TIAA-CREF Supports Higher NASDAQ Listing Standards

January 27, 2001 ( - TIAA-CREF, one of the nation's largest pension funds, has called on NASDAQ to require shareholder approval of certain stock option plans for companies listed on the exchange.

The change could protect shareholders from a potential dilution of their holdings by such programs, but also has the potential to place an additional burden on employers in their continuing attempt to attract and retain talent.

TIAA-CREF (Teachers Insurance and Annuity Association College Retirement Equities Fund) expressed its concerns in reference to comments sought by NASDAQ in December, having set a deadline of February 5 for comments.

Current Status

NASDAQ rules currently require shareholder approval for stock option plans for officers and directors, where there is the potential for self-dealing. The proposed changes, which are essentially the same as standards proposed by the New York Stock Exchange, would also require shareholder approval for option plans for other employees that would exceed a specified, limited threshold of dilution.

The proposal also calls for broader disclosure about overhang.

Opponents argue that the proposal would

  • restrict human resource professionals
  • adversely affect employee motivation and retention
  • hurt overall company performance.

Potential for Self-Dealing

The TIAA-CREF letter, signed by Peter Clapman, chief counsel for corporate governance, made reference to the fact that officers and directors are frequently participants even in broadly-based stock plans, and should have direct authority from shareholders in view of that potential self-interest.

Clapman, who also sat on an NYSE panel which considered how to treat options granted to corporate executives, said the NASDAQ should adopt requirements that “in essence are identical to those of the NYSE and provide similar tests.”

In the letter, Clapman said he wanted “to emphasize the importance of shareholder approval requirements for stock and stock option plans.”

While some corporations contended they needed relief from going to shareholders to grant options, Clapman said relief was granted in certain circumstances (such as hiring a new CEO) under rules already promulgated by the NYSE committee on corporate governance.

As such, he noted that “it is now widely recognized” that the NYSE and NASDAQ “should compete on the basis of improving standards of corporate governance.” Having parity between the NYSE and NASDAQ requirements on this topic would increase the NASDAQ?s competitive position, he suggested.