Proposed Changes To NYSE’s Corporate Governance Listing Standards

On June 6, 2002, the Corporate Accountability and Listing Standards Committee (the "Committee") of the New York Stock Exchange ("NYSE") submitted a report to the NYSE’s board of directors recommending certain modifications to the NYSE’s corporate governance listing standards. The board is expected to take final action on the report at its August 1, 2002 meeting. The following is a short summary of the Committee’s recommendations.

• Independent Directors. The Committee recommended that listed companies be required to have a majority of independent directors. The Committee proposed that companies be required to achieve majority-independence within two years of enactment of this modification. The Committee also recommended changes to the definition of independent director. The proposed definition provides that no director qualifies as independent unless the board of directors affirmatively determines that such director does not have a material relationship with the company, either directly or as a partner, shareholder, or officer of an organization that has a relationship with the company. In addition, under the proposed definition, no director is deemed to be independent if, within the prior five years, he or she or a member of his or her immediate family has been employed by the company, has been affiliated with or employed by a present or former auditor of the company, or has been employed by a company whose compensation committee includes an executive officer of the listed company.
• Executive Sessions. The Committee recommended that non-management directors of listed companies be required to meet at regularly scheduled executive sessions without management and that the name of the director who will preside at such executive sessions be disclosed in the annual proxy statements of such companies.
• Nominating/Corporate Governance Committee and Compensation Committee. The proposed modifications require that listed companies have a nominating/corporate governance committee and a compensation committee, both composed entirely of independent directors, and that these committees have written charters.
• Audit Committee Membership. The modifications proposed by the Committee provide that a director is not deemed independent for purposes of eligibility for audit committee membership if he or she receives any compensation from the company other than directors’ fees. Such directors’ fees may, however, include equity-based awards and additional amounts typically paid to chairs and members of committees who meet more frequently or for longer periods of time. An independent director who holds, or is associated with a shareholder who holds, 20% or more of a company’s stock may serve on the company’s audit committee, but only as a non-voting member and is not eligible to chair the audit committee. Existing NYSE standards require that at least one member of the audit committee have accounting or financial management expertise. The proposed modifications require that the chair of the audit committee have accounting or financial management expertise.
• Audit Committee Responsibility. The Committee recommended modifications increasing the authority and responsibility of the audit committee. The proposed modifications include requiring that the audit committee have the authority to retain and terminate the company’s independent auditors (subject to shareholder approval if applicable), to approve all audit engagement fees and terms, and to approve any significant non-audit work by the auditors. The proposed modifications also include the requirements that the audit committee review annually a report by the company’s independent auditors as to the company’s internal quality-control procedures, material issues presented by the most recent quality-control review, and all relationships between the company and the auditors, as well as discuss the company’s annual audited financial statements and quarterly financial statements with management and the company’s independent auditors, and meet separately at least quarterly with each of management, the company’s internal auditors, and the company’s independent auditors.
• Equity-Compensation Plans. Existing NYSE standards require shareholder approval of equity-compensation plans in which officers or directors may participate, but provide certain exceptions to the shareholder approval requirement. The proposed modifications require shareholder approval of all equity-compensation plans without exception. Additionally, the proposed modifications prohibit brokers from voting their customers’ shares with respect to any equity-compensation plan without voting instructions from such customers.
• Corporate Governance Guidelines and Code of Business Conduct and Ethics. The Committee recommended that listed companies be required to adopt and disclose corporate governance guidelines and a code of business conduct and ethics for directors, officers, and employees. The proposed recommendations require that any waiver of the code of business conduct and ethics for a director or executive officer be made only by the board or a board committee and be disclosed to shareholders. The proposed recommendations further require that each company’s website include the company’s corporate governance guidelines and code of business conduct and ethics, as well as the charters of its audit, compensation, and nominating/corporate governance committees.
• CEO Certification. The proposed modifications require that each CEO of a listed company certify to the NYSE each year that the company has established and carried out procedures for verifying the accuracy and completeness of the information provided to investors, that he or she has reviewed these procedures and the company’s compliance with them with the board of directors, and that he or she has no reasonable cause to believe that the information provided to investors is not accurate and complete in all material respects. The proposed modifications also require that the CEO certify to the NYSE that he or she is not aware of any violation by the company of the NYSE listing standards.
• NYSE Authority to Issue Public Reprimand Letters. The Committee recommended that the NYSE be enabled to issue a public reprimand letter to any listed company that violates a NYSE listing standard.