Maryland Corporate Accountability Legislation
Proposed legislation recently introduced in the Maryland Senate (Senate Bill 560) purports to promote business entity accountability by imposing a host of new requirements on Maryland employers, accounting firms and Maryland governmental entities.
To put this proposed legislation in context, in the wake of last year’s accounting scandals and public company meltdowns, President Bush signed into law the Sarbanes-Oxley Act of 2002, which governs a number of issues of critical importance to public companies and their constituencies generally. Now the states are proposing corporate reform initiatives of their own, with legislation in California and New York garnering considerable attention and concern. Some of these state initiatives go well beyond the public company focus of Sarbanes-Oxley, by imposing corporate accountability provisions on certain private companies.
The Maryland bill is wide-ranging in its scope and would impose significant new requirements on Maryland businesses, accounting firms and procuring Maryland agencies. Its seminal provisions include:
- A prohibition against a registered public accounting firm that performs specified audits for a securities issuer from providing certain non-audit services
- A prohibition against a registered public accounting firm from providing audit services for a securities issuer if either: (i) specified partners of the firm previously have performed audits for the issuer, or (ii) if officers of the issuer were previously employed by the auditing firm
- The establishment of new whistleblower protections for employees who report violations of federal or state law; a requirement that the Attorney General establish and maintain a “Whistleblower Hotline,” and a further requirement that the Attorney General refer calls received on the hotline to the appropriate government authority for review and possible investigation
- A requirement that Maryland State procurement units require a bidder to disclose certain employee compensation information and an authorization for the State to publicly disclose such information if a person is awarded a procurement contract
- A requirement that certain business entities that receive grants from a Maryland State governmental unit or instrumentality disclose certain employee compensation information
The bill is sponsored by Senators Paul G. Pinsky (District 22; Prince George's County) and Sharon M. Grosfeld (District 18; Montgomery County) and has been assigned to the Finance Committee. The next scheduled action is a Senate hearing slated for February 18, 2003 at 1:00 p.m. Currently, the bill has not been cross-filed in the House. Given the support the bill has garnered to date and its ambitious breadth, passage is by no means assured. Nevertheless, the bill is emblematic of state business regulatory initiatives currently being proposed under the banner of “corporate accountability.”