US to impose harsh governance penalties

Link: Read our Sarbanes-Oxley special report

This was the warning issued by the Securities & Exchange Commission, under its new chairman William H. Donaldson, a report by AP said.

The guidelines relate to company’s audit committees in a similar manner as the UK’s Higgs report, in so far as it requires directors that sit on the committee to come from outside the company.

Furthermore the audit committee must also be responsible for overseeing the hiring and firing of external accountants – this may not be undertaken by the chief executive or other senior managers.

The rules were adopted by the five SEC commissioners, as part of the Sarbanes-Oxley Act enabled last summer to restore investor confidence following Enron and WorldCom.

However the rules will only come into effect in 2004 and it will be the duty of the New York Stock Exchange, the Nasdaq stock market and other smaller US exchanges to enforce them.

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