Independent Director Requirements for Companies on the New York Stock Exchange
Independent directors must make up the majority of the board of directors of any company listed on the New York Stock Exchange, according to NYSE Rule 303A.01. The board of directors of each company on the Exchange is responsible for determining that each of the listed company’s independent directors meets criteria for independence.
Under NYSE Rule 303A.02, the board must conclude that an independent director has no material relationship with the listed company either directly or as a person with a material relationship with another entity that has a relationship with the company. The board may review and determine independence specifically regarding each proposed independent director, or the board may set up standards of independence that each independent director must meet.
Stockholders and the public must be notified concerning the standards used by the listed company’s board to determine independence and materiality of relationships of independent directors. The standards must be included in the proxy statement for the company’s annual meeting or in the company’s annual Securities and Exchange Commission Form 10-K.
According to the New York Stock Exchange, five categories of relationships preclude a determination that a director is independent:
1. Persons who have been an employee of the company within the last three years or whose “immediate family member” has been an executive officer of the company, other than chairman of the board or interim chief executive officer, within the last three years;
2. Persons who receive and persons with “immediate family members” who within the last three years received more than $100,000 per year from the company, unless the payments were for director fees, pensions, and other deferred compensation for prior service to the company;
3. Persons employed by or affiliated with and persons with “immediate family members” employed by or affiliated with, in the last three years, an auditor, whether outside or inside, of the listed company;
4. Persons employed and persons with “immediate family members” employed within the last three years by another company if any of the listed company’s executive officers have served within the last three years on the compensation committee of the other company; and
5. Persons who are employees or persons with “immediate family members” who are employees of another company (other than a charitable organization) doing business with the listed company if the business within any of the last three years has amounted to over $1 million per year or over two percent of the other company’s consolidated gross revenues within a single fiscal year.
“Immediate family members” include a spouse, parents, brother and sisters, children, parents-in-law, children-in-law, siblings-in-law, and persons other than domestic employees sharing the home of the independent director.