Rocks, SOX, and roundhouse kicks
posted by Kaimipono D. Wenger
As all securities lawyers know, the Sarbanes-Oxley Act introduced new provisions relating to codes of ethics. Section 406 of the Act requires that companies disclose whether they have a code of ethics for their senior financial officers, and if not, the reason why not. This has led many companies to adopt codes of ethics.
I don’t think that the market has realized how simple this requirement actually is. As with most other areas of life, the best course here is simply to follow the guidance of Chuck Norris. To make this easier, Chuck has provided a clear list of “Chuck’s Code of Ethics.” (link via sharp-eyed reader Steve Evans). A company simply needs to adopt the list wholesale, and it can’t go wrong. 
What does Chuck’s code provide? A few highlights:
“I will develop myself to the maximum of my potential in all ways.
I will forget the mistakes of the past and press on to greater achievements.
I will always be in a positive frame of mind and convey this feeling to every person that I meet. . .”
Does Chuck’s code meet the requirements of Item 406 of Reg S-K? You might as well ask, “Does Chuck Norris have a beard?”
It’s true that, on the face of it, there may seem to be a few potential inconsistencies between Chuck’s list and the SEC’s.
For example, does the SEC need to approve “remaining goal-oriented throughout my life” as a business plan? Would an issuer need to provide a prospectus with risk factors for that? (And if the issuer fails to remain goal-oriented, is that a material misstatement? Or is it puffery? Or a forward-looking statement?)
Also, potential tensions could arise between the internal controls established under 404, and Chuck’s suggestion that “I will forget the mistakes of the past and press on to greater achievements.” (On the other hand, a roundhouse kick is a pretty darn effective system of internal controls!) In addition, regulators might be concerned that “always be as enthusiastic about the success of others as I am about my own” could lead to anticompetitive practices.
However, it seems like the biggest concern is the potential disclosure effects of “if I have nothing good to say about a person, I will say nothing.” Chuck’s code of ethics, it seems, is not exactly in compliance with 10b-5. Oops.
Happily, all of these questions are easily resolved. After all, as the very useful and informative “Facts about Chuck Norris” website* notes, “When Chuck Norris sends in his taxes, he sends blank forms and includes only a picture of himself, crouched and ready to attack. Chuck Norris has not had to pay taxes ever.”
A similar strategy would no doubt work with the SEC. Simply fax over a photo of Chuck in response to SEC comment letters. And viola — no further comments! (Talk about a no-action letter!) The SEC is powerful, to be sure, but even Christopher Cox knows his limits. He’s not going to tempt fate by messing with Chuck’s code of ethics. The roundhouse kick is the ultimate ethical trump card.
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*Note: The “Facts” site (which is text-only) may not be work-safe, depending on how strict your employer is.
November 16, 2005 at 6:02 pm
Posted in: Corporate Law, Culture, Humor
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