SEC Approves Final NYSE and Nasdaq Corporate Governance Standards

On November 4, 2003, the SEC approved final amendments to the NYSE and Nasdaq corporate governance listing standards. The final amendments are nearly unchanged from the proposed amendments summarized in our Public Company Advisories dated October 21, 2003. The principal new requirements for both NYSE and Nasdaq companies include:

• the majority of a listed company's board of directors must be independent under enhanced independence standards;
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• audit committee members must satisfy enhanced SEC independence standards;
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• independent directors must meet in regular executive sessions outside of the presence of management; and
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• listed companies must adopt and disclose a code of business conduct and ethics applicable to all directors, officers and employees.

In addition, NYSE companies will be required, among other things, to:

• maintain compensation and nominating/corporate governance committees composed entirely of independent directors (with a one-year look-back for determining director independence until November 4, 2004, when the three-year look-back becomes effective);
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• adopt and disclose corporate governance guidelines; and
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• maintain an internal audit function.

While Nasdaq companies do not have to form independent compensation or nominating committees, they, however, will be required, among other things, to:

• determine, or recommend to the full board for determination, executive compensation and director nominations either by a majority of the independent directors or by committees composed solely of independent directors;
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• review all "related party transactions" on an ongoing basis and have such transactions approved by the audit committee or other committee of independent directors commencing January 15, 2004; and
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• publicly disclose receipt of a "going concern" qualification of an audit opinion in an SEC filing within seven days of receipt.

As a general rule, listed companies will need to be in compliance with the new rules prior to their 2004 annual shareholders meeting.

The effective dates (and transition periods for companies with staggered boards and certain other companies) are generally as described in our October 21st Public Company Advisories. These rules also provide that Nasdaq companies have six months from approval of the rules, or until May 4, 2004, to implement a code of business conduct and ethics.

Copies of our Public Company Advisories summarizing the NYSE and Nasdaq corporate governance listing standards are available from your regular Goodwin Procter contact attorney or on our website at www.goodwinprocter.com in the Knowledge Center under "Publications."

The Corporate Governance, Securities Litigation and M&A attorneys at Goodwin Procter keep current on these matters. We are available to help advise public companies and their officers and directors on specific issues as well as to provide educational presentations to help them understand and meet their responsibilities under both current and proposed rules and regulations. Please contact us either directly or through your regular Goodwin Procter contact if we may be of assistance.

John T. Haggerty and John O. Newell contributed to the preparation of this Advisory.

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