December 6, 2004

Updating Nasdaq D&O Questionnaires

Thanks to Jonathan Wolfman of Wilmer, Cutler, Pickering, Hale and Dorr LLP for correcting my mistaken blurb that D&O Questionnaires for Nasdaq companies don’t need to be updated, as I forgot about the technical amendments that Nasdaq made to its listing standards over the summer.

To incorporate these changes, I have posted an updated Nasdaq D&O Questionnaire, courtesy of Baker & McKenzie! (And Baker & McKenzie also has contributed a stand-alone Director Independence Questionnaire for NYSE companies, that can be used in conjunction with a Sample D&O Questionnaire.)

As originally approved by the SEC in November 2003, Rule 4200(a)(15)(B) provided that a person cannot be an independent director if the person or a family member accepted any payments from the company (or any parent or subsidiary of the company) in excess of $60,000 during the current or any of the past three fiscal years. Under the revised rule – which took effect this summer – the look-back period is any period of twelve consecutive months within the three years preceding the date independence is to be determined. This change conforms to the approach used in the NYSE’s version of this rule (although the dollar thresholds and scope of included payments remain different between the Nasdaq and NYSE rules).

The exact wording of the new Nasdaq rule is as follows (underlining indicates new text; brackets indicate deleted text):

“(15) “Independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent:

(B) a director who accepted or who has a Family Member who accepted any payments from the company or any parent or subsidiary of the company in excess of $60,000 during any period of twelve consecutive months within the three years preceding the determination of independence [deleted text: the current or any of the past three fiscal years], other than the following:”

Because the new definition implements a rolling 12 month testing period, rather than annual periods based on the company’s fiscal year, companies will need to re-examine the independence of directors who received any payments during the past three years.

Please note that a number of other minor changes have been made to the Nasdaq’s definition of independence, including (1) clarifications of the transition rules for companies emerging from bankruptcy, ceasing to be a controlled company or conducting an IPO and (2) an exclusion from the $60,000 test discussed above of certain standard, non-preferential transactions by financial institutions (such as banks) with their customers.

Glimpse into Congressional Mindset on Comp?

From yesterday’s Boston Globe (and NY Times ran a simliar blurb): “File this one under: Uh, thanks for coming, we think. In what attendees described as a fiery and lively keynote speech in New York City on Wednesday night, Congressman Barney Frank lit into a group of bankers on the subject of executive pay. “At the level of pay that those of you who run banks get, why the hell do you need bonuses to do the right thing? Most people in the world don’t get bonuses to do the right thing,” Frank told the 250 bank executives, regulators, and politicos gathered for the trade publication American Banker’s annual Banker of the Year Awards.

According to remarks provided from the evening, Frank said: “I mean, do we really have to bribe you to do your jobs? I’m serious. I don’t get it. I don’t get a bonus. Cops don’t get bonuses. . . . And the problem is not just the bonuses. Think what you’re telling the average worker, that you who are the most important people in the system and at the top, that your salary isn’t enough, that you need to be given an extra incentive to do your job.”