New York Stock Exchange Listing Standards and Corporate Social Responsibility

Although attention to corporate social responsibility (CSR) issues is wide-spread in the United States (US), laws regarding compliance with CSR standards and disclosure of CSR practices in the US lag behind that of other countries. Countries such as Sweden, Denmark, France, the Netherlands, the UK and others have mandated the disclosure of corporate social responsibility data.[1] While each country does so in a different way as a start they follow the EU Modernization Directive[2] and some, such as Denmark and Sweden have adopted more detailed legislation on CSR reporting. Moreover, since 2009, the Dutch Corporate Governance Code mandates boards of listed companies to formulate a CSR policy and have this approved by the Supervisory Board and to communicate this to the shareholders.[3] Elsewhere, South Africa requires that all companies listed on the Johannesburg Stock Exchange produce each year (or explain why they are not) an integrated report which must include environmental, social and governance aspects.[4] Taking this into consideration, efforts in the US are piecemeal and incomplete. There are no legal requirements that US firms follow CSR practices, and to the extent that any CSR disclosure is required, it is often difficult to discern, assemble and interpret.

While many companies formed or operating in the US incorporate some CSR practices into their operations, in the main they do so voluntarily as there are no rules that affirmatively require firms to follow any specific CSR standards or to make disclosures of non-financial social and environmental information.[5] The limited attention paid to CSR norms as well as CSR reporting under US law means that foreign companies seeking access to US markets generally will not face serious impediments in terms of regulations regarding CSR. Foreign issuers have cross-listed their shares on American markets in increasing (albeit with some variance) numbers since the mid-1980’s as companies seek increased shareholder bases, liquidity and diversification.[6] Therefore, it is to the advantage of non- US lawyers to have some knowledge of US laws in this area.

This short work briefly describes the requirements imposed on foreign private issuers (FPIs) Therefore, it is to the advantage of non- US lawyers to have some knowledge of US laws in this area.[7] NYSE-Euronext (ANYSE) to the extent that those requirements affect CSR concerns. It is by no means an exhaustive explanation of the listing process required of companies seeking inclusion on the NYSE. Its focus is on the extent to which any requirement of the listing standards and listing agreements entered into by each listed company impacts CSR concerns.

Many foreign companies choose to list their shares on the NYSE at least in part because, according to the NYSE Listed Company Manual, a listing on the NYSE is internationally recognized as signifying that a publically owned corporation has achieved maturity and front rank status in its industry. In terms of assets, earnings and shareholder interest and acceptance.[8] Indeed, the Exchange’s listing standards are designed to assure that every domestic and non-domestic company whose shares are admitted to trading in the Exchange’s market merit that recognition.[9] In addition, the NYSE offers foreign issuers a favorable environment due to its reputation as a leader in terms of disclosure standards and market transparency.[10]

Foreign companies that choose to list their shares on the NYSE are subject to two regulatory regimes. First, to gain access to the NYSE, FPIs must qualify for listing. They may do so either under the Alternate Listing Standards for FPIs or the Exchange's domestic listing criteria.[11] To be granted listing, FPIs must satisfy the applicable Listing Standards, complete a Listing Agreement with the Exchange and agree to comply with the practices and procedures set forth in that Agreement and in the Listed Company Manual. While some of these requirements allow disclosure of a company’s CSR policies and activities, none compel it. Those that touch upon CSR concerns[12] are set forth below in brief.

The second regulatory regime applicable to FPIs who list shares on the NYSE is the rules and regulations of the Securities and Exchange Commission. One of the conditions of listing on the NYSE requires each FPI to register its corporate securities under Securities Exchange Act of 1934 Section [12](b) before admission to dealings on the Exchange.[13] Therefore, provisions of SEC regulations that may impact CSR concerns are also discussed below.

As mentioned above, in order to list its shares on the NYSE, every company must agree to comply with the listing standards of the NYSE. The listing standards primarily focus on issues of corporate governance rather than CSR. There are no provisions in the listing standards that compel compliance with or disclosure of specific CSR policies or practices. To the extent that companies choose to make such disclosure, the following provisions permit, but do not require, such disclosure.

A. Listed Company Manual Section Three: Corporate Responsibility

According to the introductory text to Listed Company Manual Section Three, consistent with the Exchange’s long-standing commitment to encourage high standards of corporate democracy, every listed company is expected to follow certain practices aimed at maintaining appropriate standards of corporate responsibility, integrity and accountability to shareholders.[14] While this seems to indicate a strong focus on CSR concerns, in truth despite its heading, the focus of the section is on not what is commonly thought of as CSR but on other matters, including director independence and shareholder voting, with minimal, if any, CSR consideration. Those provisions that may enable discussion of CSR are described below.

1. 303A.09: Corporate Governance Guidelines
   Under this section, every listed company must have corporate governance guidelines and must make such guidelines available on or through its website. No specific set of guidelines is specified, but each company must address the following:
   1) director qualification standards,
   2) director responsibilities,
   3) director access to management,
   4) director compensation, and
   5) annual performance evaluation of the board.
   
   The corporate governance standards thus allow a company which requires its directors to adhere to certain CSR directives to include such information in its reporting on corporate governance standards, but do not require any action by a company that does not require such adherence. To the extent that a company complies in whole or in part with an applicable national corporate governance code containing CSR directives, such compliance would be disclosed pursuant to Section 303A.09.
   
