The impact of the corporate scandals in 2001-2002 and the passage of the Sarbanes Oxley Act, which federalized significant portions of corporation law so far as publicly traded companies are concerned, was not only felt in the corporate board rooms.

These were headline-worthy events, events that got big play on television, events that pollsters could determine had united the public in believing that Something Had To Be Done.

Unfortunately, when legislation is rushed through in response to a public clamor, critical details can be overlooked.   In the worst case, the problems with the bills continue, and in the best case, the bills become the subject of the corrective legislation later.

Here in California we have two examples of such problematical laws, one enacted and one proposed.   The enacted law, the California Disclosure Act (AB55) became effective in January2003.   The proposed law, the Corporate Elections Fairness Act of 2004 (AB2752), was recently introduced by Assembly Member Chu.

AB55 was enacted in the waning days of the 2002 legislature.   AB55 identified certain disclosures that must be filed with the Secretary of State each year by public companies that are organized as California corporations or foreign corporations qualified to transaction intrastate business in California.

The bulk of the AB55 disclosures relate to officer and director identity and compensation matters that are already the subject of extensive and extraordinarily well-defined SEC proxy rule disclosure requirements.

Unlike the SEC required disclosures, however, AB55 was somewhat vague about what exactly respondents were supposed to be disclosing, and it was not consistent with the federal rules relating to the parties about to whom information was to be furnished.

The SEC's rules on compensation disclosure set out in Item 402 of Regulation S-K (“Item 402”) are detailed and comprehensive.   They require corporate officers to disclose, in tabular format, salary, bonus, other annual compensation, restricted stock awards, options, stock appreciation rights, long term incentive plan payouts, and all other compensation, as well as pension plan benefits and third party transactions intended to compensate officers.   Additional tables require detailed disclosure relating to stock options granted (both in absolute numbers and as a percentage of all grants to employees during the year) and exercised, including information on the option exercise price and expiration date.   Item 402 specifies that the period covered is the company's fiscal year.

The SEC disclosure requirements are not simple.   In fact, Item 402 is longer than AB55 itself.

However, the Item 402 requirements are well understood by companies and their counsel.

The state and federal disclosure requirements are very similar, but just enough dissimilar to increase the compliance costs for companies unfortunate enough to fall within the law's ambit.

While the ostensible purpose of AB55 was to make available corporate information to investors in a convenient form, it is more likely that the differences between the requirements of AB55 and the SEC will confuse investors, or force them to spend lime and money trying to reconcile those differences.

Currently pending is AB1000, which would correct some, but not all, of the deficiencies of the original bill.   While any changes will be welcome, there are more that could be made.

Simply conforming the requirements and definitions of AB55 reporting with those of the SEC would offer significant compliance cost savings to companies covered by the law.   To date, the legislative sponsors of AB1000 are considering changing some, but not all, of the definitions.

Now, in the wake of recent SEC rulemaking regarding the corporate election process that would, in some circumstances, permit shareholders to place director names on the ballot of publicly traded companies; comes AB2752.

Like AB55, AB2752 contains provisions that do not line up squarely with the SEC's rules, meaning increased compliance costs for companies that would be subject to this law.

In addition to addressing voting for directors, AB2752 also provides for the (potentially mischievous) opportunity for shareholders to vote on and adopt shareholder proposals.

AB2752 further provides for a company to pay a fine of $100,000 per day if it fails to obey a court order to implement an adopted shareholder approval.   Think of it as being something like the California political initiative process, with fines attached.   AB2752 has the potential to be another bill that, if it is adopted in haste, it will be repented at leisure.

The California bills come in as late entries into a field already well occupied by federal rulemaking.   If their goals are worthy, it is nonetheless a fair question to ask whether the increased cost of compliance outweighs any benefit that they are attempting to confer on the California investing public.

Bruce Dravis is a partner at Downey Brand LLP, operating primarily in the firm's Sacramento and Roseville offices, specializing in corporate, securities and business law His column appears in The Daily Journal on the third Monday of each month.   Any political comments are his own and not those of Downey Brand LLP.