NYSE, NASDAQ File Corporate Governance Proposals
The New York Stock Exchange and the NASDAQ are seeking final SEC approval for their revised corporate governance rules, including director independence standards, for listed companies. The exchanges revised their corporate governance requirements in light of the Sarbanes-Oxley Act of 2002.
Both the NYSE and NASDAQ would determine director independence based on a three-year look back period. Under the NYSE proposal, a director employed by the company or whose immediate family member is an executive officer is not independent until three years after the relationship ends. A director who receives, or whose immediate family member receives, more than $100,000 in direct compensation a year is not independent.
Under the comparable NASDAQ standard, directors are not independent if they or their family members received more than $60,000 in payments from the company in the current or past three fiscal years other than director compensation, loans permitted under Sarbanes-Oxley Act, compensation paid to a family member who is a non-executive employee, or benefits under tax-qualified plans.
The NYSE proposal also requires regularly scheduled executive sessions of non-management directors. Companies must give shareholders a way to communicate directly with the lead non-management director or the non-management directors as a group.
Unfortunately, the transition periods were modified under both proposals. Companies must now be in full compliance by the first annual meeting after Jan. 15, 2004, or Oct. 15, 2004, whichever is earlier. The one exception is for companies with staggered boards. If a company with a staggered board would have to change a director who would not otherwise be standing for election, the director may continue in office until the second annual meeting after Jan. 15, 2004, but no later than Dec. 31, 2005.