NASDAQ Listing Requirements and the Definition of Independent Director


June 14th, 2016 by Laura Anthony, Esq.

NASDAQ Listing Requirements and the Definition of Independent Director

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.
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