From a blue-ribbon panel, a slate of prescriptions for improving the health of U.S. capital markets

Some of the committee’s key recommendations:

Shareholder rights

  • Classified boards of directors (who serve terms of different, staggered lengths, making hostile takeovers more difficult) should be required to obtain shareholder authorization to adopt “poison pill” strategies for discouraging hostile takeovers.
  • Shareholders should enjoy majority, rather than plurality, voting.
  • To reduce the high costs of litigation, shareholders should be given the chance to decide how disputes with their companies should be resolved, such as through arbitration or nonjury trials, which are less expensive than jury trials.

The regulatory process

  • The SEC and self-regulatory organizations, such as the National Association of Securities Dealers, should apply a cost-benefit analysis to new rules.
  • The SEC should periodically assess existing rules to ensure they still meet reasonable cost-benefit standards.
  • Public enforcement bodies such as the SEC, the Justice Department, and state securities commissions and attorneys general should coordinate their activities and make sure there is federal precedence when enforcement implications are national in scope.

Public and private enforcement

  • There should be greater clarity for private litigation under SEC Rule 10b-5, which prohibits the use of any measure to defraud, make false statements or otherwise deceive someone else during stock or securities transactions.
  • Criminal enforcement against companies should be a last resort, and the law should not hold outside directors responsible for corporate malfeasance that they cannot possibly detect.
  • The SEC should protect outside board members against liability from relying in good faith upon the validity of audited financial statements.
  • Congress should explore protecting audit firms against catastrophic loss through the provision of caps or safe harbors, as do some European countries and as the European Union is considering. However, any such protection must be balanced by stiff action against those responsible for misconduct.


  • The SEC should adopt a more reasonable “materiality standard” both for internal controls and financial statements.
  • The SEC and the Public Company Accounting Oversight Board (a private-sector, nonprofit corporation created by SOX to oversee the auditors of public companies) should adopt enhanced guidelines on auditors’ roles and duties in testing for compliance with Section 404.
  • Small companies should be exempt from auditor attestation and be subject to a more reasonable standard for management certification, if a revised Section 404 is still too burdensome.