A New York Stock Exchange panel soon will consider rules changes that could give corporate executives increased power to make important decisions without stockholder approval.
Among the changes the panel has decided to consider is one that would abolish the requirement for stockholder approval of decisions about changes in corporate control, a shift that could make it easier for corporate managements to ward off takeover attempts. The rules changes also would eliminate the need for shareholder approval of certain stock-option plans for executives of listed companies, according to Washington lawyer A. A. Sommer Jr., cochairman of the panel.
The panel also will consider whether certain transactions between corporate officers and the companies they manage should continue to be subject to mandatory shareholder approval, Sommer said yesterday. The requirement has acted along with federal disclosure requirements as a protection to prevent corporate officials from enriching themselves at company expense.
The panel that proposed the rules changes was formed in July to study the NYSE's listing standards, which were adpoted when the Big Board was the principal regulatory authority protecting shareholders. Since that time, the creation of the SEC, the introduction of extensive reporting requirements for public companies and the increased sophistication of shareholders -- many of whom are professional money managers -- have raised the question of whether the exchange needs, or wants, to continue regulating listed companies in this manner.
Early last month, the panel recommended that the exchange change its rules to allow companies listed with it to issue different classes of common stock with unequal voting rights. At present, NYSE rules specify that all of the common stock of its listed companies must have equal voting rights, while the American Stock Exchange and the National Association of Securities Dealers' over-the-counter market permit companies to have different classes of stock.
The panel proposed that a company with two classes of stock be accepted for listing on the Big Board provided certain conditions are met, such as approval by two-thirds of the company's shareholders. If the recommendation is approved later this year by the exchange's board and by the Securities and Exchange Commission, it could touch off a new battle between the NYSE and the other exchanges to retain and attract companies.
Some Wall Street investment bankers fear that a relaxation of listing requirements could threaten the integrity of the NYSE. For example, they fear that the proposed change would encourage widespread and rapid adoption of different classes of stock by many companies trying to prevent takeovers, leaving public stockholders without any significant voting power.
Some Wall Street executives have suggested the driving force behind the proposed change is the NYSE's desire to retain several listed companies that would have to leave the Big Board unless the rule is changed.
Pending a final ruling by the SEC and the NYSE's board of directors, the exchange has suspended delisting procedures against several companies that have proposed new stock classes, including Dow Jones & Co., publisher of The Wall Street Journal, and Hershey Foods Corp.
Sommer said the proposal to permit companies to have different classes of common stock has a better chance of being approved than other changes the panel will study.
"I don't see it as a foregone conclusion that those rules will be changed just because we look at them," Sommer said. "And I don't agree that just because we allow companies to have two different classes of stock, that they would . . . because I don't know how many companies could get a two-thirds vote to approve that since institutional investors are opposed to this sort of thing."
Before reaching its decision to recommend that the Big Board allow listed companies to permit two classes of common stock, the panel solicited the opinion of listed companies, member firms, major institutional investors, attorneys, academics and state securities administrators. A majority of the respondents, 58 percent, said the NYSE should not continue its present shareholder participation requirements, while an even larger number, 79 percent, urged the NYSE to modify its policy to permit two classes of stock if a company's shareholders approve.
Listed companies also said the NYSE should not play any regulatory role with respect to such practices as greenmail and golden parachutes.