June 28, 2005

Attention: NYSE-Listed Companies

At last week’s Society of Corporate Secretaries & Governance Professionals conference, Annemarie Tierney of the NYSE’s Office of the General Counsel discussed the director independence determination per NYSE Rule 303A.02.

First, she reminded the audience that the independence determination is a two-part test. Even if a director meets all the bright line criteria set out in Section 303A.02(b), the board is still required under Section 303A.02(a) to make an affirmative determination, based on all relevant facts and circumstances, that the director has no material relationship with the listed company.

Second, she discussed Rule 303A.02’s requirement to identify the independent directors and the basis for such independence determination in the company’s proxy statement. A board is permitted to adopt and disclose categorical standards to assist it in making determinations of independence and may make a general disclosure if a director meets these standards. However, Annemarie said that many companies are not disclosing their independence determination standards or are using the NYSE’s bright line tests as their sole categorical standards. Or, where a director who does not fit within the disclosed standards is determined to be independent, companies are disclosing relationships that exist between the director and the company that are not covered by categorical standards but are not disclosing the basis for its determination that a director is independent despite this relationship.

As a result, the NYSE is looking at all NYSE companies’ most recent proxy statements and will be issuing a comment letter to those companies whose disclosures are deficient. Annemarie indicated that the comments will be in the nature of a “futures” comment from the SEC, and no re-filing of proxies will be required. In addition, companies that receive a comment letter will not need to qualify their NYSE CEO certifications or annual written affirmations. Comment letters are expected as early as this week, and will be running through approximately six months from now.

New Perk Policy at GE

As Mark Borges blogged last week, General Electric has a new policy concerning the personal use of company aircraft by the company’s three Vice-Chairmen. Under the policy, these executives must lease the company’s aircraft for any personal travel once their GE-paid flight expenses for the year exceed $200,000. (GE requires its Chairman and Vice-Chairmen to use corporate aircraft for both business and personal travel for security purposes.)

GE filed a Form 8-K last week detailing the policy. One of the company’s Vice-Chairman has already entered into a time-sharing agreement, where he can lease certain planes from GE for his personal use. A copy of the time-sharing agreement is included in the filing.

-Posted by Julie Hoffman