Approval of proposed amendments to NYSE corporate governance rules

By Cydney Posner

The SEC has approved the proposed amendments to the NYSE corporate governance requirements described generally below.  The SEC release clarifies that, for companies listing in connection with an IPO, or a spin-off or carve-out transaction, the transition rules require that only independent directors be permitted on the audit committee during the transition period (unless an exemption is available under Rule 10A-3), but a phase-in would be permitted with respect to the three-member committee size requirement: at least one member on the audit committee by the listing date, at least two members within ninety days of the listing date, and at least three members within one year of the listing date.  However, all the members of the audit committee must be independent as of the listing date unless an independence phase-in is permitted pursuant to Rule 10A-3. Under Rule 10A-3, for IPOs, all but one member of the audit committee may be exempt from the independence requirements of the rule for ninety days from the date of effectiveness of the issuer's registration statement, and a minority of the members of the committee may be exempt from the independence requirements of Rule 10A-3 for one year. The SEC notes that there is no exemption or phase-in period for any newly listed company with respect to the provision that requires every listed company's audit committee – without distinction as to the committee's size – to have at least one member who has accounting or related financial management expertise.

The SEC release also clarifies that references to a "listed company" or "company" in the provisions relating to director independence include, in addition to any parent or subsidiary in a consolidated group with the listed company (the current definition), "any such other company as is relevant to any determination under the applicable independence standards of Section 303A.02(b)."  

Finally, the SEC release notes an amendment to provision (c) of Section 303A.12 (Certification Requirements) that will require each listed company to submit an interim Written Affirmation "as and when required by the interim Written Affirmation form specified by the NYSE," as opposed to the current requirement to submit the interim Written Affirmation "each time a change occurs to the board or any of the committees subject to Section 303A."

The rule changes take effect on January 1, 2010.

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