Page 53 - Initial Public Offering - An Introduction to IPO on Wall Street

The SEC also necessitates a number of clear proxy statements on governance issues that outline
how the board manages risk, sets up board leadership, recognizes its diversity, and offers
guidance on board committees, as well as the volume of board and committee sessions that the
organizations conducts. In addition, the SEC needs organizations to include comprehensive
proxy disclosures on each member of the board.

Governance criteria for their listed firms are also provided by the National Association of
Securities Dealers Automated Quotation System (NASDAQ) and the New York Stock
Exchange.

They mandate that most of the members on the board of an organization are independent; they
also make it necessary for all members on compensation and audit committees to be
independent. Both exchanges have exceptions to these rules for regulated companies where an
entity, association or other organization has more than 50% of the voting rights to elect board
members.

Other criteria for governance vary depending on whether the corporation chooses to list on the
NASDAQ or the NYSE. Some of these variations are small, such as the meanings of what
makes an "independent" board member. Others are more significant, such as the additional
obligations that the NYSE needs to provide an internal audit mechanism around the criteria.

Both the NASDAQ and the NYSE permit a transitional phase for aspiring public companies
before they need to ensure compliance with the criteria for board and committee autonomy.
That said, several companies have already fulfilled the independence criteria of the board and
committee when their final registration statement becomes effective

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