By Cydney Posner
Earlier this week, the SEC posted a notice of filing and immediate effectiveness for a Nasdaq proposed rule change that would align certain Nasdaq corporate governance disclosure requirements with the corresponding SEC disclosure requirements. The changes are designed to avoid duplication and confusion and enhance overall disclosures by listed companies. Similar conforming changes were adopted by the NYSE in 2009. Nasdaq will implement the proposed rule change 30 days after the date of the filing with the SEC, which was June 9.
Generally, the rule changes will have the following effect:
- Delete the requirement that companies disclose in their proxy statements the names of their independent directors and instead require that companies, other than foreign private issuers, comply with the disclosure requirements in Item 407(a) of Reg S-K. Among other things, Item 407(a) requires a company to identify each director that is independent and describe, by specific category or type, any transactions, relationships or arrangements not disclosed pursuant to Item 404(a) that were considered by the board under the applicable independence definitions in determining that the director is independent. If a company, other than a foreign private issuer, does not comply with this SEC requirement, it will be out of compliance with Nasdaq's rules. A foreign private issuer must disclose in its next annual report (e.g., Form 20-F or 40-F) those directors that the board of directors has determined to be independent under Rule 5605(a)(2).
- Delete the requirement that controlled companies disclose in their proxy statements that they are controlled companies, the basis for those determinations and that they are relying on the exemption for controlled companies from the requirements to have a majority independent board and independent director oversight of executive officer compensation and director nominations. Instead, Nasdaq will require that controlled companies, other than foreign private issuers, comply with the disclosure requirements in Instruction 1 to Item 407(a) of Reg S-K, which requires similar disclosure (requiring a statement of the exemption relied upon and the basis for the company's conclusion that the exemption is applicable). As a result, a controlled company, other than a foreign private issuer, that does not make the disclosure required under Instruction 1 to Item 407(a) will be out of compliance with Nasdaq's rules. A foreign private issuer must disclose in its next annual report that it is a controlled company and the basis for that determination.