[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2460 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2460

  To guarantee persons who invest in publicly held companies accurate 
information about the financial condition of such companies so they can 
make fully informed investment decisions, to increase the independence 
  of the Financial Accounting Standards Board, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 6, 2002

   Mr. Levin introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To guarantee persons who invest in publicly held companies accurate 
information about the financial condition of such companies so they can 
make fully informed investment decisions, to increase the independence 
  of the Financial Accounting Standards Board, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Shareholder Bill of Rights Act''.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) approximately 1 out of every 2 American households owns 
        stock directly or indirectly in United States publicly traded 
        companies, with significant savings, educational, retirement, 
        and other investments dependent upon the effective functioning 
        of United States capital markets;
            (2) the American public has lost confidence in the quality 
        of information they receive about the financial condition of 
        publicly traded United States companies in which they may 
        invest;
            (3) publicly traded companies and the businesses that 
        provide services related to the value and exchange of the stock 
        of such companies, including auditors, financial analysts, 
        investment bankers, and stockbrokers, have too often engaged in 
        practices that fail accurately to describe, evaluate, and 
        explain the true financial situation of a company;
            (4) publicly traded companies and the businesses that 
        provide services related to the value and exchange of the stock 
        of such companies operate routinely with multiple conflicts of 
        interest between and among the persons upon whom the investing 
        public depend to be independent and to protect the interests of 
        the investing public and stockholders;
            (5) such conflicts are a significant contributing factor to 
        the problem of misleading financial statements by publicly 
        traded companies, and the disclosure or elimination of these 
        conflicts will improve the credibility and reliability of the 
        financial reporting of publicly traded companies; and
            (6) independently issued standards establishing generally 
        accepted accounting principles are critically important to the 
        accuracy of the financial statements of publicly traded 
        companies, and the issuance of such standards by an independent 
        body should be respected and safeguarded.

SEC. 3. ENHANCING THE INDEPENDENCE OF ACCOUNTING STANDARDS.

    (a) Safeguarding Independence of Private Sector Issuance of 
Accounting Standards.--Section 19(a) of the Securities Act of 1933 (15 
U.S.C. 77s(a)) is amended--
            (1) by striking ``(a) The Commission shall'' and inserting 
        ``(a)(1) The Commission shall''; and
            (2) adding at the end the following new paragraph:
            ``(2) Delegation of authority to issue accounting and 
        reporting standards.--
                    ``(A) Delegation of authority.--The Commission may 
                delegate the authority to establish, define, and 
                improve standards of financial accounting and reporting 
                under this section and sections 3(b) and 13(b)(1) of 
                the Securities Exchange Act of 1934, to an independent, 
                nongovernmental organization (such as the Financial 
                Accounting Standards Board) to benefit the public, 
                issuers of securities, and users of financial 
                information, and may require issuers to comply with the 
                standards issued by such organization.
                    ``(B) Independent, stable source of funding.--
                            ``(i) Establishment of funding system.--To 
                        ensure that an organization designated under 
                        subparagraph (A) has a stable, independent, and 
                        adequate source of funding to carry out its 
                        duties under subparagraph (A)--
                                    ``(I) such organization shall, 
                                after consulting with the Secretary of 
                                the Treasury, the Commission, the 
                                Commodities Futures Trading Commission, 
                                and the national securities exchanges, 
                                establish an appropriate system for 
                                assessing fees and charges against 
                                issuers, independent public 
                                accountants, and other users of 
                                financial statements as may be 
                                necessary or appropriate to defray the 
                                expenses of carrying out its duties 
                                under subparagraph (A); and
                                    ``(II) the Commission shall 
