(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Chairman Pitt Commends NYSE Corporate Governance Proposals

SEC Chairman Harvey L. Pitt strongly commended the New York Stock Exchange's call for changes in corporate governance, including a requirement that independent directors comprise a majority of a company's board. The stock exchange also seeks to tighten the definition of independent director and add new audit committee duties. Chairman Pitt called the proposals "an important first step" in reforming corporate governance. Similarly, House Financial Services Committee Chairman Michael Oxley encouraged the NYSE to strengthen corporate governance for its listed companies as part of a coordinated offensive to improve corporate responsibility. The proposals are subject to SEC approval.

The NYSE proposes that, within two years, all listed companies must have a majority of independent directors. Similarly, board nominating and compensation committees will have to be composed entirely of independent directors. In addition, no director who is a former company employee will be considered independent until five years after the employment has ended. On a broader note, and in recognition of the impossibility of anticipating all inpendence-impairing circumstances, the NYSE would condition independence on an affirmative determination by the board that a given director has no material relationship with the company. Material relationships can include commercial, banking, consulting, accounting, legal, charitable, and familial relationships. The basis for a board determination that a relationship is not material should also be disclosed in the company's annual proxy statement.

Recognizing the crucial role played by audit committees, the NYSE proposes to increase the duties and power of the committee, including giving it the sole authority to hire and fire independent auditors and approve any significant non-audit relationship with the independent auditors. In addition, the audit committee will be charged with reviewing major issues regarding accounting principles and presentation of financial statements, including any significant changes in the company's application of accounting principles. Finally, as proposed, audit committee members would be compensated solely by director fees.

The NYSE has also asked the SEC to require CEOs to certify to shareholders that, to the best of their knowledge and belief, the corporate financial statements fairly present the information reasonable investors need to make informed decisions. In an effort to head off private litigation based on that certification, the NYSE wants the SEC to have exclusive enforcement authority over the CEO's certification mandate. The NYSE also asks the SEC to require companies to report complete GAAP-based financial information before making any reference to pro forma financial information, and to reconcile pro forma information to GAAP results so that investors can see the effects of adjusting the information. The proposals are available at the exchange's Web site, www.nyse.com.