On 11 July 2016, the SEC approved a proposed revision to Nasdaq Rule 5250 requiring Nasdaq-listed companies to disclose annually, either on their website or in their proxy statements, any third party payments made to their directors in connection with their service on the board.
This new rule was created in response to the rise in the number of directors nominated by, or closely associated with, activist investors. With this new disclosure, investors will be better able to assess the potential for conflicts of interest, fiduciary duty concerns and promotion of a short-term focus rather than long-term value creation.
In advance of this new rule, a number of public companies had already addressed this issue by amending their bylaws to either require similar disclosure, or to prohibit third-party compensation for directors. The rule came into effect on 31 July 2016, for all Nasdaq-listed companies.
Foreign private issuers may elect to follow their home country practice in lieu of complying with this rule, subject to certain conditions.
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