Nasdaq Releases Proposed Governance Rules

May 24, 2002 ( - The post-Enron backlash against corporate wrongdoing continues with proposed rules from Nasdaq prohibiting companies from, among other practices, making large stock grants to executives without first seeking shareholder approval.

The No. 2 US stock market said the new rules call for companies to hold shareholder votes on all stock option plans for company officers or members of the companies’ boards, according to a Reuters news report. Current practices have seen companies make small stock option grants to lower-level workers while they heaped options on directors and officers.

Opponents of the practice argue that handing large blocks of options to executives dilutes the value of stock already issued, and that companies can muddy up profit reports because they don’t have to account for the options as expenses.

Federal Reserve Chairman Alan Greenspan recently said it was important for companies to count stock options as expenses because this could reveal if a corporate strategy was working.

In addition to the stock-option regulations, Nasdaq’s new rules include:

  • the possibility of a company being delisted from the market for providing false information to Nasdaq,
  • capping an independent board member’s compensation at $60,000, including political contributions, or payments to relatives. Company contributions to a charity the director works with are also limited, and
  • companies must issue a news release if an auditor concludes there are substantial doubts about their ability to continue as a going concern. Previously, companies were only required to announce such information in an SEC filing

The New York Stock Exchange’s has said its corporate governance committee plans to issue its recommendations in June.