On 28 January 2016, Nasdaq filed an initial proposal with the SEC to mandate disclosure by listed companies where third parties (usually corporate activist shareholders) make payments to directors and director nominees. The proposed changes in Rule 5250 are intended to improve transparency to investors, shareholders and the public on directors and director nominees incentives.

In recent years, activist shareholders have tried to use monetary incentives to induce directors to push for at least shortterm returns for the company, or to induce individuals to act as director nominees in a proxy contest. Such arrangements have raised concerns of conflicts of directors’ fiduciary duty to the company and the promotion of certain shareholders’ narrow interests.

The new rules will require listed companies: (i) to make reasonable enquiries as to such third-party compensation arrangements; and (ii) to promptly disclose all the salient terms of these arrangements and the names of the parties on the company website and proxy statement filings. The proposed rules are intended to be broadly interpreted, with the exception of payments made to director nominees as reimbursement of expenses and payments which existed before the nominee’s candidacy and that are already publicly disclosed elsewhere (such as compensation relating to a pre-existing employment relationship but not in contemplation of the director candidacy).

If approved by the SEC, the new rules will take effect beginning on 30 June 2016. In order to meet the requirements, companies should revisit their director questionnaires and corporate governance policies on directors’ disclosure of interests.