Several noteworthy developments recently occurred regarding director independence, writes John F. Olson, partner at Gibson, Dunn & Crutcher today on the Harvard Law School Corporate Governance blog.
Among the changes, Olson details:
- The Securities and Exchange Commission (SEC) in August approved amendments to the definition of “independent director” under the NASDAQ Stock Market Rules, which have gone into effect.
- The New York Stock Exchange (NYSE) filed rule changes with the SEC to amend two of its director independence tests; these rules do not require SEC approval and went into effect on Sept. 11.
- Also in August, the SEC announced the settlement of an enforcement action involving a former director who failed to disclose a business relationship with the auditor of three companies on whose boards he served, thereby causing the companies to violate the federal securities laws.
In light of these changes, Olson recommends that companies:
- Listed on the NYSE with categorical independence standards, amend these categorical standards to reflect the rule amendments.
- Revise company D&O questionnaires to reflect the rule amendments.
- Remind directors and officers of the importance of submitting complete and accurate D&O questionnaires.
- Remind directors of the need to bring to the company’s attention any changes that might impact the director’s independence, and sending quarterly notices to directors, as part of board packages or otherwise, to remind them of the need to inform the company of any changes that may affect their independence.