SEC Proposes Controls, Ethics Code Reforms

U.S. securities regulators Wednesday proposed requiring companies to disclose more information about their internal controls and codes of ethics as part of an effort to implement legislation passed by Congress in response to a rash of corporate scandals.

By a 5-0 vote, the Securities and Exchange Commission put a rule out for comment that would require annual reports by companies on internal controls reviewed by outside auditors.

The commission also unanimously proposed a rule requiring companies to disclose whether they have a code of ethics for top officers, and any amendments or waivers to the code applying to those officers.

"Senior managers should make it clear to their employees that ethics matter ... It is good business to be open and honest with your shareholders," said SEC Commissioner Roel Campos, speaking at an open commission meeting here.

At the meeting Wednesday, the SEC was also expected to back proposals implementing other portions of the Sarbanes-Oxley Act that was signed into law in July, the largest overhaul of U.S. securities laws since the 1930s.

One rule would require companies to ensure their boards of directors' audit committees include at least one director who is a "financial expert." Another would make it a crime to strong-arm or mislead corporate auditors into cooking the financial books.

The four reforms and many others came out of Congress earlier this year in reaction to scandals like those at Enron Corp. and WorldCom .

The SEC has a huge task ahead of it to implement the act, facing turmoil with an early test — appointing five members to a new national accounting oversight board.

Sarbanes-Oxley — named for co-authors Maryland Democratic Sen. Paul Sarbanes and Ohio Republican Rep. Michael Oxley — requires the SEC to name the members of the Public Company Accounting Oversight Board by Oct. 28.

Interested parties will be able to comment publicly on the proposed rules, with finalization expected early next year.