When an investor has the right to appoint one of its employees/partners to the board of a corporation, and the investor provides a separate compensation arrangement to that director, it is referred to as a “golden leash.” Broc has blogged several times on Nasdaq’ s “Golden Leash” disclosure requirement, effective for proxy statements filed on or after August 1, 2016. However, if you have missed these, you should (i) sign up for Broc’s Blog and (ii) review Nasdaq Rule 5250(b)(3), which the SEC approved earlier this month.

The new rule is aimed at the potential or perceived conflicts that may arise Nasdaq when a third-party investment group appoints a director and maintains a separate or additional compensation arrangements for the individual, which “may lead to conflicts of interest among directors, call into question their ability to satisfy their fiduciary duties [and] tend to promote a focus on short-term results at the expense of long-term value creation.” It provides as follows:

Rule 5250(b)(3) requires listed companies to publicly disclose the material terms of all agreements and arrangements between any director or nominee and any person or entity (other than the Company) relating to compensation or other payment in connection with that person’s candidacy or service as a director. The terms “compensation” and “other payment” as used in this rule are not limited to cash payments and are intended to be construed broadly.

Subject to exceptions provided in the rule, the disclosure must be made on or through the Company's website or in the proxy or information statement for the next shareholders’ meeting at which directors are elected in order to provide shareholders with information and sufficient time to help them make meaningful voting decisions. A Company posting the requisite disclosure on or through its website must make it publicly available no later than the date on which the Company files a proxy or information statement in connection with such shareholders’ meeting (or, if they do not file proxy or information statements, no later than when the Company files its next Form 10-K or Form 20-F). Disclosure made available on the Company’s website or through it by hyperlinking to another website, must be continuously accessible. If the website hosting the disclosure subsequently becomes inaccessible or that hyperlink inoperable, the company must promptly restore it or make other disclosure in accordance with this rule.

Rule 5250(b)(3) does not separately require the initial disclosure of newly entered into agreements or arrangements, provided that disclosure is made pursuant to this rule for the next shareholders’ meeting at which directors are elected. In addition, for publicly disclosed agreements and arrangements that existed prior to the nominee’s candidacy and thus not required to be disclosed in accordance with Rule 250(b)(3)(A)(ii) but where the director or nominee’s remuneration is thereafter materially increased specifically in connection with such person’s candidacy or service as a director of the Company, only the difference between the new and previous level of compensation or other payment obligation needs be disclosed.