SEC Approves Tougher Listing Standards

The governance standards for public companies are getting a bit tougher.

The Securities and Exchange Commission on Tuesday approved new listing standards proposed by the New York Stock Exchange and the Nasdaq Stock Market. Among other things, the new standards tighten requirements for independent corporate directors and increase the power of those directors on companies' nominating and compensation committees.

The new rules are not as strict as those initially drawn by the NYSE. But governance experts praised them as significant and important reforms.

"I wish they had gone further, but I think we are a lot further along than we were two years ago," said Charles Elson, a business professor at the University of Delaware who chairs the school's corporate governance center. "I think this is clearly a step in the right direction."

Following the accounting scandals at Enron, WorldCom and other companies, investors and government officials have pushed for regulations that might have controlled or prevented some of the excesses at those companies. Many have pushed for increasing the power and responsibility of corporate boards as a way to counterbalance the power of company executives and to look out for shareholder interests.

Until this reform, the NYSE had few guidelines for governance at its member companies. The primary requirement for listed companies on the Big Board was that they have an audit committee composed solely of independent directors.

As part of the regulations approved on Tuesday, both the NYSE and the Nasdaq will require most companies listed on their exchanges to have boards of directors within which independent members comprise a majority.

NYSE-listed companies also will be required to have compensation and nominating committees that are composed entirely of independent directors. Meanwhile, the NYSE will require independent directors to meet at least once a year without other directors present.