COSO Yanks Draft Governance Framework

COSO has withdrawn its proposed corporate governance framework barely six weeks after unveiling it, saying that a “shifting regulatory and economic landscape for U.S. businesses” plus recent passage of Republicans’ tax-and-spending bill warrants going back to the drawing board for a fresh start.

COSO announced the withdrawal of the draft framework on Wednesday, in a short and rather cryptic statement posted to its website:

The draft [framework] has been withdrawn from public comment as COSO takes time to evaluate the extensive feedback received to date and engage further with stakeholders.

This decision, made in collaboration with the National Association of Corporate Directors (NACD), comes amid a shifting regulatory and economic landscape for U.S. businesses and follows the recent passage of a wide-ranging federal law that introduces significant changes to corporate reporting and planning requirements.

In light of these developments, COSO and NACD recognize the importance of ensuring that any revised draft framework aligns with the existing requirements and evolving expectations placed on public companies.

COSO chairman Lucia Wind said the organization has no further comment beyond the prepared statement.

Source: COSO

For the record, I thought the draft framework was good. Sure, it was rather big and complicated — six components, organized into 24 principles, which in turn were supported by several dozen points of focus — but that hasn’t been any big concern in the past, and it’s the sort of thing that can be smoothed out and simplified in the redrafting process before a final framework is adopted. 

We should also remember that following COSO frameworks isn’t required by law or anything. Even the group’s landmark framework for internal control, which public companies typically use to demonstrate compliance with the Sarbanes-Oxley Act, isn’t expressly required by federal securities law; the Securities and Exchange Commission simply cited the framework as one good example to follow. COSO’s many other frameworks and pieces of guidance over the years are all voluntary.

Equally puzzling is COSO citing the megabill as reason to withdraw the framework, since the bill was mostly about gutting Medicaid, funding deportations, and cutting taxes for rich people. I’m not aware of any “significant changes to corporate reporting and planning requirements” that would be so significant and broadly applicable as to justify yanking the whole framework, but I may be wrong. (As always, confidential tips are welcome at [email protected].)

Maybe critics flipped out over COSO including points of focus, since that could be a blueprint audit firms might use to audit your company’s governance? Maybe Republicans in Washington or the U.S. Chamber of Commerce flipped out just on principle, because they can’t stand mechanisms to hold companies accountable to high standards? 

But again: COSO could always have dropped the points of focus (or made other significant revisions) in a second draft, under pressure from the U.S. Chamber or any other critic. And I’d be surprised if Republicans in Washington even know what COSO is. 

It’s weird, but it’s done. Perhaps if we ever see a new draft framework the reasons for this one’s demise will become apparent.