The New York Stock Exchange (NYSE) and the Nasdaq Stock Market each recently modified certain bright line tests to be used when determining director independence for purposes of their corporate governance listing standards.

Both the NYSE and Nasdaq amended the respective bright line direct compensation thresholds they use to determine director independence. These thresholds have been amended such that the level of direct compensation below which a director will remain independent will be increased from US$100,000 annually to US$120,000 annually, to conform with the threshold set forth in Item 404(a) of SEC Regulation S-K.

The NYSE also amended its bright line director independence test relating to auditor affiliation. Under the revised rule, a director who has an immediate family member who is a current employee of the company's auditor will be considered independent so long as the family member does not personally take part in the audit of the company. The existing Nasdaq rule relating to auditor affiliation is consistent with the amended NYSE rule.

Nasdaq received SEC approval of its proposal to increase the direct compensation threshold on August 8, 2008. The NYSE amendments do not require SEC approval and are applicable beginning September 11, 2008.

Recommended Action

Companies should consider these revised bright line tests when determining director independence for purposes of the NYSE and Nasdaq corporate governance listing standards. In addition to the amended tests described above, companies should consider the other bright line tests and standards set forth by the NYSE or Nasdaq, as applicable.