                                promulgate such rules and regulations 
                                to carry out this section as it deems 
                                necessary or appropriate in the public 
                                interest or for the protection of 
                                investors.
                            ``(ii) Limitation on funds.--
                                    ``(I) In general.--No fees or other 
                                funds may be provided to or received by 
                                an organization designated under 
                                subparagraph (A) with any understanding 
                                or condition that the organization will 
                                take a particular position on any 
                                matter before the organization.
                                    ``(II) Use of fees.--An 
                                organization designated under 
                                subparagraph (A) shall utilize the fees 
it receives under clause (i) to carry out its duties under subparagraph 
(A) in a professional and cost-effective manner.
                                    ``(III) Rule of construction.--
                                Nothing in this subsection shall be 
                                construed to render such designated 
                                organization subject to procedures in 
                                Congress to authorize or appropriate 
                                public funds, or to prevent such 
                                organization from utilizing additional 
                                sources of revenue for its activities, 
                                such as earnings from publication 
                                sales, provided that each additional 
                                source of revenue shall not jeopardize, 
                                in the judgment of the Commission, the 
                                actual and perceived independence of 
                                the designated organization.
                    ``(C) Appointment authority of designated 
                organization.--The Commission may delegate the 
                authority specified in subparagraph (A) only to an 
                organization--
                            ``(i) all of the appointed members of 
                        which--
                                    ``(I) possess expertise in 
                                accounting matters; and
                                    ``(II) include 1 individual 
                                nominated by the Commission; and
                            ``(ii) at least one third of the appointed 
                        members of which--
                                    ``(I) represent investors and the 
                                public interest; and
                                    ``(II) have not recently been 
                                employed by or associated with a public 
                                accounting firm or issuer.
                    ``(D) Prompt resolution of accounting and reporting 
                matters.--
                            ``(i) In general.--The organization 
                        designated by the Commission under subparagraph 
                        (A) shall resolve pending accounting and 
                        reporting matters in a prompt manner with 
                        appropriate due process open to public 
                        observation and participation by establishing, 
                        amending, or reaffirming relevant financial 
                        accounting and reporting standards and related 
                        guidance.
                            ``(ii) Commission authority.--If an 
                        accounting or reporting matter on the public 
                        agenda of the designated organization remains 
                        unresolved after 2 years, any person may 
                        petition the Commission, or the Commission may 
                        determine on its own initiative, to resolve the 
                        matter by--
                                    ``(I) requiring the designated 
                                organization to resolve the matter by a 
                                specified date; or
                                    ``(II) issuing relevant accounting 
                                or reporting standards or related 
                                guidance.''.
    (b) Effective Date.--The amendments made by this section shall 
become effective 1 year after the date of enactment of this Act, except 
that if the Commission delegates the authority under subparagraph (A) 
to the Financial Accounting Standards Board, the requirements in 
subparagraph (C) shall not apply to a member of the Financial 
Accounting Standards Board in office on the date of enactment of this 
Act until the conclusion of the term of office of such member.
    (c) Regulations Required.--Not later than 180 days after the date 
of enactment of this Act, the Commission shall promulgate such rules or 
regulations as it deems necessary or appropriate in the public interest 
or for the protection of investors to carry out section 19(a)(2) of the 
Securities Act of 1933, as added by this section.

