TheCorporateCounsel.net

Yesterday, the SEC posted a notice of filing – and immediate effectiveness – of a Nasdaq proposal to amend Listing Rules 5610 and IM-5610 – which is the rule and corresponding interpretation that requires listed companies to maintain a “code of conduct” and disclose certain waivers.

The amendment will permit board committees to approve waivers of the code of conduct for directors or executive officers, rather than requiring that approval to be granted exclusively by the board, which is what the rule currently requires. The updated rule also requires Foreign Private Issuers to disclose these types of waivers within 4 business days. Here’s more background:

Nasdaq is proposing to allow waivers of the code to be approved either by the board of directors or a committee of the board. This would give listed companies flexibility to place the oversight of a company’s code of conduct within the jurisdiction of a particular committee if that structure is more effective and appropriate, while following the obligations of ethical conduct required by Listing Rules 5610 and IM-5610.

The approach of delegating oversight authority to a board committee is also consistent with the provisions of Listing Rule 5630 that requires approval of related party transactions by the company’s audit committee or another independent body of the board of directors. In addition, Nasdaq believes that the proposed change would align the requirements of this rule with the requirements of Rule 303A.10 of the Listed Company Manual of the New York Stock Exchange (“NYSE”).

And here’s what the exchange says about FPIs:

Nasdaq is also proposing to clarify that Foreign Private Issuers are required to disclose any waivers of the code for directors or executive officers within four business days by providing website disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K, by including disclosure in a Form 6-K or by distributing a press release. The disclosure of any code of conduct waivers provides investors the comfort that waivers are not granted except where they are truly necessary and warranted, and that they are limited and qualified so as to protect the company and its shareholders to the greatest extent possible.

Accordingly, Nasdaq believes that Foreign Private Issuers, like other Nasdaq listed companies, should be required to make such disclosure within four business days by providing website disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K, by including disclosure in a Form 6-K or by distributing a press release rather than providing such disclosure in the next Form 20-F or 40-F.

If you’re a Nasdaq company, this amendment may be a point to consider when you next review your committee charters. The amendment is immediately effective, but there is still an opportunity for public comment, and the SEC may temporarily suspend the rule change if it determines within 60 days that a suspension is necessary or appropriate.

– Liz Dunshee