august 25, 2008

NYSE MODIFIES DEFINITION
OF “INDEPENDENT DIRECTOR”

The NYSE has amended two of the “bright-line” tests provided to assist listed companies in determining whether their directors are independent. These amendments are expected to apply beginning September 11, 2008.

Compensation from the Company

Currently, Section 303A.02(b)(ii) of the Listed Company Manual provides that a director is not considered independent if he or one of his “immediate family members” received more than $100,000 in compensation from the company during any 12-month period within the prior three years. Compensation paid for board and certain interim executive services and to family members for non-executive employment, as well as certain deferred compensation for prior service, is not included under this test.

Under the amended rules, the amount will increase to $120,000, bringing the test in line with the threshold for related person transaction disclosures under Item 404(a) of Regulation S-K.

Relationship between the Auditor and Immediate Family Members

Section 303A.02(b)(iii) of the Listed Company Manual addresses relationships between a director and her immediate family members and the listed company’s internal or external auditing firm. Under existing Section 303A.02(b)(iii)(C), a director is not considered independent if an immediate family member is currently employed by the listed company’s auditor to work on audit, assurance, or tax compliance with respect to any of the auditor’s clients.

The amendments will significantly narrow this test, so that having an immediate family member who is currently a non-partner employee of the auditor will preclude independence only if that family member personally works on the listed company’s audit. Thus, simply having an immediate family member who is a non-partner employee of the auditor will not necessarily prevent a director from being considered independent. However, please note that, consistent with existing rules, a three-year look-back will still apply to this test.