11 November 2003

SEC Rules Limit Who Qualifies As 'Independent'

WSJ.com - SEC Rules Limit Who Qualifies As 'Independent'


WASHINGTON -- After more than a year of negotiations, the Securities and Exchange Commission has approved long-awaited rules to improve the independence of corporate boards at companies that list on the New York Stock Exchange or the Nasdaq Stock Market.

The rules require that listed companies have a majority of independent directors and impose tighter restrictions on who qualifies as 'independent.' But some corporate-governance experts said the rules don't go far enough, in part because they don't give shareholders greater power in nominating directors. (The SEC is considering such a move as part of a separate process.)

Under the approved rules, a director who is declared 'independent' can't be employed at the company or have worked there within a prior three-year period; nor can any of the director's family members. There are also restrictions on how much money directors can receive from the company other than payment for board service, with Nasdaq limiting annual payments to $60,000 and NYSE capping it at $100,000 a year.

The NYSE and Nasdaq proposed the rules in August 2002 and October 2002, respectively, after a series of corporate scandals put pressure on the markets to consider new governance rules. The SEC has been trying to narrow differences between the two proposals for months and worked to get the NYSE and Nasdaq to align their rules more closely.

But Patrick McGurn, senior vice president at Institutional Shareholder Services, a proxy-advisory firm in Rockville, Md., said the SEC agreed to relax some of the standards in the interest of uniformity. The NYSE's original proposal called for imposing a five-year 'look back' period to consider a director's independence, but that has been narrowed to three years to conform with Nasdaq."

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