Article by Don Ross, Rob Lando, Sue Krembs & Jason Comerford
Originally published December 22, 2005
On November 23, 2005, the New York Stock Exchange (NYSE) proposed a number of changes to the corporate governance requirements applicable to its listed companies. These changes include clarifications of some disclosure requirements and codification of some interpretations previously made by the NYSE.
Highlights of the proposed changes affecting foreign private issuers (including most Canadian companies listed on the NYSE) are:
- Issuers will be required to post information about differences between their home country corporate governance practices and requirements applicable to U.S. companies on their corporate websites. Under Section 303A.11 of the Listed Companies Manual, a foreign private issuer must disclose the significant differences between the corporate governance practices followed by the company in its home country and those applicable to U.S. companies. Currently, foreign private issuers can choose to make that disclosure either in their annual report to shareholders or on their corporate websites. To ensure that investors only need to look in a single location for this disclosure, the NYSE proposes to amend Section 303A.11 to require foreign private issuers to post the disclosure only on their corporate websites.
- Increased disclosure of non-compliance with NYSE requirements . The NYSE is also proposing to revise Section 303A.12(b) of the Listed Companies Manual to require listed companies to notify the NYSE in writing after any executive officer of the listed company becomes aware of "any non-compliance" with applicable provisions of Section 303A. Under the current rule, notification of any "material non-compliance" is required.
- Requirement for listed companies to maintain a website . The NYSE is proposing to add a new Section 303A.14 to the Listed Companies Manual, which will require listed companies to maintain a corporate website accessible from the United States, and include the corporate governance disclosure referred to above.
- Phase-in of Section 303A requirements for companies that no longer qualify as foreign private issuers . The NYSE is proposing that if a foreign private issuer ceases to qualify as such under SEC rules (requiring it to file U.S. domestic forms with the SEC), that company will be permitted to phase-in the resulting required independent nominating and compensation committees as follows: one independent member as of the date that the company’s status changes, a majority of independent members within 90 days after the date that the company’s status changes, and fully independent committees within one year. These requirements are in addition to the independent audit committee requirements generally applicable to all listed companies, including foreign private issuers.
- Accelerated timing for Section 303A compliance post-IPO and spin-off . Companies listing in conjunction with their initial public offering are required to be in compliance with all applicable requirements of Section 303A by the earlier of the closing date of the initial public offering or five business days from the date that trading commences on the NYSE. Companies listing in conjunction with a carve-out or spin-off transaction are required to be in compliance no later than the date the transaction is effective.
The NYSE’s proposals also include a number of changes to the corporate governance requirements that apply to listed U.S. companies (and non-U.S. companies that elect to comply with them voluntarily), including:
- Proxy disclosure that each independent director either has no relationships with the listed company (other than being a director and/or a shareholder of the listed company) or has only immaterial relationships with the listed company (as well as the basis for determining that these relationships are immaterial). Alternatively, in lieu of disclosing specific immaterial relationships, a board may determine that certain relationships are categorically immaterial.
- The manner and timing of disclosure of NYSE code of ethics waivers for directors and executive officers must be made in a similar manner as required under SEC rules for code of ethics waivers granted to any CEO or senior financial officer (i.e., by distributing a press release, providing website disclosure or filing a current report on Form 8-K within four business days).
- Companies may exclude non-independent directors from the regularly scheduled executive sessions of non-management directors.
- The listed company’s website must include a printable version of certain committee charters, corporate governance guidelines and the code of business conduct and ethics.
NYSE-listed foreign private issuers should carefully review these changes and add to the website disclosure under Section 303A.11 any significant differences between the corporate governance practices followed by the foreign private issuer in its home country and those applicable to U.S. companies.
The NYSE filed its proposed changes with the SEC on November 23, 2005, and they will be subject to a public comment period ending 21 days after their publication in the United States Federal Register. The proposed changes will become effective immediately upon their approval by the SEC. A copy of the proposals can be found here.
Don Ross is a partner in Osler's Business Law Department where he practises corporate and securities law. He is also Chair of the firm’s Cross-Border Practice. Rob Lando is the managing partner of the firm's New York office, where he practises Ontario and New York law. Sue Krembs is a partner in the Business Law Department of the firm's New York office, with a practice devoted to U.S. legal matters. Jason Comerford is an associate in the Business Law Department in the firm’s New York office.
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