May 19, 2014
On April 1, 2014, the New York Stock Exchange proposed a change to its Corporate Governance FAQs relating to the independence of directors in the context of a spin-off of a company. Specifically, the NYSE proposed a change to FAQ C-3A "to clarify that in certain limited circumstances a director may be deemed independent of a company that has been the subject of a spin-off transaction regardless of the fact that such director or his [or her] employer had a relationship with the former parent of such spun-off company." Recently, however, the NYSE removed from its website the proposed rule filing for the change, and the NYSE has advised us that the proposal is no longer active. Additionally, the NYSE advised that it is not certain what, if any, rule filing on the subject may be proposed in the future.
In light of this development, companies should not expect changes anytime soon and are reminded of the applicability of the current NYSE rules, FAQs and informal interpretations. A director of a spun-off company listed on the NYSE could not be considered independent until at least three years post-spin if he or she was an executive officer or employee of the former parent company at the time of the spin-off.