Proposed Nasdaq tweaks to independence definition

By: Cydney Posner

Nasdaq has proposed some changes to tweak its independence definition. Although the SEC has not posted these proposals yet, they may nonetheless be instructive. In particular, the proposals would:

• Clarify that acceptance by a director or family member of "compensation," as opposed to "payments," of more than $60,000 will taint independence (As a result, non-preferential payments made in the ordinary course of providing business services, such as payments by financial institutions or insurance companies, would not preclude independence as those payment are non-compensatory and unlikely to taint independence.)
• Clarify that a "non-executive employee" means an employee other than an executive officer as defined in SEC Rule 16a-1(f).
• Clarify that, for independence purposes, the limitation on receipt by or payment to an organization of which the director is a partner, controlling shareholder or executive officer would apply to payments by or to parents or subsidiaries of the company, as well as by or to the company itself.
• Clarify that the audit committee requirements are not applicable to companies with a listed parent.
• Provide that independence would not be impaired by
  • employment by a director as an interim executive officer for no longer than one year (however, if while serving as an interim officer, the director participated in the preparation of the financial statements, the director would be precluded from service as an audit committee member for three years), or
  • receipt of compensation for former service in that capacity (however, the board must still consider whether the employment or compensation would interfere with the director's exercise of independent judgment under the more subjective part of the Nasdaq independence test).

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