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13 Oct. 2010 | Comments (0)

Apparently, the Nasdaq market’s decision in June not to change its governance listing standards after issuing a comprehensive list of recommendations was not on my radar this past summer. I realized my oversight after following up my post of last week about NYSE’s recent release of its corporate governance report. Originally, a search of the Nasdaq Web site didn’t yield an update on the August 2009 Nasdaq Listing and Hearing Review Council statement about corporate governance best practices. But I discovered the June report about Nasdaq’s decision to hold off on changing listing standards during a routine check of Deloitte’s Corporate Governance site. On its Governance Reform Central page, I found two items related to Nasdaq’s corporate governance listing standards and best practices. They were:
  • June 13, 2010 – Nasdaq corporate governance listing requirements have been amended. Effective June 13, 2010, companies are to give prompt notification to Nasdaq after an executive officer of the company becomes aware of any noncompliance. Previously, the rule for notification was required for “material noncompliance” only.
  • June 2010 – In the fall of 2009, the Nasdaq Listing and Hearing Review Council proposed a set of best practices designed to strengthen policies at listed companies. Comments were solicited, and 23 listed companies and 11 other parties responded. Subsequently and according to the Report of the NASDAQ Listing and Hearing Review Council on Corporate Governance, the practices will not be adopted at this time.
    In a 15-page report, the Council describes why it decided against adopting the “best practices” approach for corporate governance listing standards. It also decided against changing the listing requirements, other than the one mentioned above for notification of noncompliance, because “pending legislation [the eventual Dodd-Frank Act] and rule-making could override any recommendations we might make at this time.” The Council did make some recommendations. It said that it believes “enhanced disclosure about governance practices and boards’ deliberative processes will best serve shareholders and diverse issuer base on Nasdaq.” It also urged all boards to “engage in periodic review of board functions, procedures, and responsibilities.” Although the Council did not change the listing requirements, it did address most of the best practice proposals it raised in the original three-page comment solicitation memo from August 2009. Below is a list of the seven items it addressed:
    1. Regular executive sessions of independent directors/fixed agendas: The Council believes that, except in exceptional circumstances, the additional time take for regularly holding executive sessions is well worth the benefit gained.
    2. Limit on the number of boards for directors: The Council encourages companies to integrate into their recruiting processes and orientations a clear declaration of the expectations and demands associated with board membership. To deal with “overboarded” directors, many respondents suggested boards should be willing to use their authority to remove ineffective members.
    3. Requiring continuing board member education: Most companies that responded to the solicitation were opposed to the concept of mandatory training, perceiving it as costly and a burden to experienced directors. The Council thinks it is important that boards dedicate time and resources to ensuring that directors have the requisite qualifications and knowledge, as well as training on governance issues and responsibilities.
    4. Shareholder vote for outside auditor: With recent rule changes, which have eliminated broker discretionary voting in uncontested director elections, inclusion of a vote on the auditor in the proxy can assist companies in obtaining a quorum for annual meetings.
    5. Shareholder communication with directors: The Council advocates board have some processes in place, such as proxy disclosure of such a process, board responses directly to shareholder communications, and participation by all directors at the annual meeting.
    6. Independent chair/lead director: The SEC disclosure rule regarding chair and CEO structure establishes the issue as an important one for boards and shareholders and requires a company to consider, explain and disclose its reasoning. The Council hopes this approach results in a thoughtful consideration and leadership structures that are finely tailored to each company.
    7. Classified boards/majority voting: Noting the anticipation that majority voting and annual elections of all directors may be required legislatively, the Council hopes that if such proposals are adopted they will include a degree of flexibility.
    For a thorough description and analysis of the Council report, look at the clear and succinct memo Fulbright & Jaworski wrote back on June 25. Click here to see the publication.
    • About the Author:Gary Larkin

      Gary Larkin

      Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

      Full Bio | More from Gary Larkin


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