Independent Directors Under New Federal Law and Exchange Rules By Stuart M. Seiger and Denise Menikheim

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On July 30, 2002, in an effort to restore investor confidence, President Bush signed into law the "Sarbanes-Oxley Act of 2002." Sarbanes-Oxley provides for broad corporate and accounting reform for public companies and the accounting firms that audit them, and seeks to improve the quality and transparency of financial reporting and to increase corporate responsibility and the usefulness of corporate financial disclosure. Sarbanes-Oxley requires public companies to establish an audit committee consisting of only independent members. Proposed NYSE and NASDAQ rules require that boards of directors have an independent majority as well as a fully independent audit committee. Thus, in 2002, director independence has become a central feature of corporate governance.

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