Collaborative Corporate Governance: Listing Standards, State Law and Federal Regulation

The traditional view of corporate law as arising from state law, with federal law in a supporting role no longer describes the post Sarbanes-Oxley world. This paper presents modern corporate governance as a collaborative process between the federal government (mostly acting through the SEC), state law (mostly acting through the Delaware courts, but also including its legislature and those in other states) and the self-regulatory organizations such as the stock exchanges. The focus is on the third source, particularly the listing requirements of the New York Stock Exchange. The Reforms announced in 2002 portend a dramatic increase in the role of the listing requirement in defining American corporate governance. The interaction between the NYSE and state and federal law is heavily tilted toward its overlap with federal law. The pattern of NYSE regulation of the last decade is that the SEC chair makes a speech or a telephone call identifying a problem, the Exchange convenes a committee of experts and proposes a solution that is sent to the SEC and the various interested parties engage the Exchange and the SEC in discussions about what the law should be. Prominent examples include requirements for independent directors, shareholder approval of stock options, audit committee procedures and one share/one vote rules. This is a different process than what occurs in state law or in direct SEC regulation and it is becoming a larger part of American corporate governance.