On March 12, the U.S. Chamber of Commerce’s Commission on the Regulation of U.S. Capital Markets in the 21st Century issued its Report and Recommendations assessing the current state of the securities industry and making several recommendations for improving the competitive position of the U.S. markets.

The Chamber Commission Report highlighted six principal recommendations:

  •  reform and modernize the government’s regulatory approach to financial markets and market participants; including realigning its organizational structure to improve its efficiency and mirror the contours of the current capital markets; 
  • give the Securities and Exchange Commission the flexibility to address issues relating to the implementation of the Sarbanes-Oxley Act of 2002 by making it part of the Securities Exchange Act of 1934, as amended; 
  • convince public companies to stop issuing earnings guidance or, alternatively, move away from quarterly earnings guidance reports with a single earnings per share number to annual guidance with a range of projected earnings per share numbers; 
  • call on domestic and international policymakers to consider proposals to reduce the significant risks faced by auditors raised by litigation and criminal prosecution and consider allowing auditors to raise capital from private shareholders rather than just audit partners; 
  • increase retirement savings plans by connecting all employers with 21 or more employees without any retirement plan to a financial institution that will provide such a plan to those employees; and 
  • encourage employers to sponsor retirement plans and enhance the portability of retirement accounts through the introduction of a simpler, consolidated 401(k)-like program.

The Commission makes a number of additional interesting recommendations with respect to U.S. capital markets in the global marketplace, accumulated savings and investor education, issuers and auditors, and financial services. For example, in the accounting area, the Commission encourages continued convergence of international and U.S. accounting and auditing standards and recommends a change to the SEC’s existing approach to reconciliation. The Commission also recommends that the SEC’s Chief Accountant conduct rulemaking about when a restatement of financials is required.

In the enforcement area, the Commission states that there is a "strong need to investigate the accuracy of the widely held global perception that the U.S. securities litigation and regulatory environment makes it dangerous to participate in our capital markets." The Commission urges the SEC to study whether its enforcement program is effective, as well as the impact of the Private Securities Litigation Reform Act of 1995 on the effectiveness of federal securities laws.

The Commission recommends that the Department of Justice and the SEC should not consider the waiver of privilege as a factor in determining whether there was cooperation in an investigation and that Congress adopt legislation "establishing a selective waiver that would permit corporations to share privileged information with the SEC and continue to assert the privilege against other parties." The Commission also recommends that Congress establish a selective waiver that would "permit a private party to share privileged information or documents with external audit firms or government appointed corporate compliance monitors without waiving the attorney-client privilege to other third parties."

The release of the Chamber Commission Report was followed this week by the Treasury's Conference on U.S. Capital Market Competitiveness hosted by Treasury Secretary Paulsen and the U.S. Chamber of Commerce's First Annual Capital Markets Summit featuring keynote addresses by the Chairmen of the SEC, PCAOB, House Financial Services Committee and Senate Banking Committee and the formal release and discussion of the Chamber Commission Report.

All of this serious hand-wringing over the state of the U.S. capital markets (General Electric Chairman and CEO Jeffrey Immelt’s observation that the regulatory system is: "just too gosh-darn complex.") was counterpointed by one particularly upbeat observation by Warren Buffet that corporate profits have never been higher as a percentage of gross domestic product. "That cannot be regarded as a broken capitalistic system." The full Report is located at:

http://www.uschamber.com/NR/rdonlyres/eozwwssfrqzdm3hd5siogqhp6h2ngxwdpr77qw2bogptzvi5weu6mmi4plfq6xic7kjonfpg4q2bpks6ryog5wwh5sc/0703capmarkets_full.pdf   The Executive Summary of the Report is located at: http://www.uschamber.com/NR/rdonlyres/ex4nk2agcvtretp2osaiperiqoczkvhtq6w5f5vwsh6mef4snh3atd7n4b256hexty4wcc7i3eq4thca4vdnoqovurg/0703capmarkets_summ.pdf