Prepared Testimony of Subcommittee Chairman Robert F. Bennett (R-UT)

Hearing on Mandating Year-2000 Disclosure by Publicly Traded Companies.

Today we hold the fourth in a series of hearings to examine the magnitude of the Year 2000 Problem and the impact it is likely to have on the U.S. and global economies as we approach the millennium.

In Subcommittee hearings held over the past several months, we have learned that the Year 2000 Problem is more than a computer problem; it is a pervasive business issue for which there is no quick fix. Businesses rely on computer systems for nearly every aspect of their operations --from operating elevators to calculating interest on loans to launching satellites. A failure in one computer system could not only devastate the operation it controls, but could domino through other systems and cause other seemingly unrelated operations to shut down. As a result, virtually every business in this country will have to expend large sums of money on remediation and take steps to manage the business risks and potential liability associated with the inevitable computer failures that will occur in the Year 2000.

This problem is not limited to private sector businesses. Studies show our own government is well behind the curve in the progress of its remediation efforts. GAO has given many branches of the government unsatisfactory ratings in their management of the Year 2000 problem. In response to this preliminary information, I asked GAO to review the progress of the financial institution regulatory agencies under the jurisdiction of the Senate Banking Committee. GAO has completed its review of one agency, the National Credit Union Administration, and found it to be unprepared for the century date change. I am looking forward to reviews on the progress of the other five agencies in the coming months.

What troubles me most about the Year 2000 Problem, however, is the lack of accessible information about the readiness of specific banks and other businesses. In response to questions about how customers should go about obtaining information about their particular financial institutions, the regulators have suggested that they simply ask. I find this answer singularly unhelpful and wholly inadequate.

Similarly, without specific disclosure requirements related to Year 2000, an individual investor is left in the unenviable position of doing an independent investigation, without sufficient facts, before making the decision to purchase or hold the stock of a particular company. I must say that I am more than somewhat surprised that I have not heard more vocal complaints from the many professional mutual fund managers who are quite frankly flying in the dark on the issue of whether or not the companies in which they invest may be in serious Year 2000 related trouble.

It strikes me as unfair and unrealistic to expect an individual investor in a corporation or an individual depositor at a financial institution to make those inquiries and get accurate information on their own. Every potential investor has a right to those facts, and the burden must be on the corporation to disclose them. Until now, the Chairman of the SEC has had good sense about when to activate the resources of his agency to make sure consumers receive all information to which they are entitled. However, the SEC is getting dangerously close to dropping the ball on this matter by allowing most of the publicly traded companies to get away with next to nothing by way of disclosure on their Year 2000 status.

In order to further this goal of full and accurate disclosure, I am working to develop legislation which would require businesses to make specific disclosures about the progress of their remediation efforts, the cost of those efforts, and the business risks and potential liability they face in connection with the Year 2000 problem.

Specifically, the legislation would require:

• disclosure of the corporation's specific progress in the five phases of Year 2000 remediation (awareness, assessment, renovation, validation, and implementation), by division, department, or other appropriate business unit;
  
  
• disclosure of likely litigation costs and liability outlays associated with the defense of lawsuits brought against the corporation or its directors and officers due to Year 2000 remediation problems, including breach of contract, tort, shareholder class action, and/or product liability suits;BR>
  
• a detailed discussion of existing insurance coverage to cover specific Year 2000 computer failures as well as the defense of lawsuits brought in connection with Year 2000 failures; andBR>
  
• disclosure of contingency plans for computer systems failure, by division, department, or other appropriate business unit.

I am proceeding with this legislation because its the right thing to do. My staff has been in contact with several industry sources that have expressed grave reservations about the failure of major corporations to disclose even so much as their basic remediation cost. These companies are hiding behind the SEC's rule which effectively requires disclosure only when management determines that the Year 2000 Problem is likely to have a material impact on the company's future results.

It is my hope that by mandating increased disclosure in this area, we can further the remediation and risk management efforts in government and business. In doing this we can minimize the adverse impact of the Year 2000 problem on the U.S. and global economies.

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