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Codes of Ethics and State Fiduciary Duties: Where is the Line? | Author: Z. Jill Barclift

Codes of Ethics and State Fiduciary Duties: Where is the Line? | Author:  Z. Jill Barclift

The important function of disclosure under federal securities laws and regulations, and the role of management in running the affairs of the corporation consistent with state fiduciary principles have a history of discord.  The recent mandates of the Sarbanes-Oxley Act (“SOX Act” or “SOX”), and the Security and Exchange Commission’s (“SEC”) implementing regulations continue to increase the disclosure obligations of public companies.  These disclosure obligations include more in-depth financial reports, certification of financial reports by senior executives, financial experts on the audit committee, and codes of ethics. The post SOX regulatory environment furthers the tension between federal securities, and state corporate law. This article examines the implementation of code of ethics requirements under SOX. It examines the SEC’s regulations, which implement SOX requirements on the disclosure of codes of ethics, and self-regulatory agency (“SRO” or “listing agency”) rules on codes of ethics for public companies. This article argues that code of ethics rules encroach into state law in defining the fiduciary obligations of officers and directors.

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