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April 30, 2002

Nasdaq's New Corporate Governance

By Gregory Bresiger

Feeling the pressure from the Enron scandals, Nasdaq has adopted new ethical standards. Included are expanding shareholder approval of stock option plans, giving more authority to the audit committee, requiring continuing education for all board members and recommending that all Nasdaq companies adopt a code of conduct as a best practice.

"Audit committees of Nasdaq companies should, as a best practice, recommend the selection or replacement of each independent auditor," Nasdaq officials wrote in previewing their new standards. Nasdaq also pledged that it would "harmonize" its standards with the controversial fair disclosure (FD) rule. Another rule change would require that, "all stock option plans that include officers or directors must be approved by shareholders.

While the current Nasdaq rule does not generally require such shareholder approval, there is an exception for the broad-based plans," Nasdaq officials wrote.

"Nasdaq," wrote its chairman Hardwick Simmons in a letter to SEC Chairman Harvey Pitt, "adopted these bright line, objective standards, based upon existing SEC disclosure requirements, in order to provide transparency to investors and assist boards of directors in determinations of independence."