The Nasdaq Stock Market has proposed to broaden the exception (in Rules 5605(c)(2)(B), 5605(d)(3) and 5605(e)(3)) that allows one non-independent director to serve on a companys audit, compensation or nomination committee under exceptional and limited circumstances for a maximum of two years if the board determines that it is in the best interests of the company and its shareholders. Under the existing rules, a company may not use the exception if the director is currently an officer or employee of the company or has a family member who is an officer or employee of the company.
The proposed rules would continue to prohibit the use of the exception for family members of executive employees but would not prohibit the use of the exception if the director is a family member of a non-executive employee. The proposal attempts to harmonize the exception with the director independence rules generally, which do not disqualify a director from being considered independent based on a familial relationship with a non-executive officer. As before, a listed company that relies on the exception must comply with the relevant disclosure requirements.
The SEC is soliciting comments on the proposal. Comments are due within 21 days from the date the proposal is published in the federal register (which is expected shortly).