• NYSE Proposes Changes to Corporate Governance Listing Standards
  • September 9, 2009 | Author: Amy C. Seidel
  • Law Firm: Faegre & Benson LLP - Minneapolis Office
  • On August 26, 2009, the New York Stock Exchange proposed amendments to the corporate governance requirements applicable to listed companies. The changes replace certain NYSE requirements by incorporating or relying on existing SEC disclosure requirements, permit certain information to be disclosed on company Web sites instead of in hard-copy reports and codify certain NYSE interpretations. The NYSE proposed that, subject to SEC approval, the following changes would take effect on January 1, 2010:

    Incorporation of or Reliance on SEC Rules

    • Replaces the current NYSE rule regarding disclosure of director independence with a reference to the SEC's director independence rule, which is duplicative of, and stricter than, the current NYSE rule.
    • Replaces the current NYSE rule requiring the compensation committee charter to include a requirement to produce the Compensation Committee Report with a reference to the SEC's requirement that the compensation committee prepare the Compensation Committee Report.
    • Replaces the current NYSE rule requiring the audit committee charter to include a requirement to produce the Audit Committee Report with a reference to the SEC's requirement that the audit committee prepare the Audit Committee Report.

    Note: The SEC specifically stated that it was incorporating the foregoing SEC rules by reference so that any failure to comply with these SEC requirements would also enable the NYSE to take action against a noncompliant company. The NYSE's enforcement actions for such failures range from identifying the company as "below compliance" by attaching "BC" to the company's ticker symbol to issuing a public reprimand letter to delisting the company in extreme cases. 

    • Replaces the requirement to disclose any waiver of the company's code of conduct granted to an executive officer or director within two to three business days with a requirement to provide such disclosure within four business days, consistent with the Form 8-K requirement regarding disclosure of waivers.
    • Eliminates the requirement to disclose in an annual report whether the CEO and CFO certifications required by the SEC were filed because those certifications are required to be filed as exhibits to the company's Form 10-K.
    • Eliminates the requirement to disclose in an annual report whether the CEO's certification of compliance with NYSE rules was filed in the prior year because a failure to file such certification would have been disclosed in a Form 8-K at the time of the failure as an event of material non-compliance with the NYSE's listing standards.

    Disclosures on Company Web Sites

    • Permits listed companies to disclose the following on the company's Web site instead of in the company's proxy statement so long as that fact and the company's Web site address are provided in the proxy statement:
      • contributions made to tax exempt organizations in which a director of the listed company serves as an executive officer if such contributions in any of the preceding three years exceeded the greater of $1 million or 2 percent of the tax exempt organization's consolidated gross revenues;
      • the director who presides at executive sessions or the process by which the presiding director is selected at each executive session;
      • the process for interested parties to communicate concerns to the presiding director or the non-management or independent directors as a group; and
      • the board's determination that the service of an audit committee member on more than three public company audit committees does not impair the ability of the member to serve effectively on the listed company's audit committee.

    Note: Although the proposed rules would permit disclosure of the information described above on the company's Web site instead of in the proxy statement, we expect that most companies will continue to disclose this information in the proxy statement for ease of reference by shareholders. 

    • Eliminates the requirement to provide hard copies of committee charters, governance guidelines and the code of conduct since they are required to be posted on the company's Web site and the proxy statement must state that fact and provide the company's Web site address.
    • Requires similar Web site posting and disclosure of the charter of any committee to which a required function of the audit, compensation or nominating/corporate governance committee has been delegated.

    Codification of Certain NYSE Interpretations

    • Clarifies that the requirement to hold regular executive sessions of non-management directors can be satisfied by holding regular executive sessions consisting solely of independent directors. As currently required, if any non-management directors who are not independent participate in executive sessions of non-management directors, an executive session consisting solely of independent directors must be held at least once a year.
    • Clarifies that all interested parties, not just shareholders, must be able to make their concerns known to the non-management or independent directors of the listed company.
    • Clarifies that boards must determine that the simultaneous service of any director who serves on the audit committees of more than three public companies does not impair the director's ability to serve on the listed company's audit committee, even if the company limits the number of audit committees on which directors may serve to three or fewer.
    • Clarifies that the requirement that audit committees meet to review and discuss the annual audited financial statements and quarterly financial statements with management and the independent auditor, including a review of MD&A, may be satisfied by telephonic meetings if permitted by state law, but may not be satisfied by polling individual audit committee members.

    The proposed changes also address issues related to controlled companies, closed-end and open-end management investment companies, companies listing on the NYSE (in connection with an IPO, spin-off, carve-out, emergence from bankruptcy or transfer from another exchange) and foreign private issuers.

    Action Items for NYSE Listed Companies

    Since most of the proposed changes are intended to conform the NYSE requirements to existing SEC requirements or clarify prior NYSE interpretations, most companies should already be in compliance with the proposed changes. Companies should review the proposed changes, once they are approved, to confirm compliance. In addition, companies should review their committee charters, governance guidelines, D&O questionnaires, proxy disclosures and other documents to confirm accurate references to the NYSE requirements and eliminate any references to superseded NYSE provisions.