The SEC recently approved amendments to the NYSE’s corporate governance listing standards that will be effective on January 1, 2010. The amendments harmonize some of the NYSE’s disclosure requirements with the related SEC requirements, permit listed companies to make some required disclosures through postings on their corporate websites, and clarify the application of certain listing standards to current and newly listed U.S. companies and to listed foreign private issuers. The amendments are described in Release No. 34-61067.
Changes to Corporate Governance Disclosure Requirements
Incorporation of Disclosure Requirements Under Item 407 of Regulation S-K. Some NYSE listing standards contain disclosure requirements that are similar to, or overlap with, the corporate governance disclosures required to be provided under Item 407 of the SEC’s Regulation S-K. The amendments eliminate this duplication by incorporating the applicable Item 407 requirements into the exchange’s listing standards. The amendments affect the following items:
- The current listing standards permit companies to adopt categorical standards of director independence and disclose generally whether their independent directors meet those standards, instead of providing information about transactions covered by the standards which the board considered in making its independence determinations. The amendments eliminate the existing NYSE disclosure requirement and obligate listed companies to provide the disclosures required by Item 407, which requires companies to describe, by specific category or type, any transactions, relationships or arrangements considered by the board in making director independence determinations.
- The current listing standards require a listed company’s audit and compensation committees to provide reports in the company’s proxy statement or Form 10-K. These requirements have been eliminated and replaced with a requirement to provide the similar Item 407 disclosures that are applicable to audit and compensation committee reports.
- A company that takes advantage of the exemptions from the NYSE listing standards applicable to a “controlled company” currently must disclose in its proxy statement or Form 10-K that it is a controlled company, the basis for that determination and the fact that the company has taken advantage of the exemptions. The amendments replace that requirement with the obligation to provide the similar disclosure required by Item 407.
Waivers of Code of Business Conduct and Ethics. The current listing standards require “prompt” disclosure of any waivers of a listed company’s code of business conduct and ethics granted to any directors or executive officers. The amendments specify that any such waivers must be disclosed within four business days by means of a press release, disclosure on the company’s corporate website or a filing on Form 8-K.
Website Disclosures. The current listing standards require disclosures of specified matters in a listed company’s proxy statement or Form 10-K. The amendments will permit companies to satisfy some of the exchange’s disclosure requirements through postings on their corporate websites, so long as the company’s proxy statement or annual report states that the disclosure is contained on the company’s website and provides the website address. A listed company will be allowed to disclose the following matters on its website:
- Contributions by the company to tax exempt organizations of which a director of the company serves as an executive officer, if the contributions exceeded the greater of $1 million or 2% of the organization’s revenues in any single fiscal year during the past three years;
- The identity of the director who presides over executive sessions of independent or nonmanagement directors or, if the same director does not preside at all executive sessions, the procedure by which presiding directors for executive sessions are chosen;
- The method for all interested parties to communicate with the presiding director or the nonmanagement or independent directors as a group; and
- Any board determination that service by an audit committee member on the audit committees of more than three public companies does not impair the ability of that individual to serve effectively on the company’s audit committee.
Elimination of Disclosure of NYSE Certifications. The current listing standards require listed company CEOs to certify annually to the exchange that they are not aware of any non-compliance with the corporate governance listing standards. Listed companies also must disclose in their proxy statements or Form 10-K reports whether, in the prior year, they filed the required CEO certification and any certifications required by the SEC. The amendments eliminate this disclosure requirement. Listed companies, however, will still be required to furnish the annual CEO certifications to the exchange.
Other Governance Changes
Notification to NYSE of Non-Compliance with Listing Standards. The current listing standards require the company to notify the exchange if an executive officer becomes aware of any material non-compliance by the company with the corporate governance listing standards. In one of the more significant rule changes, the amendments tighten this standard by requiring the notification if an executive officer becomes aware of any non-compliance with such standards.
Executive Sessions and Communications with Directors. The NYSE requires that a listed company’s non-management directors meet in regularly scheduled executive sessions. The amendments clarify that a board will satisfy this obligation by holding executive sessions of its independent members. In addition, the amendments will require listed companies to disclose the means by which any interested party may communicate with the presiding director or the nonmanagement or independent directors as a group. The current listing standards require disclosure only of the means by which a listed company’s shareholders may communicate with the directors.
Additional Website Requirements. In addition to permitting the company website disclosures noted above, the amendments specify that listed company websites used to comply with any NYSE requirement must be accessible from the United States, must clearly indicate, in the English language, the location of the documents required to be posted, and must include a printable version of the documents in the English language.
Elimination of Requirement to Provide Printed Copies of Governance Documents. The amendments eliminate the requirement that listed companies make available to shareholders upon request printed copies of the company’s board committee charters, corporate governance guidelines and code of business conduct and ethics. Listed companies must continue to disclose the posting of these documents on their corporate website and to provide the website address.
Clarification of the Definition of Controlled Company. The NYSE provides an exemption from certain of its corporate governance listing standards for a “controlled company,” which currently is defined as a company for which more than 50% of the voting power is controlled by an individual, a group or another company. The amendments clarify that the 50% threshold for voting power applies to voting power for the election of directors.
Changes Applicable to Foreign Private Issuers and Newly Listed Companies
Foreign Private Issuer Disclosure. Listed foreign private issuers currently are required to disclose, in their annual report to shareholders or on their websites, the significant differences between the governance practices followed in the issuer’s home country and the exchange’s governance requirements. To conform to the SEC rules that require inclusion of this disclosure in Form 20-F reports filed with the SEC, the amendments specify that foreign private issuers required to file a Form 20-F must provide the governance-related disclosures in that document. Foreign private issuers that do not file Form 20-F must include the disclosures either in their annual report to shareholders or on their websites.
Foreign Private Issuer Equity Compensation Plan Transition Periods. The current listing standards generally require shareholder approval of most equity compensation plans. The amendments provide a transition period for compliance with this requirement for companies that lose their status as a foreign private issuer. In general, if an issuer fails to qualify as a foreign private issuer at the end of the issuer’s most recent completed second fiscal quarter, the issuer may continue to make grants under a non-shareholder approved equity compensation plan after that determination date for a period of six months or, if later, until the date of the first annual meeting following the determination date (if held within one year after the determination date). With respect to formula plans, grants may be made under a non-shareholder approved plan if the plan is amended to have a term of ten years or less and grants are made only from shares that were available before the determination date (for example, as a result of formula-based increases that occurred before the loss of foreign private issuer status).
Transition Periods. The amendments modify the transition periods for compliance with the NYSE corporate governance listing standards for companies that are listing on the NYSE for the first time, whether through an IPO, a spin-off transaction or a carve-out transaction. The amendments also modify or specify the transition periods for companies emerging from bankruptcy, ceasing to qualify as a controlled company or losing status as a foreign private issuer.