Few Firms Rushing to Certify Results

Corporate leaders could begin to distance themselves from the recent wave of accounting scandals by quickly complying with a government order to certify the accuracy of their companies’ financial reports, public relations experts say. But so far, few have seized the opportunity.

To reassure investors that corporate financial reports are accurate, the Securities and Exchange Commission on June 27 ordered chief executives and chief financial officers at 947 large U.S. companies to attest that their latest annual and quarterly reports are accurate. For the 704 of those companies whose most recent fiscal quarter ended June 30, the certification deadline is 5 p.m. EDT on Aug. 14.

But as of Wednesday, executives at only 87 of these companies, or 12%, had filed the required sworn statements, according to the SEC’s Web site, www.sec.gov, and filings reported by Bloomberg News.

Explanations for the sluggish pace begin with human nature.

“Companies are like reporters; they wait till they’re right on deadline to file,� said Christi Harlan, an SEC spokeswoman and former journalist.

She said the SEC expected companies to file the certification documents at the same time they filed their quarterly SEC financial reports--known as 10-Qs--and these reports routinely are filed very close to the SEC’s mandated deadlines. When a few corporations such as General Electric Co. filed early, it surprised the agency, which had to post its online list of filers faster than anticipated, Harlan said.

The issue was complicated by accounting-reform legislation signed July 30 by President Bush. That law, the Sarbanes-Oxley Act, requires all 15,000 U.S. public companies to certify their financial reports and imposes criminal penalties of up to $5 million and 20 years in prison on executives who attest to financial statements they know are false or misleading.

Most companies will be affected by the new law for the first time when they file their latest quarterly financial statements--the same deadline the SEC has imposed for certification. Legal experts said they were unclear about several key aspects of the law, including how to interpret the limits it places on company loans to executives and the extent to which foreign companies must certify their results.

Until the SEC clarifies how it will enforce the Sarbanes-Oxley Act, the law is “creating a lot of discomfort among executives and senior management of companies, as well as their attorneys,� said Gary Apfel, a lawyer at LeBoeuf, Lamb, Greene & MacRae in Los Angeles. He suggested that accounting compliance issues have become a distraction for many top executives.

“If you were told to file certification papers, and you could go to prison for 20 years if they turned out false, you’d respond with an excess of caution too,� Apfel said.

Corporate image polishers acknowledge that executives must carefully study certification issues, but urge them to get on with it as quickly as possible.

“We’ve told our clients that the thing the Street and the public want more than anything else is confidence that companies in which they have invested--or just companies, period--are honest and truthful about numbers reporting,� said Ron Hartwig, director of U.S. corporate practice for public relations firm Hill & Knowlton Inc. in Los Angeles. “And our counsel has been to be among the leaders in committing to sign.�

At Jacobs Engineering Group Inc. in Pasadena, one of the few companies that decided to file well ahead of the deadline, Chief Financial Officer John Prosser said investors began anxiously raising certification questions several weeks ago.

Jacobs decided to end the discussions by filing its forms Friday, in advance of its quarterly financial statements. When a large institutional shareholder expressed worries over certification Tuesday, “It was good to be able to say we’d already done it,� Prosser said.

Other companies filed certifications early, but only because they routinely beat the deadline for quarterly reports. Solutia Inc., a St. Louis chemical company that certified its financial statements Aug. 1, has for the last several years filed quarterly results with the SEC the same day it releases earnings, unlike most firms, said general counsel Karl R. Barnickol.

But most executives still are scrambling to meet with their audit committees and, in some cases, are requiring for the first time that their subordinates certify divisional financial results. Many are apprehensive and some jokingly ask if they can put their assets in a spouse’s name, said attorney Frank Goldstein of Sidley, Austin, Brown & Wood in Washington.

Despite the potential public relations implications, Goldstein said, many see no advantage to filing early, especially because so few other companies have done so.

“If there was any advantage to filing early, i.e., General Electric, that’s come and gone,� he said, referring to the July 31 certification by GE executives.

The sensitivity of the issue was apparent in the attitudes of such companies as Walt Disney Co., Mattel Inc. and PG&E; Corp., all of which declined to make executives available to discuss certification.

Likewise, Ford Motor Co. CEO William Clay Ford Jr., asked to comment on certification Wednesday during an automotive industry conference in Michigan, declined, saying: “The SEC is very touchy about publicity.�

Ford, who had lamented in a speech that a few bad apples were spoiling the reputations of all corporations and executives, added: “It’s only timing. We’re going to do the right thing.�

Some executives have finessed the issue by pledging to certify their results but saying they will wait until the deadline to do so.

At Disney, which announced earnings last week, CEO Michael Eisner and Chief Financial Officer Thomas O. Staggs have said they would certify the results. But a spokesman said their statements would be filed at the same time as Disney’s quarterly financial statement, which the company typically files with the SEC on the last possible day.

Companies that are uncomfortable over certification can get a five-day extension from the SEC if they are filing a quarterly report and a 15-day extension for an annual report. They just need to make the request Aug. 15, like a tardy taxpayer requesting an extension, said the SEC’s Harlan.

Analysts say they won’t be surprised if a few companies are forced to restate their results because, as Thomson First Call research director Chuck Hill said, “they’re either under investigation for fraud or have an idea that it’s coming.�

Although many companies may have “pushed the edge of the envelope on accounting practices,� Hill said he expects them, along with a flood of other companies, to file at the last minute.

“What are you going to do? Say you’ve been too zealous and restate last year’s numbers? No!� Hill said. “You’re going to hopefully change your ways going forward, sign off on last year, cross your fingers and hope for the best.�

To ease the corporate burden, the SEC made the filings due 45 days after the close of the quarter, the same as regular quarterly financial filings. Only companies with annual revenue of at least $1.2 billion were subject to the orders. The SEC initially ordered 947 companies to certify their results, but four of those have since agreed to be acquired, bringing the total to 943. Reports from the 239 companies whose most recent fiscal quarter didn’t end June 30 will be filed over the next several months.

The agency is sorting the statements into those that properly certify that the financial statements aren’t false or misleading, using SEC-approved language, and those that don’t--a process that could take several weeks after the Aug. 14 deadline, Harlan said.

Companies that don’t file certification statements could face sanctions from the SEC ranging from cease-and-desist orders to referrals to the Justice Department for criminal prosecution, she said.

*

Times staff writers Terril Yue Jones in Detroit and Nancy Rivera Brooks in Los Angeles contributed to this report.