Question

What are the overall fiduciary responsibilities corporations have to the Sarbanes Oxley Act?

Answer 1

Sarbanes Oxley Act contains very targeted provisions that are aimed at certain actions of officers and directors of the corporation and which, is selected areas, preempt state fiduciary duty law. State fiduciary duty concepts will need to be incorporated with Sarbanes Oxley Act, but will not be preempted by Sarbanes Oxley act. The overall result of Sarbanes Oxley in the corporate fiduciary duty area, however, is greater federal influence in a federalism arrangement in which fiduciary duties remain rooted in and dominated by state law.

The Sarbanes Oxley provisions that affect fiduciary duties can be divided into provisions aimed at directors (particularly the audit committee) and provisions aimed at officers.

Overall fiduciary responsibilities corporations have to the Sarbanes Oxley Act are-

1. Section 301 provides that the Audit committee of public company is directly responsible for the appointment, compensation, and oversight of the company’s auditors.

2. The auditor is required to report directly to the audit committee

3. It requires all audit committee members to be independent

4. It is illegal for public companies to directly or indirectly make loans to their officers, except for certain, limited reasons.

5. The principal officers of the company to pay more attention to the company’s financial reporting and to dissuade management from focusing on short term gain.

6. Responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.

7. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.

8. Director fiduciary duties include duty of due care (it specifies the manner in which directors must discharge their legal responsibilities); duty of loyalty (it requires directors to act in the best interest of the corporation); good faith

9. Officer fiduciary duties include duty of loyalty (not acting adversely to the principal without consent

10. CEO and CFO must certify quarterly and annual reports

11. CEO and CFO must make annual certifications as to their responsibilities for establishing, maintain, and evaluating the effectiveness of internal controls over financial reporting.

Reference-

Johnson, Lyman P. Q. and Sides, Mark A. (2004) “The Sarbanes-Oxley Act and Fiduciary Duties,” William Mitchell Law Review: Vol. 30: Iss. 4, Article 12.