The SEC has approved Nasdaq’s proposed Rule 5250(b)(3) regarding disclosure of so called golden leash arrangements. The Rule requires each listed company to publicly disclose the material terms of all agreements or arrangements between any director or nominee for director on the company’s board 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 Rule also requires disclosure of all such agreements and arrangements by no later than the date on which the company files or furnishes a definitive proxy or information statement subject to Regulation 14A or 14C under the Act in connection with the company’s next shareholders’ meeting at which directors are elected (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).
The Rule requires a listed company to disclose this information either on or through the company’ website or in the definitive proxy or information statement for the next shareholders’ meeting at which directors are elected (or, if the company does not file proxy or information statements, in its Form 10-K or Form 20-F). The Rule states that a company must make the disclosure required by the rule at least annually until the earlier of the resignation of the director or one year following the termination of the agreement or arrangement.
The Rule was controversial as it made its way through the rulemaking sausage machine, with the Securities Regulation Committee, Bar of the City of New York opposing the Rule and the Society for Corporate Governance (formerly known as The Society of Corporate Secretaries & Governance Professionals) supporting the Rule.
Opponents of the Rule noted that the SEC rules already required disclosure of much the same information. The SEC responded by noting that it is not unusual for national securities exchanges to adopt disclosure requirements in their listing rules that supplement or overlap with disclosure requirements otherwise imposed under the federal securities laws. For example, notwithstanding the requirements imposed by the federal securities laws to report certain material events shortly after they occur on Form 8-K, national securities exchanges maintain separate, broader disclosure rules that require prompt disclosure of material information.