NYSE Corporate Governance Principles Detail Important Role for SEC

The NYSE has set forth corporate governance principles that envision a significant role for the SEC. For example, one of the ten core principles is that the SEC should work with all parties to the proxy system to ensure that companies and investors are able to communicate about proxy voting issues on a timely basis without undue costs or burdens, consistent with privacy concerns from investors regarding the proprietary nature of their investment strategies.  As part of this process, the SEC should establish a committee of market participants and outside experts, including representatives of the various constituencies, to consider its recent concept release on improving the proxy process.  In addition, in light of the declining participation of individual investors in recent years, the SEC should consider whether there are more effective and efficient ways for individual investors to participate in the system, as well as providing such investors with pertinent information to help ensure they make informed decisions.  

Another core principle of sound corporate governance is that the SEC and other regulators should consider a wide range of views and perspectives before adopting new regulations, including the practical implications of new regulations on directors’ ability to perform their existing duties, the potential costs and benefits to the company and its shareholders and the efficacy of existing regulations.  Noting that being a director is not a full-time job, and that creating new mandates risks limiting the time directors can spend on other tasks, the NYSE believes that the SEC should also consider the expanded use of pilot programs, including the use of sunset provisions, and phased-in implementation 

dates to identify any implementation problems before a program is fully rolled out. 

Another key principle envisioning SEC involvement is that proxy advisory firms should be held to transparency and accountability standards.

Although many large investors use proxy advisory services primarily as a source of information and research, that is not necessarily the practice of all institutional investors, and there is an increased level of concern regarding the impact of advisory firms.  As a result,  the SEC should engage in a study of the role of proxy advisory firms to determine their potential impact on, among other things, corporate governance and behavior and consider whether or not further regulation of these firms is appropriate.  At a minimum, such firms should be required to disclose the policies and methodologies that they use to formulate specific voting recommendations, as well as all material conflicts of interest, and to hold themselves to a high degree of care, accuracy and fairness in dealing with both shareholders and companies by adhering to strict codes of conduct.  The advisory services should also be required to disclose the company’s response to its analysis and conclusions.    

The principles of corporate governance were developed by a commission created by the NYSE in response to the financial crisis of 2008 and 2009, which prompted the NYSE to sponsor a comprehensive review of corporate governance principles.  At a time when Congress, 

the SEC and other regulators were considering fundamental changes to the governance of corporations, and corporate governance had become a prominent issue in the financial markets and with the public, the NYSE believed it was important to further inform this debate by setting forth certain core governance principles which could be widely accepted and supported by issuers, investors, directors and other market participants.The NYSE Commission on Corporate Governance was chaired by Larry W. Sonsini of Wilson Sonsini Goodrich & Rosati, who had been chair of the Proxy Working Group and a member of the NYSE’s Corporate Accountability and Listing Standards Committee. Other members of the Commission were Stephen Lamb, former Delaware Vice Chancellor and now of Paul, Weiss, Rifkind, Wharton & Garrison LLP, and former SEC senior official Michael McAlevey, now Vice President & Chief Corporate, Securities & Finance Counsel, General Electric Co.