Corporate Counsel - Sample Issue

Nevertheless, it is important for all companies and their counsel to begin considering any needed changes in their approach to compliance well before the new independence standards go into effect. Companies should, at a minimum, brief the board and the compensation committee on the new standards and obtain from current and potential compensation committee members information sufficient to allow the board to determine their independence under the new requirements. Many companies already have added questions seeking this information to the annual questionnaire sent to directors and officers in connection with the annual report on Form 10-K and proxy statements.

Ensuring compliance with the new
listing standards will also require build-
ing into the company’s regular compli-
ance processes a system for detecting
transactions, relationships, or arrange-
ments that could affect a director’s
independence under the new stan-
dards. This step should be similar to
the existing processes used to monitor
director independence under the stan-
dards imposed by various other rules
and regulations. The company will also
need to review and, if necessary, revise
the compensation committee charter to
reflect the new eligibility requirements
if the charter sets forth in detail the
independence standards for compensa-
tion committee members.

You want to leave plenty of time to make any changes in

BOARD COMMITTEE ASSIGNMENTS that might be deemed appropriate.

too late, that a director currently serving on the compensation committee has a direct or indirect relationship that would lead the board to conclude that the director is not independent under the new standards. Where, for example, a director is an executive officer of an entity that provides services to the listed company (such as accounting, consulting, legal, or financial services), the director might be deemed to receive a compensatory fee from the company, even if the director does not provide those services personally.

This conclusion would render the
director ineligible to serve on a Nasdaq
compensation committee and potentially
ineligible to serve on a NYSE compen-
sation committee. Similarly, a director
might be deemed to receive an indirect
compensatory fee where the director’s
spouse serves as an executive officer of
tee assignments that might be deemed
appropriate. Moreover, if a relationship
is identified and the board is uncertain
whether that should preclude service on
the compensation committee, the com-
pany may be well advised to consult the
relevant exchange for guidance. Doing
so would require that additional time be
built into the compliance process.