NYSE Euronext has flagged a move away from a prescriptive rules-based governance regime to a market-based, principles approach. After a year long investigation headed by Larry Sonsini, chairman of Wilson Sonsini Goodrich & Rosati, the NYSE Commission on Corporate Governance has published ten key principles for what it calls “solid governance”.

In a statement announcing the publication of the Commission’s findings, Sonsini made it clear that “while legislation and agency rule-making are important to establish the basic tenets of corporate governance, the Commission believes that over-reliance on legislation and agency rule-making may not be in the best interests of shareholders, companies or society, and the Commission therefore has a preference for market-based governance solutions whenever possible.”

“The principles outlined by the Commission on Corporate Governance are a significant contribution to understanding the core duties and responsibilities of boards, management and shareholders in the governance process, and provides an important framework outlining the common interests of these groups,” said Sonsini. “Reaching agreement on core corporate governance principles between such a wide variety of stakeholders is an important achievement, especially at a time when legislative bodies and rule-making agencies are considering fundamental changes to the ways corporations are governed.”

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The 10 Principles

1. The board’s fundamental objective should be to build long-term sustainable growth in shareholder value for the corporation and its shareholders and the board is accountable to shareholders in its effort to achieve this objective.
2. While the board’s responsibility for corporate governance has long been established, the critical role of management in establishing proper corporate governance has not been sufficiently recognized. The Commission believes that a key aspect of successful governance depends upon successful management of the company, as management has primary responsibility for creating an environment in which a culture of performance with integrity can flourish.
3. Shareholders have the right, a responsibility and a long-term economic interest to vote their shares in a thoughtful manner, in recognition of the fact that voting decision influence director behavior, corporate governance and conduct, and that voting decision are one of the primary means of communicating with companies on issues of concern.
4. Good corporate governance should be integrated with the company’s business strategy and objectives and should not be viewed simply as a compliance obligation separate from the company’s long-term business prospects.
5. Legislation and agency rule-making are important to establish the basic tenets of corporate governance and ensure the efficiency of our markets. Beyond these fundamental principles, however, the Commission has a preference for market-based solutions whenever possible.
6. Good corporate governance includes transparency for corporations and investors, sound disclosure policies and communication beyond disclosure through dialogue and engagement as necessary and appropriate.
7. While independence and objectivity are necessary attributes of board members, companies must also strike the right balance between the appointment of independent and non-independent directors to ensure that there is an appropriate range and mix of expertise, diversity and knowledge on the board.
8. The Commission recognizes the influence that proxy advisory firms have on the market, and believes that such firms should be held to appropriate standards of transparency and accountability. The Commission commends the SEC for its issuance of the Concept Release on the U.S. Proxy System, which includes inviting comment on how such firms should be regulated.
9. The SEC should work with the NYSE and other exchanges to ease the burden of proxy voting and communication while encouraging greater participation by individual investors in the proxy voting process.
10. The SEC and/or the NYSE should consider a wide range of views to determine the impact of major corporate governance reforms on corporate performance over the last decade. The SEC and/or the NYSE should periodically assess the impact of major corporate governance reforms on the promotion of sustainable, long-term corporate growth and sustained profitability.

Last Updated: 28 September 2010