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. Last Updated: 07/27/2016

NYSE Plans Cleanup of Corporate America

NEW YORK -- Winning back public trust in corporate America will take far longer than the time it took to lose it. But a step in the right direction is expected this week, when the New York Stock Exchange announces its prescriptions for how the companies whose shares it trades can improve their corporate governance.

Since February, the Corporate Accountability and Listing Standards Committee of the exchange has been reviewing requirements that it makes of its listed companies to increase accountability and integrity in their boardrooms. The committee's report on this effort and its proposals will be released Thursday.

The proposals are significant and will create discomfort in some otherwise comfortable corporate boardrooms. The exchange will submit the proposals for public comment for two months. New rules go into effect in August.

The biggest change is the Big Board's proposal to require that independent directors comprise a majority of a company's board. At the moment, Big Board rules require just three independent directors per board, regardless of its size.

As their boards are now configured, one-quarter of the exchange's listed companies do not meet the proposed standard, according to Carol Bowie, director of Governance Research Services at the Investor Responsibility Research Center in Washington.

The exchange also wants to tighten its definition of "independent.'' For a director to be considered independent, the report states, the board must determine and affirm in its regulatory filings that the director has no material relationship with the company.

Details on the relationships and why the company does not consider them to be material will also be required.

Any director who has worked for the company in the previous five years will not be considered independent, and no director now or formerly affiliated with an auditor of the company can be independent until five years after that affiliation has ended. Current cooling-off periods at the Big Board are three years.

Another significant proposal would require nonmanagement directors at each company to meet regularly without management present. This is intended to promote open discussion among outside directors.

Shareholders would also gain more control over stock-option plans. All stock-option plans will have to be put to shareholder votes.

The new rules would forbid brokerage firms who hold shares for their customers from voting those shares on any stock option plan unless the broker has instructions from the customer to do so.

The proposals also say that directors' fees must be the sole compensation that an audit committee member receives from the company and that a member of the committee associated with a major shareholder that owns 20 percent or more of the company's shares may not vote on audit committee matters.