Association for Investment Management and Research
2 July 2003
Mr. Jonathan G. Katz
Re: NYSE Rulemaking: Proposed Rule Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. Relating to Corporate Governance
Dear Mr. Katz:
The U.S. Advocacy Committee (USAC) of the Association for Investment Management and Research (AIMR)1 appreciates the opportunity to comment on a filing made by the New York Stock Exchange (NYSE) with the SEC that seeks to amend the NYSE's current rules relating to corporate governance. The USAC is a standing committee of AIMR charged with responding to new regulatory, legislative, and other developments in the United States affecting the investment profession, the practice of investment analysis and management, and the efficiency of financial markets.
The NYSE proposal seeks to ensure that listed companies have a majority of independent directors by establishing standards for "independence," including setting levels of compensation. It also requires that only independent directors comprise a company's nominating/corporate governance committee and audit committee. The proposal also sets detailed requirements regarding the work of these committees. Among many others, these details address
In addition, the Proposal requires companies to adopt and disclose corporate governance guidelines and to adopt and disclose a code of business conduct and ethics for directors, officers, and employees (in both cases, listing the subjects that must/should be addressed in the corporate governance guidelines and code of conduct and ethics, respectively).
USAC heartily endorses the adoption of corporate governance standards and a code of business conduct and ethics for use by companies listed on the NYSE. We believe that while ethics cannot be legislated, setting high standards and refocusing corporate officers on their responsibilities to the investing public is a positive step. However, we question the approach taken by the NYSE in this Proposal.
First, although we understand the NYSE's authority with respect to its listed companies, we believe that the industry would benefit more from a consistent approach among regulators, self-regulatory bodies, and exchanges than from potentially different sets of rules. We therefore urge the creation of a consistent, over arcing set of corporate governance principles and rules for public companies under all jurisdictions. We believe that the SEC, as the national regulator, is in the best position to lead this effort. Moreover, violations of any corporate standards and regulations must be met with meaningful consequences to be fully effective. We believe that the SEC's enforcement branch is in the better position to provide that reinforcement.
Second, we believe that the degree of detail embedded in the requirements and commentary of the various NYSE rules is not constructive and runs counter to the notion that ethics cannot be legislated. While we appreciate that the Proposal seeks to restore investor confidence in light of the apparent breakdown in sound corporate governance practices over the last several years, we nonetheless believe that there is a balance to be achieved.
We believe that detailed requirements relating to the qualification of, and the setting of standards of conduct for, directors is warranted. We are concerned, however, that in some cases the degree of detail may interfere with the directors' performance of their jobs. Dictating corporate activity to the degree suggested in the Proposal appears to be an overreaching attempt to provide a detailed roadmap for the running of corporate boards and committees, at the cost of usurping the exercise of independent judgment by individuals hired expressly for that purpose. We agree that corporate governance principles (and the concomitant focus on individual responsibilities) warrant shoring up. We suggest an approach that establishes more of a balance by requiring a reasonable degree of specificity with broad "high level" ethical standards that imbue individuals with the separate and collective responsibility for maintaining those standards as stewards for the interests of shareholders.
We applaud the NYSE's efforts to address corporate governance standards for listed companies. We realize the difficulty in achieving a balance between creating meaningful standards, while respecting that directors must retain some ability to exercise their independent judgment in overseeing the work of their companies, or risk becoming divested of this responsibility.
As noted above, we believe that the SEC is the entity that should be proposing corporate governance standards for use by all public companies, whether or not listed with the NYSE. If it is determined that the NYSE will proceed with the promulgation of these standards, we strongly urge that it reevaluate its approach to creating meaningful standards without overly dictating the details.
If we can provide additional information, please do not hesitate to contact Deborah Lamb at 770.971.7010, firstname.lastname@example.org or Linda Rittenhouse at 434.951.5333, email@example.com.
cc: U.S. Advocacy Committee