SOCIAL TOPICS (Archive): CORPORATE GOVERNANCE 

Published, Fall 2002

The goal [of the proposed reforms] is to institute requirements for governance of NYSE companies that will reinforce checks and balances in corporations, thus contributing to a return in confidence in the markets and the corporations in which we invest. The NYSE reforms are an important step in that direction.

In Support of the NYSE Proposals

• Board Independence: Walden is a strong advocate of the recommendation that independent directors must comprise a majority of a board. The widest possible breadth of perspectives on a company’s strategy and operations is imperative. The Board must be a thoughtful, independent voice and not a rubber stamp for management recommendations.

• Role of Non-Management Directors: There are a number of companies that require non-management directors to meet without management in regular executive sessions.

• Independence of the Audit, Nominating, and Compensation Committees: We applaud extending the independence rule for the audit committee to these other two Board committees.

• CEO Certification of Investor Information: This rule places a CEO “under oath” and serves as a strong reminder of the repercussions of deceiving the investing public.

• Orientation Program for New Board Members: We support this guideline as it ensures that every new board member will have the chance to familiarize herself or himself with the company’s code of business conduct and how it is implemented.

Need for Greater Clarification

• Definition of “Independence”: Walden strongly supports board independence but has concerns that the NYSE reform lacks clarity of definition. We urge the NYSE to give thoughtful consideration to the definition of board independence used by the Council of Institutional Investors and Institutional Shareholder Services.

• Code of Business Conduct and Ethics: We believe the implementation of a corporate code of conduct should be a fundamental operating principle at any organization and commend the NYSE on its recognition of the need to formalize such standards. We also encourage all listed companies to incorporate principles of corporate responsibility into corporate governance codes. Companies should adhere to a code of conduct, develop independent monitoring, and provide meaningful transparency and reporting on compliance with the code. The code should deal with a broader scope of issues, including environmental and social practices.

Areas to Consider

• Annual Election of Directors: The NYSE’s proposed guidelines do not refer to reforms that support the annual election of Directors. Thus we recommend that the NYSE require that listed companies annually elect all members of the Board.

• In-Person Annual Meetings: Recently, a number of companies have begun to lobby for legislation to hold their stockholder meetings online and do away with a tradition of in-person annual meetings. Thus we recommend that the NYSE include as one of its guidelines that companies be required to continue in-person shareholder meetings even if they also opt for online meeting participation.

• Election of Auditors: At present many NYSE-listed companies do not require the election of the Auditors at the annual stockholders meeting. Instead, the Auditors are simply chosen by the Board Audit Committee and confirmed by the Board. As an indication of financial accountability, we believe the NYSE should propose that the Auditors be approved annually by shareholders.

• Board Diversity: Ensuring that a company’s board is inclusive and led by a diverse combination of Directors is an issue garnering a good deal of shareholder support. We urge the NYSE to encourage listed companies to elect a diverse Board that includes women and people of color.

A copy of Walden’s letter to the NYSE, and a companion letter to the SEC, are available on request.