March, 2003
NYSE Independent Director Proposes Rules on Director Independence
The New York Stock Exchange ("NYSE") has proposed new listing standards which would require that a majority of the directors of NYSE listed companies be "independent." The new requirements would not apply to foreign private issuers or to companies of which more than fifty percent of the voting power is held by an individual, a group, or another company, however the rules requiring that independent directors serve on the audit committee would still apply.
A director will not qualify as independent unless the Board of Directors makes an affirmative determination that the director has no material relationship with the listed company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. The ownership of a significant amount of stock is not a bar to an independence finding.
The Board must disclose the basis for these determinations in the company's annual proxy statement. The Board may make these disclosures either by disclosing the criteria it established for making the determinations and then make a general statement that the independent directors meet the standard or by specifically explaining why a particular director is independent.
Certain persons are presumed not to be independent. These include directors who receive, or whose family members receive $100,000 a year in direct compensation from the company, other than director and committee fees and pension or other forms of deferred compensation for prior service; directors who are affiliated with or employed by, or who have an immediate family member who is affiliated with or employed in a professional capacity with the company's present or former auditor; directors who are employed, or who have an immediate family member who is employed as an executive officer of another company where any of the company's present executives serves on the other company's compensation committee; and directors w ho are an executive officer or an employee, or who have an immediate family member who is an executive officer of another company that accounts for at least 2% or $1 million (whichever is greater) of the listed company's consolidated gross revenues or for which the listed company accounts for at least 2% or $1 million (whichever is greater) of the other company's gross revenues. All of the above restrictions terminate five years after the end of the affiliation, employment or threshold, as the case may be. An immediate family member includes a persons' spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than employees) who shares such person's home.
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