Isle CEOs mixed on
new SEC proposals

Top execs would be required to personally
sign off on financial statement filings

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By Dave Segal
dsegal@starbulletin.com

The Securities and Exchange Commission's latest attempt to enhance investor confidence could expose top executives at public companies to fraud charges or private litigation.

While several of Hawaii's chief executives and chief financial officers applaud the intent of the proposed rules, some are leery about burdens the proposals would bring.

"There's no question that this is a lawyer's dream," said Clint Arnoldus, chairman, president and chief executive of Central Pacific Bank parent CPB Inc. "The bottom line is it puts more burden on a company and produces really the same end results we're already got today in terms of the credibility of the material coming out of the company."

The SEC's latest proposals, triggered by the Enron Corp. scandal, make high-ranking executives personally responsible for what appears in their companies' financial reports.

Under the plan, chief executives and chief financial officers would have to certify that the information in quarterly and annual reports "is true in all important respects and contains all information about the company of which he or she is aware, and that he or she believes is important to a reasonable investor," according to the SEC.

A false certification would leave the signer open to SEC fraud charges or private litigation.

The SEC's other proposal involves an expedited and more extensive filing of 8-K forms, which companies use to report significant events or corporate changes important to investors.

The new proposal increases to 19 from six the types of important events that need to be reported.

The SEC proposal also calls for those 8-K filings to be filed within two business days rather than the current requirement of five days for some items and 15 days for others.

The SEC is due to vote in August on whether to formally enact the rules.

"I think anything reasonable the SEC does now to improve investor confidence will be helpful to the markets," said Robert Clarke, chairman, president and CEO of Hawaiian Electric Industries Inc. "I already view it as my responsibility to make sure our financial reports are accurate and complete. Any large public company is complex to organize and the CEO has to rely on people within the organization to prepare information and to establish a process to receive fair and accurate reporting."

Clarke said there's already a representation letter that management signs for auditors that approves the financial statements.

But President Bush said in March his intent was to take this a step further and make a CEO's "nominal certification" a "personal certification."

Gary Gifford, president and CEO of Maui Land & Pineapple Co., said it's reprehensible what has occurred among some public companies.

"In terms of working to stop personal gain at the expense of the shareholder or at the expense of the public, we support anything that does that," Gifford said. "There's no reason for it in our business whatsoever."

Gifford, though, said he has some concerns about language in the proposals.

"There's the possibility of an honest or fair mistake in the interpretation," he said.

Paul Meyer, chief financial officer for Maui Land & Pineapple, also questions whether normal standards of reporting and normal principles of malfeasance would apply.

"This is not going to be a problem for a well-managed company," he said. "There's already a standard for the kind of fraud and chicanery that you're seeing with other companies right now. Rules on insider trading and insider information have been in place for a long time."

Arnoldus, likewise, questions the language of the new rules.

"I think it's pretty vague right now in terms of what would be certified," he said. "A lot of the descriptions cite ordinary course of business, and that's very general and vague. In this litigious society, that would be worrisome. I also think that this is something that is making the many suffer because of the misdeeds of a few."

Ron Scott, chief financial officer of Cyanotech Corp., said he surmises that this new proposal would eliminate the current indemnification that protects CEOs and CFOs against litigation.

Still, he's in favor of the new proposals.

"It seems to me that senior executives should be liable and should be accountable," Scott said. "(If they were), we wouldn't be having all the problems we're having today like with Enron and Peregrine having to restate their revenues by hundreds of millions of dollars."