Choosing to list: the impact of NYSE/Nasdaq governance standards on IPOs and other offerings.(Corporate Governance Reform)

The long-awaited corporate governance standards of the New York Stock Exchange (NYSE) and Nasdaq have finally been adopted. Not only will these rules impact companies currently listed on those exchanges, but they also will impact the IPO process for both domestic and foreign private issuers, as well as the process of secondary equity offerings and offerings of debt and preferred securities.

The adoption of the two different sets of corporate governance rules could impact a particular company's choice of whether to list on the NYSE or Nasdaq. To a large extent, the two sets of rules are similar. Both require a majority of independent directors, provide an exemption for controlled companies, include a similar list of per se independence bars, mandate a code of conduct with disclosure of waivers, and require independent directors to determine compensation and nomination matters.

But there are differences. The NYSE requires formal corporate governance guidelines, board evaluations, and an internal audit function and mandates a significant list of audit committee duties. The Nasdaq does not require formal compensation or nomination committees or a compensation committee charter, but it requires audit committees to approve all related-party transactions. The NYSE grants automatic exemptions to foreign private issuers from the NYSE corporate governance rules; whereas Nasdaq requires foreign issuers to apply for relief. Companies will need to consider these and other differences in the two sets of corporate governance rules when choosing between the NYSE and Nasdaq.

Equity IPO's By US Issuers

Companies and their advisors contemplating an equity IPO of a private company should plan in advance in order to comply with the new NYSE and Nasdaq rules. Following are the key actions that will need to be taken and key procedures that will need to be put in place prior to or at the time of the offering.

* A majority of directors must be independent within 12 months of listing.

* Procedures for non-management or independent directors to meet in "regularly scheduled" executive sessions (Nasdaq advises at least two each year) must be put in place.

* Audit committees must be established with at least three members. The committee must have one independent member at the time of listing, a majority of independent members within 90 days, and all independent members within one year.

* An audit committee charter with specified content is required.

* Compensation committees must be established with all independent members (the committee can phase in independent members pursuant to the same schedule as the audit committee). Nasdaq provides, as an alternative to a committee, that compensation decisions may be made by a majority of the independent directors. The NYSE, but not Nasdaq, requires a charter.

* Nominating committees must be established with all independent members (the committee can phase in independent members pursuant to …