Alert December 08, 2009

SEC Approves Amendments to NYSE Corporate Governance Requirements for Listed Companies

The SEC issued a release approving proposed changes to the corporate governance requirements applicable to companies listed on the New York Stock Exchange (the “NYSE”), as amended.  These changes, which become effective January 1, 2010, affect a number of areas in the NYSE’s corporate governance standards, and include:  (a) substituting the requirements of Item 407 of Regulation S-K for comparable existing standards in the NYSE requirements, (b) allowing more extensive use of listed company websites to make required disclosures, (c) removing the materiality standard for a listed company’s chief executive officer to notify the NYSE in writing after any executive officer becomes aware of non-compliance with NYSE corporate governance listing standards, (d) allowing a listed company to hold regular executive sessions of independent directors as an alternative to executive sessions of non-management directors, (e) requiring  a listed company to disclose a method for all interested parties, not just shareholders, to communicate their concerns to non-management or independent directors, and (f) modifying the transition periods for newly listed companies.  As with the corporate governance standards themselves, only certain of the changes apply to closed-end investment companies listed on the NYSE, including the following:

  • Closed-end funds will be subject to the shareholder approval requirement for equity compensation plans.
  • Service on multiple boards in the same fund complex will be treated as service on a single board for purposes of the disclosure requirements that apply when a fund has a director who serves on the audit committees of more than three public companies.
  • If a closed-end fund “chooses to voluntarily include a ‘Management’s Discussion of Fund Performance’ in its Form N-CSR,” the fund’s audit committee must meet to review and discuss this disclosure.
  • Any non-compliance with applicable NYSE corporate governance requirements, without reference to materiality, that becomes known to a closed-end fund’s executive officers triggers an obligation on the part of the fund’s CEO to promptly notify the NYSE in writing of the non-compliance.