NASDAQ Listing Requirements and the Definition of Independent Director

Posted by on June 14, 2016

In the prior Lawcast in this series I gave a brief summary of the corporate governance standards including the requirement that a majority of the board of directors be independent and that all audit and compensation committee members be independent.

Under NASDAQ rules “independent director” means a person that is not an executive officer or employee of the company and does not have a relationship with the company which, in the opinion of the board of directors, could interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

NASDAQ provides a list of people that would definitely not qualify as independent, including the following:

  1. a director who has been employed by the company at any time during the past 3 years;
  2. a director who has, or has a family member who has, accepted any compensation from the company in excess of $100,000 during any period of 12 consecutive months within the prior 3 years other than (a) compensation for serving as a director, (b) compensation to a family member who is an employee but not an executive officer; or (c) funds received under certain qualified retirement plans;

Continuing who does not qualify as independent:

  1. a director who is a family member of an individual who was employed as an executive officer of the NASDAQ company at any time during the past 3 years;
  2. a director who is, or has a family member who is a partner, controlling shareholder or executive officer of any entity that either gave or received payment for property or service of either $200,000 or 5% or more of the company’s gross revenues, whichever is greater, during any of the prior most recent 3 years. Excluded from this disqualification category would be payments made solely for investments in the NASDAQ Company’s securities or payment under a non-discretionary charitable matching program.
  3. Next not qualifying as independent would be a director who is, or has a family member that is, employed as an executive officer of another company where a director of the NASDAQ company serves or served on the compensation committee within the last 3 years; and
  4. A director who is or has a family member who is, a current partner of the company’s outside auditor, or was a partner or employee of an outside auditor who worked on the NASDAQ company’s audit at any time during the past three years.