NTT DoCoMo, Inc.February 18, 2003
Jonathan G. Katz Secretary Re: Proposed Rule Relating to Listed Company Audit Committees Dear Mr. Katz: NTT DoCoMo, Inc. (the "Company") is pleased to submit this letter to respond to Release Nos. 33-8173, 34-47137, IC-25885 (the "Proposing Release"), in which the Securities and Exchange Commission (the "SEC") solicited comments on its proposed Rule 10A-3 (the "Proposed Rule") implementing Section 301 of the Sarbanes-Oxley Act of 2002 (the "Act") relating to listed company audit committees. The Company is a reporting foreign private issuer under the Securities Exchange Act of 1934. American depositary shares representing the Company's common stock are listed on the New York Stock Exchange. A. Provisions of Proposed Rule 10A-3 The Company greatly appreciates the efforts of the SEC to address in the Proposed Rule the concerns previously expressed by interested parties in Japan over the potential conflicts between Section 301 of the Act, and Japanese law and practice. The Company also greatly appreciates the SEC's proposal of paragraph (c)(2) of the Proposed Rule, which provides a general exemption from the requirements of paragraphs (b)(1) and (b)(2) in a manner that generally takes into account the approach taken by the Japanese corporate governance system. The Company believes this generally addresses its concerns. The Company has, however, some technical comments and observations, as described below. 1. The Company's Understanding About Paragraph (c)(2)(i)(E) Set forth below is the Company's understanding of how the SEC intends paragraph (c)(2)(i)(E) to apply in practice to accomplish the overall goal of paragraph (c)(2). The Company intends to apply paragraph (c)(2)(i)(E) in this manner. Paragraph (c)(2)(i)(E) requires that the board of auditors (or similar body) or statutory auditors of a foreign private issuer be directly responsible, in accordance with standards prescribed by home country legal or listing provisions, for the oversight of the work of the outside auditor engaged (including resolution of disagreements between management and the outside auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work or performing other audit, review or attest services for the issuer. In Japan, the standards relating to auditor oversight are principally provided by provisions of the Audit Special Exceptions Law. They include: the right of the statutory auditors to demand the outside auditor to report on its audit (Article 8, paragraph 2); the duty of the outside auditor to deliver its audit report to the statutory auditors (Article 13, paragraph 1); the right of the statutory auditors to demand the outside auditor to explain its audit report (Article 13, paragraph 3); the right of the statutory auditors to make investigations concerning the outside auditor's audit report (Article 14, paragraph 1); the duty of the outside auditor to report fraud and other illegal activities to the statutory auditors (Article 8, paragraph 1); the duty of the statutory auditors to report to shareholders on their determination that the manner or result of the audit by the outside auditor is not appropriate, if they make such determination (Article 14, paragraph 3, sub-paragraph 1); and the right of the statutory auditors, by their unanimous consent, to dismiss the outside auditor for one of the specified reasons, including the outside auditor's violation of its duties or failure to perform its functions (Article 6-2, paragraph 1). In accordance with these statutory standards, the statutory auditors provide independent review and oversight of the company's financial reporting processes, internal controls and outside auditor, and facilitate resolution of disagreements, if any, between management and the outside auditor regarding financial reporting in a forum separate from management in which the outside auditor and other interested parties can candidly discuss concerns. The Company believes that the standards prescribed by these provisions represent an effective corporate governance system with regard to the oversight of outside auditors. The Company will satisfy the requirement of paragraph (c)(2)(i)(E) by ensuring that its board of statutory auditors conducts its oversight of the work of the outside auditor for SEC-filing purposes in accordance with the standards prescribed by the relevant Japanese statutory provisions referred to above and in consideration of the purposes of Section 301 of the Act by incorporating, if necessary, in its internal regulations and in the audit engagement letter with the outside auditor for SEC-filing purposes, provisions representing a structure substantially similar to the above-mentioned statutory structure relating to auditor oversight (including provisions facilitating resolution of disagreements, if any, between management and the outside auditor regarding financial reporting). 2. The Company's Understanding About Paragraph (c)(2)(i)(F) Set forth below is the Company's understanding of how the SEC intends paragraph (c)(2)(i)(F) to apply in practice to accomplish the overall goal of paragraph (c)(2). The Company intends to apply paragraph (c)(2)(i)(F) in this manner. Paragraph (c)(2)(i)(F) requires that the board of auditors (or similar body) or statutory auditors of a foreign private issuer be responsible, to the extent permitted by law, for the appointment and retention of an outside auditor. The Company will satisfy the requirement of Paragraph (c)(2)(i)(F) by ensuring that its board of statutory auditors has the appropriate power with respect to the selection and retention of the Company's outside auditor that audits financial statements for Form 20-F purposes, including, if necessary, incorporation in its internal regulations provisions requiring its board of directors to obtain prior consent of its board of statutory auditors to such selection and retention. 