Corporate Governance and Industry Standards
How Industry Standards Affect Corporate Governance Procedure
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Table of ContentsWhat industry organizations place standards on corporate governance?What are some common industry organizations standards affecting corporate governance?Discussion QuestionPractice QuestionAcademic Research
What industry organizations place standards on corporate governance?
Public securities exchanges have extensive governance requirements for companies listing securities for sale with the exchange. Perhaps the most known US exchanges are the New York Stock Exchange (NYSE) and NASDAQ Stock Market (NASDAQ).
Next Article: Corporate Governance and Proxy Advisory Firms Back to: CORPORATE GOVERNANCE
What are some common industry organizations standards affecting corporate governance?
Common exchange provisions require:
- Director Independence - Exchanges require that listed companies maintain director independence, which includes independence from management and financial relationships with the corporation;
- Committees - Companies may be required to comply with strict committee requirements, such as appointment of specific committees with director independence and defined charters (such as governance committee, audit committee, compensation committee);
- Shareholder Votes - Companies may be required to allow shareholder vote on specific matters, such as modifications of governance conditions and equity distributions;
- Equity Structure - Companies may be required to adhere to specified equity structures that limit the rights of various classes of shares;
- Management Restrictions - Companies may be required to hold separate director meetings that exclude directors who are also managers; and
- Public Disclosures - Companies may be required to comply with standards for public disclosure of information, including the manner and frequency of disclosure.
The regulatory authority of exchanges comes from the exchanges ability to control which companies are listed on the exchange. Exchanges may reprimand, suspend, or bar companies from listing their shares for violations of exchange rules.
Why do you think securities exchanges are concerned with corporate governance matters? Can you explain how each of the above areas of regulation support this objective?
What are the some of the primary governance requirements placed on corporations by industry organizations?