NYSE Approves New Governance Rules
The New York Stock Exchange’s board Thursday endorsed a sweeping package of proposed rule changes that would require shareholder approval of stock option plans and other measures overhauling corporate governance at companies listed on the nation’s largest stock exchange.
The rules, which must be approved by the Securities and Exchange Commission, originally were proposed in June after a string of corporate accounting and ethical scandals at companies such as Global Crossing Ltd. and Enron Corp. that demoralized investors and sent stocks sliding. The SEC had asked U.S. stock markets to come up with ways to reform the system and restore shareholder confidence. Last week, the Nasdaq Stock Market approved similar measures.
The changes approved by the NYSE board Thursday include the most controversial proposal--a requirement that shareholders approve corporate stock option plans, although exceptions will still be allowed for “inducement options” given to new executives, option plans at companies acquired through merger, employee stock ownership programs and certain tax-qualified plans, such as a 401(k).
The changes also increase the authority and role of independent directors, tighten the definition of independence and require regular meetings of non-management directors.
The board’s decision to approve the changes came shortly after two former senior officials of WorldCom Inc. were arrested and charged with securities fraud for their role in the now bankrupt telecommunications company’s $3.85-billion accounting scandal.
“If you rob the shareholders, you should go to jail,” said Richard Grasso, chairman of the NYSE.
Not everyone was entirely pleased with the result of the NYSE’s labors.
“We’ve been very obviously supportive of the proposed set of [rules] and we think they’ve been long overdue,” Ann Yerger, director of research at the Council of Institutional Investors, an organization of corporate pension funds.
But Yerger said she was disappointed that shareholders would not vote on one-time stock option grants for newly hired executives.
“That’s a step back,” she said. “I’m afraid that this is going to encourage more and more companies toward even more ridiculous grants to executives.”
Initially, the Business Roundtable, a lobbying group made up of large U.S. corporations, slammed the proposal that shareholders approve all stock option plans, saying it was too costly. But the group backed down from its opposition as the stock market continued to plunge as the litany of corporate scandals made investors question the integrity of U.S. companies.
“We felt that the reforms were more important than the concerns,” said John Dillon, chairman of the Business Roundtable and chairman of International Paper Co.
If approved by the SEC, the new rules will apply to the roughly 2,300 U.S. companies that are listed on the Big Board. Companies will have two years to make sure their boards include a majority of independent directors.
For listed companies that do not comply with the new corporate governance rules, the NYSE will issue a public letter of reprimand.
