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For many CEOs, talking about Corporate Governance is like watching paint dry. At the same time, most realize that not only is Corporate Governance a mandatory requirement for your company to list on the NASDAQ Capital Markets (“NASD”) or the New York Stock Exchange American (“NYSE”), but it provides a layer of focused stewardship for the C-Suite management and Board of Directors. In fact, during your uplisting process, it is an area that both exchanges will pay close attention in their review of your application.
Why Is Corporate Governance Important?
Let’s briefly explore why this topic is important. We know that companies must adhere to additional governance requirements including the quantitative exchange listing metrics in order to uplist to a higher exchange. However, many companies overlook how good corporate governance can attract a stronger Board of Directors, provide operational assurances for your Investment Banker and other professionals. In addition, it demonstrates to the regulatory and investing community that management is serious about being a quality, compliant-oriented public company.
Exchange Corporate Governance Requirements
Next, let’s examine the requirements rather than the definition of what it means to have an independent Board of Directors.
Both Nasdaq and NYSE require listed companies to maintain certain corporate governance standards, and outline what and how an independent Board of Directors is defined. Generally, independence is defined by applicable exchange rules as the director has no relationship with the company or management that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Nasdaq and NYSE rules include a list of relationships that indicate the director would not be deemed independent in their respective rules or guidelines which is located on the exchanges’ respective websites. In addition, legal counsel can often be a good sounding board for many CEOs in determining if the directors are independent.
Once your independency requirements are satisfied, the Board of Directors will be required to form committees handling a variety of aspects involving Board governance. Upon submitting your application, the Board of Directors and the company C-Suite will become familiar with the four required committees – audit, compensation, nominating, and corporate governance, and each must be comprised of only independent directors. In the case of the audit and compensation committees, the exchanges will expect that committee members should meet a subject matter expertise test for compliance. It should be noted that many Board of Directors today recognize that both shareholders and the marketplace suggest the formation of additional committees that deal with social media, AML requirements, risk management and cybersecurity. From day one, at, we suggest to our clients to create these additional committees as part of the company stewardship.
One Final Thought – many companies that contemplate uplisting often leave the decisions surrounding corporate governance to the “11th hour” or until they receive comments from the exchange. Many issuers are surprised by the number of comments in regards to governance. Corporate governance is a mandatory requirement, and, without sounding repetitious, we, at, encourage you to start planning and organizing your company’s governance items early.