USA Law and Practice Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
• discussing the listed company’s earnings press releases and guidance provided to ana - lysts and rating agencies; • discussing policies with respect to risk assessment and risk management; • meeting separately and periodically with man - agement, the internal auditors and independ - ent auditors; • reviewing with the independent auditor any audit issues and management’s responses to such issues; • setting clear hiring policies for employees or former employees of the independent auditor; and • reporting regularly to the board of directors. The NYSE also requires listed companies to maintain an internal audit function, which may be satisfied by an internal department or an outside third party who is not the independent auditor, and the internal audit function must be overseen by the audit committee. The NYSE and Nasdaq rules also govern what types of matters must be addressed in audit committee charters. Compensation Committee NYSE- and Nasdaq-listed companies must have a compensation committee composed entirely of independent directors (subject to a limited exception for Nasdaq companies). The Nasdaq requires such a committee to be com - prised of at least two members while the NYSE does not impose a minimum number of mem - bers. Each member of the compensation com - mittee must qualify as independent under the stock exchange rules. Under these rules, when assessing the independence of a compensation committee member, the boards must take into account the following factors (in addition to the factors outlined under the Director Independ - ence heading above):
• the source of compensation of a director, including any consulting, advisory or other compensatory fee to be paid by the company to the director; and • whether the director is affiliated with the com - pany or any of its affiliates. The NYSE and Nasdaq require listed compa - nies to have compensation committee charters, which must, among other things, include: • the duty of the committee to review and approve and/or make recommendations to the board relating to the compensation of the listed company’s executive officers; and • the ability of the committee to retain and pay compensation advisers. Nominating and Corporate Governance Committee The NYSE requires listed companies to have a nominating and corporate governance commit - tee composed entirely of independent directors to, among other things, select or recommend individuals for nomination to the board. In con - trast, Nasdaq permits listed companies to select or recommend director nominees by either a majority of the listed company’s independent directors or a nominating and corporate govern - ance committee composed entirely of independ - ent directors (subject to a limited exception set forth in Nasdaq’s rules). The NYSE and Nasdaq rules also have requirements relating to nomi - nating and corporate governance committee charters. Board Evaluations The NYSE generally requires listed companies to conduct self-evaluations of their boards and their audit, compensation, and nominating and corporate governance committees at least annually. However, the NYSE does not provide
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