SEC. 4. ENSURING AUDITOR INDEPENDENCE.

    (a) In General.--Section 10A of the Securities Exchange Act of 1934 
(15 U.S.C. 78j-1) is amended--
            (1) in subsection (d), by inserting ``or subsection (g)'' 
        after ``subsection (b)''; and
            (2) by adding at the end the following new subsection:
    ``(g) Auditor Independence.--
            ``(1) Ban on self-audit.--An independent public accountant 
        who performs non-audit services for an issuer of a publicly 
        traded security shall not, during the engagement period and for 
        the 2-year period after the date on which the engagement period 
        for such services ended, conduct an audit of any system, 
        control, transaction, or other arrangement designed, 
        recommended, or established by the accountant for such issuer.
            ``(2) Ban on contemporaneous non-auditing services.--Any 
        independent public accountant that conducts an audit and 
        certifies a financial statement or report under this section or 
        section 12, 13, or 17 of this Act, section 7 of the Securities 
        Act of 1933 (including Schedule A of that Act), section 5(b), 
        10, or 14 of the Public Utility Holding Company Act of 1935, 
        section 8 or 30 of the Investment Company Act of 1940, or 
        section 203(c)(1) of the Investment Advisers Act of 1940, with 
respect to an issuer of a publicly traded security shall not, during 
the pendency of such audit and professional engagement period and for 
the 2-year period following the date upon which the relevant financial 
statement or report is certified, provide to such issuer any non-audit 
services, including any management consulting, tax planning, or 
internal auditing services.
            ``(3) Two-year ban on auditor employment.--Any individual 
        who, in his or her capacity with an independent public 
        accountant, participates personally and substantially in an 
        audit leading to the certification of a financial statement or 
        report under this section or section 12, 13, or 17 of this Act, 
        section 7 of the Securities Act of 1933 (including Schedule A 
        of that Act), section 5(b), 10, or 14 of the Public Utility 
        Holding Company Act of 1935, section 8 or 30 of the Investment 
        Company Act of 1940, or section 203(c)(1) of the Investment 
        Advisers Act of 1940, with respect to an issuer of a publicly 
        traded security shall not, during the pendency of such audit 
        and professional engagement period and for 2 years after the 
        date upon which the relevant financial statement or report is 
        certified, accept any directorship, employment, or contract for 
        services from such issuer.
            ``(4) Issuer information required for audit.--
                    ``(A) Auditor access to material information.--With 
                respect to any issuer that employs an independent 
                public accountant to conduct an audit of a financial 
                statement or report under this section or section 12, 
                13, or 17 of this Act, section 7 of the Securities Act 
                of 1933 (including Schedule A of that Act), section 
                5(b), 10, or 14 of the Public Utility Holding Company 
                Act of 1935, section 8 or 30 of the Investment Company 
                Act of 1940, or section 203(c)(1) of the Investment 
                Advisers Act of 1940, the Commission shall promulgate 
                rules and regulations that require such issuer to 
                provide all material information to such accountant 
                during the course of such audit and not to withhold any 
                material information from such accountant on the basis 
                of privilege or for any other reason.
                    ``(B) Improper influence on conduct of audit.--It 
                shall be unlawful for any director, officer, or 
                affiliated person of an issuer to take any action to 
                improperly influence, coerce, manipulate, or mislead 
                any independent public accountant engaged in an audit 
                of a financial statement or report of such issuer.
            ``(5) Accounting oversight.--To help ensure effective 
        audits and financial statements and reports that fairly 
        represent the financial condition of the issuer, the audit 
        committee of the issuer (or the board of directors of the 
        issuer if no such committee exist) shall take reasonable steps 
        to exercise oversight over the accounting practices and 
        policies of the issuer, including--
                    ``(A) evaluating the relationship between the 
                issuer and the independent public accountant conducting 
                an audit of the issuer to ensure the independence and 
                objectivity of the accountant;
                    ``(B) obtaining information from such accountant 
                about the accounting practices and policies and the 
                financial statements and reports of the issuer, and 
                providing the accountant with periodic opportunities 
                outside the presence of management to express any 
                concerns about such practices, policies, statements, or 
                reports;
                    ``(C) evaluating the quality and acceptability of 
                the accounting principles of the issuer, as applied in 
                its financial reporting, including the clarity of the 
                financial statements and reports of the issuer and the 
                degree of aggressiveness of the accounting principles, 
                underlying estimates, and other significant decisions 
                made by the management of the issuer in preparing its 
                financial statements and reports; and
                    ``(D) ensuring adequate public disclosure of the 
                accounting practices and policies of the issuer, and of 
                any material business activities, assets, or 
                liabilities not included in the balance sheet or income 
                statement of the issuer.''.
    (b) Effective Date.--Not later than 180 days after the date of 
enactment of this Act, the Commission shall promulgate such rules or 
regulations as may be necessary or appropriate to carry out section 
10A(g) of the Securities Exchange Act of 1934, as added by this 
section, but whether or not such rules or regulations are promulgated 
by such date, the prohibitions and requirements established under that 
subsection (g) shall take effect at the end of the 240-day period 
beginning on the date of enactment of this Act.

SEC. 5. EMPOWERING SHAREHOLDERS.

