Increasingly, stock exchanges have become the source of improved corporate governance.  In the aftermath of Enron, the stock exchanges adopted listing standards that included tougher governance provisions, including the requirement that boards have a majority of independent directors.  Section 301 of SOX commanded the Commission to use listing standards to require audit committees consisting of independent directors and having the authority to hire and fire the outside auditors.  The Commission did so.  See Rule 10A-3, 17 CFR 240.10a-3. 

Listing standards, however, raise significant concerns, particularly over enforcement.  In general, private parties cannot bring an action for violations.  Instead, enforcement is left to the exchanges.  The exchanges, however, have a history of weak enforcement.  Moreover, with the NYSE and Nasdaq having assumed "for profit" status, the pressure to earn profits could impact the willingness to enforce listing standards.  As Andrew Hayden has written, the Commission has brought an action against the Amex and key officials that shows the concern is more than theoretical.

Where this can be seen with some clarity concerns the definition of independent director used by the exchanges.  The determination of whether a director qualifies as independent is made by the board of directors.  The board has to determine, among other things, whether a director has a material financial relationship with the company.  Evidence indicates that this determination does not always involve a rigerous process.  See the post here.  Moreover, it is clear that boards have been willing to find that directors do not have a material financial relationship even when they are paid fees that approach $400,000.  Why are boards so lax in enforcing the independence requirements?  Because they know that there are no consequences since the standards are not subject to serious enforcement by the exchanges.