Proposed NYSE Changes Impact on Canadian Issuers - International Law Office

The New York Stock Exchange (NYSE) Corporate Accountability and Listing Standards Committee recently released its report recommending certain changes to its listing standards. The new listing standards would require companies listed on the NYSE (other than foreign private issuers) to adopt specified governance practices as a condition of listing. The changes are significant and impose requirements which differ in many respects from those to which Canadian companies listed on the Toronto Stock Exchange (TSX) are subject.

Some of the major differences that will emerge between corporate governance regulation in Canada and the United States if the report's recommendations are adopted are as follows:

• Although many of the practices recommended in the NYSE report are consistent with Canadian governance standards, they are not mandated practices in Canada. There is currently no initiative underway to impose any additional corporate governance requirements in Canada. The TSX guidelines are simply disclosure requirements - listed companies must disclose their governance practices and the extent to which they differ from those recommended in the guidelines. The TSX guidelines take the approach that 'one size does not fit all'. In contrast, the NYSE report recommends the imposition of certain uniform governance standards for its domestic listed companies.
  

• The TSX guidelines impose no particular restrictions on significant shareholders, other than recommending that if an issuer has a significant shareholder, then a number of its directors should be unrelated to both the issuer and the significant shareholder. The NYSE report would require that an audit committee member not vote in audit committee proceedings or act as chair of the audit committee where he or she is "associated with a shareholder owning 20% or more of the listed company's equity".

• The NYSE report continues the trend towards establishing objective standards, particularly in the determination of director independence. Although the board of an NYSE-listed company would have the responsibility for determining whether a director was independent, certain relationships would automatically preclude a director from being considered as such. The TSX guidelines make the board of directors responsible for determining each director's unrelated (independent) status, without providing any so-called 'bright line' tests or other guidance.

• The NYSE report assigns sole responsibility for hiring and firing the listed company's independent auditor to the audit committee, although this remains subject to shareholder ratification where required in accordance with applicable state and federal law. This provision is intended to reduce the influence of interested board members in favour of independent directors on the audit committee, and would prohibit the board from delegating this responsibility to management. In contrast, the TSX guidelines are silent on the retention and termination of auditors, which remains a power of appointment of shareholders under applicable corporate statutes, exercised at a listed company's annual meeting. The amendments to the TSX guidelines currently under consideration include, as a practice note, a statement that the audit charter should specify that the external auditor is ultimately accountable to the board of directors and audit committee, as representatives of the shareholders.

• The NYSE report would impose certain restrictions on the type of compensation that members of the audit committee could receive. The TSX guidelines provide only that the board should review the adequacy and form of director compensation and ensure that it realistically reflects the responsibilities and risk of being a director.

• The TSX guidelines do not require certification by the chief executive officer of the material truth and accuracy of investor information or the existence of procedures to ensure such, as is proposed in the NYSE report.
  

• The TSX guidelines do not deal with the adoption of a code of business conduct and ethics, in contrast to the NYSE report which requires listed companies to adopt and publish their codes (as well as key committee charters). The TSX guidelines recommend that audit committees adopt a charter, but without any requirement to disclose the charter itself.

For further information on this topic please contact Debra Forman at Davies Ward Phillips & Vineberg LLP by telephone (+1 416 367 6975) or by fax (+1 416 863 0871) or by email (DForman@dwpv.com).