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| 2004
News and Press Releases |
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HEADLINE:
Loophole Limits Independence - Dozens Of Firms Use Exemption That Allows Them To Avoid Rules Mandating Board Structure
By: Deborah Solomon
The Wall Street Journal. April 28, 2004
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EXCERPT: DOZENS OF COMPANIES are avoiding new rules intended to make their boards more independent from management, taking advantage of a little-noticed exemption for corporations that are controlled by small groups of shareholders. The list includes Cox Communications Inc., EchoStar Communications Corp. and Weight Watchers International Inc., which have said in Securities and Exchange Commission filings that a majority of their directors won't be independent. Primedia Inc., Cablevision Systems Corp. and others have said they won't have independent compensation committees to determine executives' pay or independent nominating committees to select director candidates. These companies are able to escape the new rules required by the New York Stock Exchange and the Nasdaq Stock Market by designating themselves as "controlled" companies in which more than 50% of the voting power rests with an individual, a family or another group of shareholders who vote as a block or another company. This allows them to avoid requirements that were adopted by stock exchanges and regulators after the corporate meltdowns of the late 1990s. The rules mandate a majority of directors be independent and only independent directors sit on nominating, compensation and audit committees. Independent directors are those who don't work at a company, haven't been employed there within three years and don't have close relatives who work there. All firms must have independent audit committees, even those with a controlling shareholder. The exemptions are riling some large institutional investors and corporate-governance experts who say they are weakening safeguards established to protect investors and the broader market. They also raise troubling issues at companies where a controlling shareholder may have substantial voting interest but a small economic stake, the critics say.
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