I've already posted twice about the article I've been working on the past few months. Quick recap: an overlap of securities requirements allows us to see whether companies are actually complying with the law.
Answer: it looks like not always. We found 30 instances in our 200 company sample where companies disclose related-party transactions with CEOs, CAOs, and CFOs in their proxies but failed to disclose them when they occurred as ethics waivers in 8-Ks or on the website, as required by SOX Section 406. You may think, "no harm, no foul"--at least the market is learning about these transactions somehow. But proxy disclosure (like Christmas) comes but once a year, and contains a whole lot of stuff. So companies who avoid Section 406 "bury" these ethically questionable transactions at the end of the year, rather than disclosing them as they occur, all by themselves.
We also found 74 cases we term "in spirit" violations, where companies appear not to be disclosing because their codes of ethics don't prohibit related party transactions. No waiver needed! But Section 406 defines a waiver as "such standards as are reasonably designed to promote—(1) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships", so it's a bit of a stretch to call something a "code of ethics" if it doesn't prohibit related party transactions.
This last point gets to our larger story, the limits of transparency. Section 406 was a direct response to Enron. You'll remember that Enron granted a waiver to its code of ethics to allow related-party transactions with CFO Andy Fastow, facilitating the deals with special purpose entities that helped perpetrate fraud on the market. The regulatory response was to require Section 406 disclosure, but that doesn't seem to be working. A lesson for today?
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