The Nasdaq Stock Market is considering various actions to address its concerns regarding payments made by third parties to compensate directors in connection with their candidacy for and/or service on a listed company’s board of directors. These payments often occur when an activist shareholder seeks representation on a listed company’s board by way of nominating another individual. To attempt to address this issue, Nasdaq filed a proposed rule change with the SEC on January 28, 2016. The proposed rule would require a listed company to disclose on or through its website or in its proxy statement for its next annual meeting (or, if they do not file proxy statements, through their Form 10-K or Form 20-F), all agreements and arrangements between any director or nominee for director and any party other than the listed company that provide for compensation or other payment in connection with the director or nominee’s service on the board or candidacy for the board. Nasdaq stated in its proposing release that the rule would be construed broadly with only limited exceptions for expense reimbursement and pre-existing employment arrangements that have been publicly disclosed. While the SEC rejected the initial proposal, pundits believe it was on a technical reason and the proposal will be re-submitted.

Concurrent with the disclosure proposal, Nasdaq also commenced a survey of market participants to solicit views as to whether it should go further; specifically, whether the receipt of compensation from third parties for serving as a director should make the director ineligible for service or, at a minimum, cause the director to no longer be deemed independent under Nasdaq rules. Nasdaq-listed companies are required to have a majority of their board members be deemed independent under Nasdaq’s corporate governance rules. In addition, a director who is not deemed independent would be ineligible to serve on any of the audit, compensation, or nominating committees of a listed company. Nasdaq stated in its email accompanying the survey that it was not currently proposing these rule changes nor had it made a decision to do so. The survey period ended March 14, 2016, so no results have been published yet.