed transactions of this nature pass legal scrutiny. Finally, I would anticipate a greater dialogue with audit committee members, given their oversight responsibility. Next, a closer working relationship between the corporate lawyers and the corporation’s financial staff must develop in order for the corporation to better function post-Enron. A plus for companies, as well as for the investment community. Peter Seitz, First National Bank, Christiansburg, Va. Enron simply heightens our sensitivity to the need to thoroughly understand the details of our financial reporting. FNB Corp., formed in 1996, served as the holding company for First National Bank. FNB Corp. closed on the acquisition of two other regulated financial institutions in 2001, FNB Southwest and Salem Bank & Trust. These transactions nearly doubled our size, and since these transactions were treated as “purchases” for purposes of [Generally Accepted Accounting Principles], they expanded the complexity of our financial reporting significantly. Add to the fact that GAAP purchasing accounting standards relative to purchase accounting, particularly goodwill and core deposit intangibles, is in flux and we have a great deal more challenges even before considering Enron’s impact. I’m working on this year’s proxy. Our meeting is classified as nonroutine (since we need shareholder approval to increase the number of authorized shares). That means we must prefile our proxy, subjecting it to potential SEC review. I sense that all reviewed documents will be as closely scrutinized as ever before. Leland P. Smith, Equity Marketing Inc., Los Angeles The good news: Enron’s fallout has raised the internal visibility of the company’s SEC reporting obligations to a new level. Front-page events like Enron serve as powerful reminders to corporate directors and senior executives as to how serious these obligations are. In that respect, these reminders actually make in-house counsel’s job easier. The bad news: Our resources to respond to Enron-related changes have not increased commensurately. Equity Marketing’s law department consists of only two attorneys. We are also under intense budget pressure to use our limited resources as efficiently as possible. I am particularly concerned by the SEC’s stated desire to shorten the time periods for filing 10-Ks and 10-Qs to 60 and 30 days, respectively. We closed Equity Marketing’s books for 2001 and issued earnings on Feb. 28, 2002. Under the SEC’s proposed rules, our 10-K would have been due the next day! On the one hand, the SEC wants public companies to issue timely reports. On the other hand, those reports must be accurate. I am very concerned that small law departments will struggle to balance these competing needs in this post-Enron environment.

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