   
2. 303A.10: Code of Business Conduct and Ethics
   Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and executive officers and must disclose promptly any waivers of such code. Each listed company is permitted to establish its own policies, but are directed to consider what the NYSE deems the most important issues, which include conflicts of interest, corporate opportunities, confidentiality and compliance with laws, rules and regulations, among others. While Section 303A.10 requires that a company’s code “actively promote compliance” with rule and regulations, the only regulations identified are insider trading regulations because in the NYSE’s view “[i]nsider trading is both unethical and illegal, and should be dealt with decisively.”[15]
   
   Like the requirement that listed companies have corporate governance guidelines, the requirement to disclose the contents of a company’s code of business conduct and ethics enables but does not require a listed company to pay heed to CSR concerns. The strongest claim that could be made under 303A.10 is that listed companies must take account of CSR concerns is its requirement that companies must “proactively promote” compliance with laws, rules and regulations. Companies that choose to disclose compliance with environmental or social laws or policies could do so under this provision but are not required to do so. For example, if a FPI complies with private regulations such as the Global Compact or the OECD Guidelines, they could include that information in this section, but would not be required to do so.
   
   
3. 303A.11 Foreign Private Issuer Disclosure
   Listed FPIs must disclose any significant ways in which their corporate governance practices differ from those followed by domestic companies under the standards set forth in the Listed Company Manual. However, FPIs are not required to present a detailed, item-by-item analysis of these differences. The NYSE “believes that US shareholders should be aware of the significant ways that the governance of a listed foreign private issuer differs from that of a US listed company. The Exchange underscores that what is required is a brief, general summary of the significant differences, not a cumbersome analysis.”[16]
   
   303A.11 permits a FPI to disclose ways in which its CSR practices and polices differ from those required under US law. In reality, the differences disclosed by FPIs pursuant to this requirement generally concern issues of traditional corporate governance (i.e. issues of director independence and committee composition etc.)[17] Of course, should a FPI choose to include CSR disclosure pursuant to this section they would be free to do so.
   
   In sum, while certain sections of the Listed Company Manual permit disclosure of CSR policies and procedures, none compel such disclosure.
   

As noted above, in order to list its shares on the NYSE, every company must register its shares with the SEC. The obligation to do so means that FPIs must complete applicable SEC registration documents and submit to annual disclosure requirements.

Since the 1980s, the primary regulatory document applicable to foreign private issuers promulgated by the SEC is Form 20-F. This Form is used both as a registration statement when FPIs offer shares for sale, and as a template for the annual report required from each FPI.

Initially, the disclosure required of FPIs by Form 20-F was essentially the same as that required of domestic companies, with minor variations made to accommodate the different accounting principles of various countries.[18] In October 1999, the SEC amended the foreign issuer disclosure form to substantially replace the non-financial disclosure requirements in Form 20-F with disclosure standards endorsed by the International Organization of Securities Commissions (IOSCO). As amended, Form 20-F provides several exemptions from the disclosure requirements applicable to domestic issuers[19] but still requires disclosure of significant information, primarily concerning corporate governance, shareholder rights and financial information. As with the Listed Company Manual, Form 20-F does not require any significant consideration or disclosure of CSR matters. Those provisions that may have CSR implications are discussed below.

B. Form 20-F

i) Item 4. Information on Company, Property, Plants and Equipment.

Companies must provide information regarding any material tangible assets and must also describe any environmental issues that may affect the company’s utilization of the assets. Special rules apply to extractive enterprises other than oil and gas producing enterprises. This provision is intended to elicit disclosure of the viability of a company’s assets, but would allow disclosure of good environmental practices.

ii) Operating and Financial Review and Prospects

A.4. Companies must provide information regarding any “governmental, economic, fiscal, monetary or political policies or factors that have materially affected....the company’s operations or investments by host country securities”. For the purposes of Form 20-F, “host country” means the US.[20] This provision does not require but may permit disclosure of a company’s CSR policies, if such policies are the consequence of governmental action. However, the introductory text of Item 5. states that”[t]he purpose of this standard is to provide management’s explanation of factors that have affected the company’s financial condition and results of operations for the historical periods covered by the financial statements, and management’s assessment of factors and trends which are anticipated to have a material effect on the company’s financial condition and results of operations in future periods”. This suggests that the disclosure concern is not CSR but financial impacts.

iii) Item 16B. Code of Ethics

Companies must disclose whether they have adopted a code of ethics that applies to the principal executive officer, principal accounting officer or persons performing similar functions. There are no specifications as to the content of any code of ethics. If no such code has been adopted, the company must explain why. This provision focuses on encouraging honest and ethical individual behavior, but could be used to disclose CSR policies observed by the company if compliance with such policies is included in the ethical obligations of specified personnel.

iv) Item 16G. Corporate Governance

Each FPI listed on the NYSE (or other national securities exchange) must provide a concise summary of any significant ways in which its corporate governance practices differ from those followed by domestic companies under the listing standards of that exchange. Because practices followed by FPIs under their home country law may differ from those allowed under US law, disclosure of those differences is required and FPIs must certify to the exchange on which they list that the non-complying practices are not prohibited by home country law. For instance, a FPI may afford its shareholders different voting rights than a US company is entitled to. This would be a “non-complying practice” and would need to be disclosed and certified by the FPI that the voting rights are permissible under the laws of its jurisdiction.

This Item re-iterates the demands of Listed Company Manual Section 303A. 11 discussed above and does not compel CSR disclosure.

The listing standards of the NYSE are exacting in many respects and may well set the standard for certain types of disclosure standards. However, the requirements of the Listed Company Manual regarding disclosure of CSR policies and practices lag behind those of jurisdictions such as Norway. Little, if any disclosure is required and the opportunity to make disclosure voluntarily is limited.