The 2002 Sarbanes-Oxley legislation adopted a series of provisions intended to help protect against the corporate governance abuses of the turn of the century, as exemplified by Enron and WorldCom. Those provisions include: (a) Section 201 – Auditor Independence requirements; (b) Section 301 – Audit Committee qualifications; (c) Section 302 – CEO/CFO Certified Quarterly Reports; (d) Section 404 – Management Assessment of Internal Controls; and (e) Section 406 – Code of Ethics for Senior Financial Officers.
A. Application to Non-Profits and Private Corporations
These new provisions are, on their face, only applicable to companies reporting under the Securities Exchange Act of 1934 (“Exchange Act”). However, there is an emerging consensus that nonprofit corporations and for-profit corporations not subject to Exchange Act reporting should consider adopting policies reflecting various Sarbanes-Oxley requirements as a matter of “good corporate practice.” Many observers believe that several of the basic Sarbanes-Oxley requirements will become the new standard by which non-profit and private for-profit corporations will be measured as corporate governance and management issues arise for consideration in court decisions in the future.