Association for Investment Management and Research

2 July 2003

Mr. Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W., Stop 6-9
Washington, D.C. 20459

Re: NYSE Rulemaking: Proposed Rule Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. Relating to Corporate Governance
(Securities and Exchange Commission--File No. SR-NYSE 2002-33)

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

  • Specific areas that the committees' charters must address;

  • That non-management directors must meet at regularly scheduled executive sessions without management (and that the name of the presiding director must be disclosed in the annual proxy statement or annual report, or that the company can instead "disclose the procedure by which a presiding director is selected for each executive session"); and

  • The duties of the audit committee (including to "set clear hiring policies for employees or former employees of the independent auditors").

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).

Comments

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.

Conclusion

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, da-lamb@msn.com or Linda Rittenhouse at 434.951.5333, linda.rittenhouse@aimr.org.

Sincerely,

/s/ Deborah A. Lamb

___________________________
Deborah A. Lamb
Chair, U.S. Advocacy Committee

  /s/ Linda L. Rittenhouse

___________________________
Linda L. Rittenhouse
Staff, AIMR Advocacy

cc: U.S. Advocacy Committee
Rebecca T. McEnally, Ph.D., CFA - Vice President, AIMR Professional Standards & Advocacy

____________________________
1 With headquarters in Charlottesville, VA, and regional offices in Hong Kong and London, the Association for Investment Management and Research® is a non-profit professional organization of 64,000 financial analysts, portfolio managers, and other investment professionals in 117 countries of which 55,800 are holders of the Chartered Financial Analyst® (CFA®) designation. AIMR's membership also includes 127 affiliated societies and chapters in 46 countries.