DIME BANCORP, INC.
JAMES E. KELLY, ESQ.
GENERAL COUNSEL 589 FIFTH AVENUE
(212) 326-6104 NEW YORK, N.Y. 10017
November 3, 1999
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
Re: File No. SR-NYSE-99-39 - Notice of Proposed Rule Change by the New York Stock Exchange, Inc. Amending Audit Committee Requirements of Listed Companies (October 6, 1999)
Dear Mr. Katz:
Dime Bancorp, Inc. ("Dime") wishes to offer the following comments on the proposed change to Paragraph 303 of the Listed Company Manual (the "Manual") of the New York Stock Exchange, Inc. ("NYSE") set forth in the above captioned Notice, which, if adopted, would amend the Manual's provisions regarding the audit committee of companies listed on the NYSE. Dime is a publicly traded company listed on the NYSE and the parent holding company of The Dime Savings Bank of New York, FSB, a $22 billion federal savings bank that serves consumers and businesses through 127 branches located throughout the greater New York City metropolitan area. Directly and through its mortgage banking subsidiary, North American Mortgage Company, Dime also provides consumer loans, insurance products and mortgage banking services throughout the United States.
While Dime generally believes that the purposes behind the proposals of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees are very worthwhile, Dime believes that implementation of the proposed requirements set forth in the Notice raises certain concerns.
1. Adoption of a Formal Written Charter. Each audit committee must adopt a formal written charter that is approved by the Board of Directors. The audit committee must review and reassess the adequacy of the audit committee charter on an annual basis.
Dime believes that good governance demands that companies establish guidelines for audit committees. At the same time, Dime is concerned that making it a requirement that an audit committee establish a formal charter could, at the extremes, either (i) create liability issues if a charter was adopted that provided too much regulation and the members of the committee were seen as having not rigorously adhered to the provisions of the charter or (ii) become a relatively meaningless document if a charter was adopted that provided too much interpretive room and too little guidance for the members of the committee in an effort to curb potential exposure to liability (which would nevertheless continue to exist).
2. Composition/Expertise Requirement of Audit Committee Members.
a. Each audit committee shall consist of at least three directors, all of whom have no relationship to the company that may interfere with the exercise of their independence from management and the company ("Independent").
b. In addition to the foregoing definition of Independent, the following restrictions shall apply to every audit committee member:
i. a director who is an employee (including non-employee executive officers) of the company or any of its affiliates may not serve on the audit committee until three years following the termination of his or her employment. In the event the employment relationship is with a former parent or predecessor of the company, the director could serve on the audit committee after three years following the termination of the relationship between the company and the former parent or predecessor; and
ii. a director (x) who is a partner, controlling shareholder, or executive officer of an organization that has a business relationship with the company, or (y) who has a direct business relationship with the company (e.g., a consultant) may serve on the audit committee only if the company's Board of Directors determines in its business judgment that the relationship does not interfere with the director's exercise of independent judgment.
Dime supports the current standard for independence of audit committee members set forth in the Manual. However, Dime is concerned that the proposed language in the Notice regarding the independence of members of an audit committee may, in some instances, discourage qualified candidates such as partners and officersof independent auditing firms, investment banks and law firms from choosing to serve on audit committees, particularly when examined in conjunction with the requirement set forth in the next paragraph.
3. Each member of the audit committee shall be financially literate, as such qualification is interpreted by the company's Board of Directors in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the audit committee; and at least one member of the audit committee must have accounting or related financial management expertise, as the Board of Directors interprets such qualification in its business judgment.
Clearly, audit committees have a financial nexus of responsibility. The proposed requirement regarding the "qualifications" of audit committee members might, however, have a discouraging effect on qualified candidates when deciding whether to serve on an audit committee. Dime believes that the financial literacy test is fundamentally vague and could expose boards of directors to undue liability for claims that audit committees members lack necessary qualifications or expertise. With respect to the requirement that at least one member possess "accounting or related financial management expertise," Dime is concerned that such individuals could be held to a higher standard of care in discharging their duties than that required of other directors.
Dime respectfully requests that the Commission take into consideration the concerns addressed above when establishing, together with the New York Stock Exchange, Inc., the final rules to be adopted by the Exchange with respect to the audit committee requirements of listed companies. If you have any questions regarding this comment letter, please contact me at (212) 326-6104.
Very truly yours,
DIME BANCORP, INC.
By: /s/ James E. Kelly
James E. Kelly