-Group Makes Recommendations To Help Restore
Investor Trust and Confidence-
NEW YORK, June 6 – The New York Stock Exchange
today released recommendations from its Corporate Accountability and
Listing Standards Committee, which proposes new standards and changes in
corporate governance and disclosure practices of NYSE-listed companies.
The committee report, presented today to the NYSE Board of Directors,
also makes recommendations to Congress and the Securities and Exchange
Commission on various policy and regulatory matters.
In seeking to make recommendations that would
further strengthen issuer accountability, integrity and transparency,
the committee—beginning in February—engaged in a comprehensive,
four-month information gathering process. It reached out to investors,
listed companies, trade associations, the financial services industry
and other Exchange constituents. Based on its findings, recommendations
include:
- Increasing the role and authority of
independent directors;
- Tightening the definition of "independent"
director and adding new audit committee qualification requirements;
- Encouraging a focus on good corporate
governance;
- Giving shareholders more opportunity to
monitor and participate in the governance of their companies;
- Establishing new control and enforcement
mechanisms;
- Improving the education and training of
directors.
The committee will now solicit public comment on
its recommendations, then seek approval of the report at the NYSE Board
of Directors' Aug. 1 meeting. Committee co-chairs are NYSE Board members
Gerald M. Levin, CEO (retired) of AOL Time Warner Inc.; H. Carl McCall,
Comptroller of the State of New York and Sole Trustee, Common Retirement
Fund of the State of New York; and Leon E. Panetta, director of the
Panetta Institute for Public Policy (see attachment for full committee
list).
"Reassuring investors about the integrity of the
corporate governance and disclosure process alone is not enough.
Investors demand and deserve truly meaningful reform and substantive
change to restore their trust and confidence in our publicly traded
companies, our regulatory authorities and our markets," said NYSE
chairman and CEO Dick Grasso. "The measures proposed by the NYSE
Corporate Accountability and Listing Standards Committee go a long way
in addressing investor concerns and expectations. They represent an
opportunity to strengthen the governance at NYSE-listed companies, truly
the world's best, and the checks-and-balances among investors, issuers
and the NYSE market.
"Jerry, Carl and Leon demonstrated outstanding
stewardship and leadership throughout this process. We thank our
co-chairs and the entire committee, as well as the many contributors
whose input and guidance helped to shape these recommendations. We now
look forward to hearing from investors, our listed companies and all
interested parties during the forthcoming comment period."
"Through the committee's thoughtful process, we
have provided a valuable listening post and impartial forum for a
cross-section of ideas and experience designed to enhance the
performance of directors and corporate management," Mr. Levin said.
"With this report, the NYSE continues its historic obligation to lead
the ongoing reform of our system of governance and disclosure with the
objective of reinforcing the integrity of our capital markets."
"The Exchange today is taking a tremendous step
forward in helping investors regain confidence that has been shaken
through a difficult year," Mr. McCall said. "While the vast majority of
companies in the United States act responsibly towards their investors,
these new rules will ensure that all companies listed with the Exchange
live up to that responsibility and that the New York Stock Exchange
maintains the highest corporate governance standards in the world."
"The purpose of these recommendations by the NYSE
is to restore the essential trust needed on behalf of the investing
public in a strong securities market and a strong economy," Mr. Panetta
said. "The NYSE has both the opportunity and responsibility to set high
standards for the companies that trade under its banner."
Central to the report is a provision that boards of
NYSE-listed companies have a majority of independent directors; listed
companies would have a two-year transition period to satisfy this
requirement. In addition to an expanded role and greater authority of
independent directors, the committee report calls for:
- Increasing the responsibilities of board
audit committees;
- Mandating that shareholders vote on all
equity-based compensation plans, including stock option plans;
- Requiring audit, nominating and compensation
committees to consist solely of independent directors, with a
requirement that the chair of the audit committee have accounting or
financial management experience;
- Tightening the definition of an independent
director, including a five-year cooling-off period for former
employees;
- Mandating that director compensation
represent the sole remuneration from the listed company for
audit-committee members;
- Granting the audit committee sole authority
to hire and fire auditors and to approve any significant non-audit
work by the auditors;
- Requiring the CEO of NYSE-listed companies to
attest to the accuracy, completeness and understandability of
information provided to investors;
- Mandating that listed companies adopt and
publish corporate governance guidelines and a code of business conduct
and ethics;
- Establishing a Directors' Education Institute
to assist directors in their responsibilities;
- Allowing the NYSE to impose additional
penalties, including public reprimand letters, in addition to
suspension and delisting;
- Requiring non-U.S. issuers to disclose how
their practices differ from NYSE rules and procedures.
The committee's recommendations to Congress and the
SEC include:
- Establishing a new private-sector
organization, funded separately from the accounting industry itself,
to monitor and govern public accountants;
- Calling for the SEC to evaluate the impact of
Regulation FD on earnings guidance and to consider reforms;
- Asking Congress to allocate additional
resources to the SEC to increase the agency's monitoring and
enforcement activities;
- Prohibiting relationships between auditors
and their clients that would affect the fairness and objectivity of
audits;
- Calling for Congress to establish a
public/private panel to study the concentration of employee 401(K)
holdings in company stock;
- Giving the SEC the authority to permanently
bar officers and directors from holding office again after violating
their duties to shareholders;
- Calling on the SEC to require companies to
report complete GAAP-based financial information before any reference
to "pro forma" or "adjusted" financial information;
- Calling for the SEC to exercise more active
oversight of the FASB to improve the quality of GAAP and the speed of
FASB actions;
- Asking the SEC to improve management's
discussion and analysis disclosure on critical accounting alternatives
and assumptions;
- Requiring the prompt disclosure of insider
transactions.
The committee urges policymakers to avoid imposing
additional liability on directors, or reducing the protections currently
available through director and officer liability insurance and state-law
exculpation provisions. The report also urges them to avoid repealing or
weakening the Private Securities Litigation Reform Act.
These recommendations follow the NYSE's
implementation of a series of rule changes to address conflicts of
interest between research analysts and the investment-banking units of
its Member Firms. The new rules, which were approved by the SEC last
month and are expected to be implemented in November, dramatically alter
the way NYSE Member Firms and their research analysts and investment
banking departments manage and disclose conflicts of interest.
To view the Comparison Chart of Recomendations in (pdf
format)
click here.
To view a list of the Committee Members in (pdf
format)
click here.
To view the report and for more information
click here.