The NYSE and the Problems of Director Independence: The Non-Transparent Interpretation (Part 3)

The NYSE definition of director independence, by its plain meaning, requires boards considering director independence to determine whether directors have a "material relationship with the listed company".  NYSE 303A.02.  Under the obvious meaning of the language, Black & Decker not unreasonably asserted that "[p]ersonal business relationships between individuals (as opposed to relationships with the company) generally are not relevant to the independence tests under the New York Stock Exchange rules because they do not create a material relationship between a director and the company." 

The NYSE, however, took issue with Black & Decker's interpretation of its rule.  The NYSE apparently prevailed upon Black & Decker to issue a press release "clarifying" the requirements of the NYSE.  As the Company disclosed:    

• On March 9, 2010, The Black & Decker Corporation (NYSE:BDK) issued a press release in which it stated, in part, that “Personal business relationships between individuals (as opposed to relationships with the company) generally are not relevant to the independence tests under the New York Stock Exchange rules because they do not create a material relationship between a director and the company.” In discussions between representatives of the New York Stock Exchange (“NYSE”) and Black & Decker after the issuance of the press release, representatives of the NYSE advised Black & Decker that, in interpreting its rules, the NYSE believes relationships between a director and a member of senior management that are material to either party should be considered by a board of directors in its evaluation of a director’s independence.

In short, the NYSE has an interpretation of its listing standards that is not clear from the language of the requirement.  Moreover, the NYSE has not publicly stated this position, suggesting that there are other companies that interpret it in the same manner as Black & Decker. 

In fact, Mr. Burns "was first elected a director of Black & Decker in 2001."   Black & Decker Proxy Statement, filed March 2009.  The project involving Mr. Burns and Mr. Archibald had been going on since 2005 or 2006.   In other words, the relationship existed for the entire time Mr. Burns was on the Black & Decker board but was apparently never considered by the other directors given the company's interpretation of the NYSE listing standards.  Other companies are likely relying on the same interpretation.