On August 26, 2009, the NYSE issued proposed modifications to several of its corporate governance listing standards set out in Section 303A of the NYSE Listed Company Manual. The proposed changes are generally technical in nature. They are intended primarily to reduce duplication and confusion caused by the overlap of Section 303A disclosure requirements with similar disclosure requirements of the SEC contained in Item 407 of Regulation S-K, and also are intended to clarify various existing rules.
Independent Directors — Meetings
NYSE rules currently require that listed companies hold regular meetings of non-management directors, and recommend that companies schedule a meeting of independent directors at least once a year. Some listed companies have expressed a preference to hold regular executive sessions of just independent directors. In response, the proposed rules provide that listed companies would be permitted to satisfy independent director meeting requirements by holding regular executive sessions of independent directors rather than holding meetings of non-management directors.
Independent Directors — Communications
The proposed rules would clarify that listed companies must disclose a method for all interested parties (not only shareholders) to communicate concerns regarding the listed company to the listed company’s presiding director or to the independent directors as a group. The proposed rules also would allow listed companies to make this disclosure either on or through their Web sites or in their proxy statements (or, if they do not file proxy statements, in their annual reports filed with the SEC). If a listed company were to make the disclosure solely on or through its Web site, it would be required to disclose this choice in its annual proxy statement or annual report and provide its Web site address.
Independent Directors — Required Disclosures
Since the SEC’s disclosure requirements concerning the independence of directors are more extensive than the similar NYSE requirements, the proposed rules would eliminate the current NYSE requirements in this regard and replace them with a requirement that the listed company comply with the applicable SEC disclosure obligations. The proposed rules also would permit listed companies to satisfy the disclosure requirements regarding (i) the identity of a director chosen to preside at meetings or executive sessions of the independent directors (or the procedure for selecting a presiding director), and (ii) contributions to tax-exempt organizations by posting the disclosures on their Web sites or by including them in their proxy statements (or, if they do not file proxy statements, in their annual reports filed with the SEC). If a listed company were to make the disclosures solely on or through its Web site, it would be required to disclose this choice in its annual proxy statement or annual report and provide its Web site address.
Compensation Committee and Audit Committee Reports
Since the NYSE’s requirements to produce a compensation committee report and audit committee report are essentially duplicative of similar obligations, under the SEC’s rules the proposal would eliminate the current NYSE requirements in this regard and replace them with a requirement that the listed company comply with the applicable SEC disclosure obligations.
Audit Committee Membership and Service on Multiple Committees
NYSE rules currently require that, if an audit committee member simultaneously serves on the audit committees of more than three public companies, and the listed company does not limit the number of audit committees on which its audit committee members serve to three or less, then the board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the listed company’s audit committee and disclose such determination. The proposed rules would clarify that a listed company must make that disclosure regardless of whether the listed company limits the number of audit committees on which its audit committee members serve to three or less. The proposed rules also would permit listed companies to make the disclosure on or through their Web sites or in their proxy statements or annual reports filed with the SEC. If a listed company were to make the disclosure solely on or through its Web site, it would be required to disclose this choice in its annual proxy statement or annual report and provide its Web site address.
Certification Requirements and Disclosure of Noncompliance
The proposed rules would eliminate the current NYSE requirement that listed companies disclose in their annual reports or Forms 10-Ks whether they have filed the certifications required by the NYSE and Section 302 of the Sarbanes-Oxley Act of 2002. The proposed rules also would require that listed companies notify the NYSE in writing if any listed company executive officer becomes aware of any noncompliance with NYSE’s corporate governance requirements (under the current rules, notification is required only if noncompliance is material).
Disclosure Concerning Codes of Conduct and Ethics, Committee Charters, and Governance Guidelines
The proposed rules would require disclosure within four business days if an executive officer or director was granted a waiver of the company’s code of business conduct or ethics. The disclosure could be made by means of a press release, Web site disclosure, or the filing of a current report on Form 8-K with the SEC. The proposed rules would permit listed companies to satisfy disclosure requirements concerning Web site posting by disclosing in their proxy statements or Form 10-Ks that their committee charters, corporate governance guidelines, and codes of business conduct and ethics are available on their Web sites and providing their Web site addresses. The NYSE requirement that listed companies disclose in their proxy statements or Form 10-Ks that such charters, guidelines, and codes are available in print upon request would be eliminated.
Controlled Company Provisions
The proposed rules would clarify that a company may only be deemed a controlled company if more than 50 percent of the voting power for the election of directors is held by an individual, group, or another company. The proposed rules also would replace the NYSE’s controlled company exemption disclosure requirements with a cross-reference to similar disclosure requirements of Regulation S-K and would clarify the compliance dates applicable when a company ceases to qualify as a controlled company.
Incorporation of Disclosure by Reference Generally
The proposed rules would permit listed companies to incorporate required NYSE disclosures by reference into their annual proxy statements or annual reports from other documents filed with the SEC to the extent permitted by applicable SEC rules.
The NYSE is seeking an effective date of January 1, 2010 for the proposed changes, which would apply to proxy statements filed for annual meetings held after December 31, 2009. The proposed changes are subject to a public comment period, which will run for 21 days from the day that notice of the proposed changes appears in the Federal Register.
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If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:
Joshua A. Agen
Russell E. Ryba
Peter C. Underwood