“The Securities and Exchange Commission moved to give companies’ audit committees more power to hire and fire outside accountants. And it placed restrictions on the compensation those directors can receive,” writes Deborah Solomon in today’s Wall Street Journal.

“The SEC, responding to a congressional mandate to adopt new corporate-governance rules, approved a proposal requiring companies that list securities on a national exchange to adopt uniform audit-committee standards.”

“Among other requirements, audit committees would have to be made up entirely of independent directors and must establish procedures for employees who come forward with information.”

“SEC Chairman William Donaldson, in his first public hearing since taking the helm, said the standards ‘are essential to the new central role of the board of directors in providing effective corporate oversight.’ Mr. Donaldson said the audit committee and the audit itself ‘is the bedrock upon which a corporation has to be built.’ “

“The rule also targets director compensation and prohibits audit-committee members from accepting any consulting, advisory or other compensatory fee from the company, other than regular director compensation. The rule is aimed at preventing any conflicts of interest that could arise from having an independent director benefit financially from a company on whose board he or she sits.”

” ‘It’s my hope that this rule will make audit committees more engaged and better stewards of shareholders,’ said commissioner Paul Atkins.”

“The new rule will prohibit the self-regulatory organizations, such as the New York Stock Exchange, from listing any security of an issuer that doesn’t comply with the SEC’s standards. The SROs, as they are known, are also establishing their own ‘listing standards’ and are in the process of submitting to the SEC their proposed requirements. Alan Beller, director of the SEC’s corporation- finance division, said the SEC’s rule is meant to be complementary to the SRO requirements.”

“The commission passed the rule as part of the Sarbanes-Oxley Act, which mandated a series of changes to overhaul corporate-governance practices following the meltdown of Enron Corp. and other corporate-accounting scandals. Congress ordered final rules to take effect by April 26, but the SEC gave companies more time, requiring them to have the rules in place by their first annual meeting for 2004, and not later than Oct. 31, 2004. Smaller companies — those with less than $25 million in market capitalization and $25 million in revenue — and foreign issuers will get additional time, until July 31, 2005.”

“The SEC made some exceptions for new and foreign issuers. Companies that just complete an initial public offering of stock, for example, will only have to have one independent board member for the first 90 days. Foreign issuers will be allowed to have shareholders elect outside auditors, which is required in some countries.”