3. Proposed Amendment to Paragraph (c)(2) Also to Cover Paragraph (b)(5)(i) While the current language of paragraph (c)(2) generally takes into account the Japanese corporate governance system, the Company believes that a clarifying amendment needs to be made with respect to the relationship between paragraphs (c)(2) and (b)(5)(i). As currently proposed, the general exemption provided by paragraph (c)(2) covers paragraph (b)(2), which refers to, among other things, compensation of an outside auditor by the audit committee, but not also paragraph (b)(5)(i), which refers to the funding of payment of compensation to the outside auditor. Paragraph (b)(5)(i) assumes that the compensation is to be determined by the audit committee or, in the case of a foreign private issuer relying on the (c)(2) exemption, by the board of auditors (or similar body) or statutory auditors by virtue of paragraph (c)(2)(ii). The Company believes that the application of paragraph (b)(5)(i) to foreign private issuers availing themselves of the (c)(2) exemption is inconsistent with the scope of that exemption. A foreign private issuer that satisfies the conditions set forth in paragraph (c)(2) should be exempt from paragraph (b)(5)(i) in addition to paragraphs (b)(1) and (b)(2). Accordingly, the Company respectfully requests that the language of paragraph (c)(2)(i) be modified to refer to paragraph (b)(5)(i) in addition to paragraphs (b)(1) and (b)(2). B. Responses to Certain of the SEC's Questions in the Proposing Release 1. Fourth bullet paragraph under "Questions regarding the proposed application to issuers" of II.F.3. - "Should we provide a `sunset' date for this provision to allow the Commission to reconsider its effectiveness and to reexamine the trend towards audit committees in other jurisdictions?" The Company is strongly opposed to the setting of a "sunset" date. Japan, like other countries, has developed its own corporate governance standards in light of its unique history, culture and corporate structures. Foreign jurisdictions' corporate governance standards, to which paragraph (c)(2) as currently proposed appropriately gives deference, should be allowed to develop in their respective particular ways, which does not necessarily mean that the direction they take will converge with that of the U.S. corporate governance standards. 2. First, second and eighth bullet paragraphs under "Questions regarding the proposed disclosure changes" of II.G.3 - "Should companies be required to disclose publicly if they are taking advantage of an exemption to the proposed SRO requirements? . . . Is the disclosure of the company's assessment of whether and if so, how, such reliance would materially adversely affect the ability of the audit committee to act independently and to satisfy the other proposed requirements appropriate?", "Should foreign private issuers that avail themselves of the exemption for boards of auditors or similar structures be required to file an exhibit to their annual reports stating that they are doing so?" and "Listed issuers that are foreign private issuers are generally not subject to the proxy rules. Should we require disclosure regarding the independence of audit committee members for these issuers?" The Company believes that it should be sufficient that a foreign private issuer availing itself of the (c)(2) exemption be required to disclose that it is doing so, without making disclosure as to any assessment as to any material adverse effect of such reliance on the ability of the audit committee to satisfy the proposed requirements or as to its members' independence. This is because, in order to use the (c)(2) exemption, the foreign private issuer's board of auditors (or similar body) or statutory auditors must meet the standards as to independence and other matters under home country legal or listing provisions, and in such a case there would be no adverse effect on the ability of the board of auditors (or similar body) or statutory auditors to act independently and to satisfy the other proposed requirements. The Company also believes that there is no need to require foreign private issuers to file an exhibit to their annual reports regarding their reliance on the (c)(2) exemption, as it should be sufficient to require such issuers to disclose the information in the main body of their annual reports. C. Amendments to the SEC's Existing Requirements Regarding Auditor Independence Finally, the Company notes that the amendments to the SEC's existing requirements regarding auditor independence, which were adopted in Release Nos. 33-8183, 34-47265, 35-27642, IC-25915, IA-2103, FR-68, do not include a provision similar to paragraph (c)(2)(ii) of the Proposed Rule, which, for purposes of foreign private issuers relying on the (c)(2) exemption, deems references to "audit committee" to refer to the foreign private issuer's board of auditors or similar body, or its statutory auditors. The Company believes that, for such foreign private issuers (including the Company), the SEC's auditor independence requirements that apply to them should refer to the board of auditors (or similar body), or the statutory auditors, where references are made to the audit committee. Accordingly, the Company respectfully requests that the SEC make an appropriate further amendment to its auditor independence requirements to include a provision similar to paragraph (c)(2)(ii) of the Proposed Rule. * * * The Company appreciates the opportunity to comment to the SEC on the Proposed Rule and provide responses to certain of the questions put forth by the SEC in the Proposed Release. Representatives of the Company would be happy to discuss with the SEC staff any aspects of this letter in order to find a workable solution to the issues presented in this letter.
cc: Mr. Giovanni P. Prezioso
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