    (a) Treatment of Shareholder Proposals.--Section 14 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78n) is amended by adding at 
the end the following new subsections:
    ``(i) Shareholder Proposals.--
            ``(1) In general.--Subject to paragraph (2), and 
        notwithstanding any other provision of law, if a shareholder 
        proposal is not prohibited under the laws of a State, the 
        Commission shall not prohibit a person or group of persons that 
        is located in that State from having included in the proxy 
        statement and any proxy, consent, or authorization provided to 
        the security holders of an issuer, a proposal--
                    ``(A) to remove a director or to nominate a person 
                to serve as a director of the issuer;
                    ``(B) to retain or remove an auditor of the issuer;
                    ``(C) to assess and ensure the independence, 
                expertise, and active participation of the members of 
                the board of directors of the issuer;
                    ``(D) to require the auditor of the issuer and the 
                chair of the audit committee of the board of directors 
                (or, if no audit committee exists, another member of 
                the board of directors), separately or in tandem--
                            ``(i) to attend an annual meeting, either 
                        on a specified date or on a routine basis; and
                            ``(ii) to provide responses to written 
                        questions posed by security holders of the 
                        issuer regarding the financial condition of the 
                        issuer or a financial statement or report of 
                        the issuer; or
                    ``(E) to obtain complete disclosure regarding, or 
                to establish policies affecting or restricting, the 
                compensation of a director, chief executive officer, or 
                senior officer of the issuer, including with respect to 
                compensation provided in the form of stock, stock 
                options, phantom stock units, incentive pay, deferred 
                compensation, available credit, credit forgiveness, tax 
                benefits, insurance benefits, retirement benefits, 
                severance pay, consulting fees, or arrangements 
                granting preferential treatment of such persons 
                compared to other employees or creditors of such 
                issuer.
            ``(2) Applicability.--Paragraph (1) shall apply only to 
        proposals described in that paragraph by a person or group of 
        persons that is the beneficial owner of voting equity 
        securities representing a total of not less than $1,000,000 in 
        market value, or not less than 3 percent of a class of 
        outstanding securities of the issuer.
    ``(j) Shareholder Approval of Stock Option Compensation.--The 
Commission shall issue rules and regulations which shall require prior 
shareholder approval of any compensation plan which provides stock 
options to a director, officer, or employee of an issuer, and which 
does not require such stock options to be treated as an expense for the 
purpose of ascertaining income, profit, or loss in the financial 
statements and reports of the issuer.''.
    (b) Effective Date.--Not later than 180 days after the date of 
enactment of this Act, the Commission shall promulgate such rules or 
regulations as may be necessary or appropriate to carry out subsections 
(i) and (j) of section 14 of the Securities Exchange Act of 1934, as 
added by this section, but whether or not such rules or regulations are 
promulgated by such date, the Commission shall cease prohibiting the 
shareholder proposals identified in that subsection (i), and shall 
begin requiring shareholder approval of the stock option plans 
identified in that subsection (j), at the end of the 240-day period 
beginning on the date of enactment of this Act.

SEC. 6. INCREASED DISCLOSURE OF DIRECTOR AND OFFICER COMPENSATION.

    (a) In General.--Section 14 of the Securities Exchange Act of 1934, 
as amended by this Act, is amended by adding at the end the following 
new subsection:
    ``(k) Director and Officer Compensation.--
            ``(1) Ban on preferential treatment of directors or 
        officers.--The Commission shall issue rules and regulations to 
        prohibit an issuer from providing or conveying, or agreeing to 
        provide or convey, to any director or officer of such issuer 
        any preferential treatment or preferred status compared to any 
        other employee or creditor of such issuer regarding the 
        satisfaction of any compensation or employment benefit after or 
        in anticipation of a declaration of bankruptcy by such issuer, 
        including any arrangement to ensure that a deferred 
        compensation, tax, health, insurance, or retirement benefit 
        will continue to be provided to 1 or more directors or officers 
        but not other employees.
            ``(2) Director disclosure of items of value.--Each member 
        of a board of directors of an issuer shall disclose to the 
        Commission on a quarterly basis all contributions or items of 
        value provided by such issuer, another board member, or any 
        officer of the issuer to the disclosing board member or to any 
        person, including any immediate family member or business 
        entity, affiliated with the disclosing board member.
            ``(3) Director and officer loans.--The Commission shall 
        promulgate rules and regulations to require an issuer to 
        disclose, within 48 hours, in a filing that shall be made 
        available to the public--
                    ``(A) the establishment of a credit facility by the 
                issuer for use by or on behalf of a director or officer 
                of the issuer, and the material terms of such credit 
                facility including the interest rate assessed by the 
                issuer for the issuance of credit and whether the 
                director or officer may satisfy a credit extension by 
                tendering securities;
                    ``(B) any use of such credit facility;
                    ``(C) any payment made on the credit facility, 
                including by tendering securities to the issuer;
                    ``(D) any forgiveness by the issuer of amounts owed 
                on the credit facility; and
                    ``(E) in the annual submission filed by the issuer, 
                with respect to each such credit facility established 
                for a director or officer, a summary of the information 
                provided to the Commission during the period covered by 
                such filing regarding each such credit facility.''.
    (b) Effective Date.--Not later than 180 days after the date of 
enactment of this Act, the Commission shall promulgate such rules or 
regulations as may be necessary or appropriate to carry out section 
14(k) of the Securities Exchange Act of 1934, as added by this section, 
but whether or not such rules or regulations are promulgated by such 
date, the prohibitions and requirements established under that section 
14(k) shall take effect at the end of the 240-day period beginning on 
the date of enactment of this Act.

SEC. 7. EFFECTIVE DATE.

    Except as otherwise specifically provided in this Act, this Act and 
the amendments made by this Act shall become effective 180 days after 
the date of enactment of this Act.
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