NYSE Proposes Changes to its Corporate Governance Rules

Article by

Edward S. Best ,

Michael T. Blair ,

James B. Carlson and

Robert E. Curley

Originally published September 8, 2009

Keywords: NYSE, SEC, corporate governance

listing rules, disclosure requirements, Regulation S-K, Listed

Company Manual, website posting requirements, Code of Conduct,

On August 26, 2009, the New York Stock Exchange (NYSE) submitted

for Securities and Exchange Commission (SEC) approval proposed

changes to the NYSE's corporate governance listing rules. While

the NYSE intends for these amendments to become effective on

January 1, 2010, the SEC has not yet issued this proposal for

comment.

The NYSE's proposed rule changes would clarify certain

disclosure requirements, codify certain interpretations and replace

certain disclosure requirements by incorporating applicable

disclosure requirements of SEC Regulation S-K. Some of the proposed

changes are in the nature of reorganizing or rephrasing existing

items to achieve greater clarity, while others eliminate dates and

references that are no longer applicable. The key proposed

amendments are discussed below.

General Corporate Governance Rules

Incorporation of SEC Rules. One of the ways in

which the NYSE is proposing to revise its corporate governance

disclosure requirements is to eliminate some of its specific

disclosure requirements and instead rely on the SEC's

disclosure requirements set forth in Item 407 of Regulation S-K.

The NYSE believes that Item 407 duplicates and, in some instances,

requires more detailed disclosures than current NYSE listing

standards.

For example, if this rule change is approved, the commentary to

Section 303A.02 of the NYSE Listed Company Manual will no longer

specify that the board may adopt and disclose categorical standards

for independence, and that the board must explain any determination

of independence for a director who does not meet such categorical

standards. Instead, the amended commentary will state that the

listed company must comply with the disclosure requirements set

forth in Item 407(a) of Regulation S-K, Item 407(a)(3) of which

specifies that for each director and nominee for director that is

identified as independent, a company must describe, by specific

category or type, any transactions, relationships or arrangements

not otherwise disclosed pursuant to the related person transaction

disclosure requirements of Item 404(a) of Regulation S-K that were

considered by the board of directors in making the independence

determination. One impact of this proposed rule change would be

that if a company's proxy disclosure is insufficient for the

purposes of Item 407 of Regulation S-K, that company will also be

deemed to be out of compliance with the NYSE's listing

rules.

Other NYSE disclosure items that would be eliminated and

replaced with references to the applicable requirement of Item 407

of Regulation S-K include:

Section 303A.00 controlled company exemption disclosure

requirements;

Section 303A.05 compensation committee charter requirement to

produce a compensation committee report; and

Section 303A.07 audit committee charter requirement to prepare

an audit committee report.

Web Site Posting and Disclosure. As proposed,

the web site posting requirements for committee charters, corporate

governance guidelines and the code of business conduct and ethics

will be set forth in a "website posting requirement"

section of the specific subsection of Section 303A of the Listed

Company Manual containing the substantive requirements for each

such document, and these section-specific web site posting

requirements will replace the current requirements contained in

Section 303A.09 and 303A.10 of the Listed Company Manual.

Substantively, listed companies would no longer be required to

provide hard copies of charters, guidelines and codes upon

request.

The proposed changes also would provide an option to make more

extensive use of web site disclosure. Companies would have the

option of reporting specified matters in their proxy statement or

annual report filed with the SEC or making the applicable

disclosure on their web sites. This option would be extended to

disclosure of:

Contributions made by the listed company to tax exempt

organizations on which any independent director serves as an

executive officer;

Disclosures with respect to the director chosen to preside at

executive sessions or the procedure by which a presiding director

is chosen;

The method for interested parties to communicate directly with

the presiding director or the non-management or...