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Nasdaq recently extended the comment period for its proposed disclosure requirements on golden leash arrangements. Some may wonder why the proposal is controversial.  For an answer, please see the post submitted by in-house counsel at a 34 Act reporting company set forth below.

Nasdaq Golden Leash Proposal

In January 2016, the Nasdaq issued proposed rules that would require companies listed on its exchange to publicly disclose compensation arrangements between third parties and director nominees or directors. The proposal indicates that such compensation arrangements are often structured so that the director receives certain amounts from a third party [think “activist hedge fund”] if the company’s stock price increases by a certain amount over a specified time period.  The concern of course is that arrangements like these raise conflicts of interest and could interfere with those directors fulfilling their fiduciary obligations because they are incented to focus on short-term stock price results at the expense of long-term sustainable growth.  Hence the (legitimate) desire to make sure stockholders are aware of these arrangements.

SEC Disclosure Rules re: Director Compensation

The problem is that the SEC already has broad, comprehensive rules requiring disclosure of director compensation matters, including arrangements with third parties.   From where I sit, it was pretty bizarre (disingenuous) that the Nasdaq’s January proposal was devoid of any discussion about the SEC’s rules on director compensation. Then, in March 2016, Nasdaq re-issued its proposal, acknowledging to some degree that there are relevant SEC rules but not addressing the elephant in the room – i.e. whether or not those SEC rules require the same disclosure that would be required by the Nasdaq proposal.  There has been a spirited debate on this in the corporate and securities community, with many practitioners concerned that a stock exchange is now trying to regulate disclosure on a subject matter adequately covered by the SEC’s rules.  Said differently, many corporate attorneys believe that the Nasdaq proposal may be substantively unnecessary and — if it is necessary – it’s coming from the wrong regulator.  The logic is that if any action is necessary with regard to this subject matter, it would be in the best interests of companies and their investors if the SEC just clarifies that its existing rules regarding disclosure of director compensation cover these third arrangements.  Under this approach, investors reading the proxy statements for NYSE- or NASDAQ-listed companies would be receiving comparable information when it comes to director compensation matters.

NYC Bar Association Securities Regulation Committee Letter

Another not insignificant concern about the Nasdaq’s proposal is that it’s getting no meaningful attention from stakeholders that could be significantly impacted. One of the few comment letters submitted is from the NYC Bar Association Securities Regulation Committee, and it’s worth a read. The letter specifically notes several SEC rules that require disclosure of director compensation matters, including compensation from third parties.  The letter recommends that the Nasdaq proposal not be adopted and that, instead, it should be determined whether the SEC’s existing rules requiring disclosure of director compensation, including compensation paid by third parties, cover the disclosures in the Nasdaq proposal.  The bar association reasons that the SEC’s Disclosure Effectiveness Project would be the more effective and appropriate way to address any new disclosure requirements in this regard – in order to promote comparable disclosures to investors, regardless of the exchange on which the company is listed, and also notes that the SEC process would be more likely to ensure meaningful input from the wide range of stockholders that could be impacted by this proposal.


Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

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