Audit Committees and oversight of legal activities of a company

Shearman & Sterling studied the annual reports of the 100 largest US companies in 2004 for how those companies compensate and operate their Boards of Directors. Noting that being listed on the NYSE requires a company’s audit committee to oversee compliance and legal, the law firm reported that 60 of the companies “have attempted to limit the scope of this responsibility to material legal and regulatory issues” (at 20, as reproduced in PLI’s conference proceeding, Corporate Governance 2005 at 11). Those companies adopted three principle methods, and sometimes more than one method.

A. Discuss legal issues with material or significant impact on company or its financial statements – 51 companies
B. Discuss correspondence or report that raises issues that may have significant impact on company’s financial statements – 28 companies
C. Review significant litigation and related issues including risk – 10 companies

General counsel and corporate secretaries must necessarily follow their Board’s guidelines.

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