On September 5, 2023, Nasdaq adopted amendments to Listing Rule 5610 and IM-5610 requiring listed companies to maintain a code of conduct and to disclose certain waivers. This is also a good time to discuss the code of conduct/code of ethics requirements applicable to all companies subject to the Securities Exchange Act of 1934 (“Exchange Act”) reporting requirements.
Code of Conduct/Code of Ethics
Section 406(c) of the Sarbanes-Oxley Act of 2002 (“SOX”) requires all companies that are subject to the Exchange Act reporting requirements to disclose whether they have adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. If the company has not adopted such a code, it must explain why it has not done so.
SOX defines a code of ethics as written standards reasonably designed to deter wrongdoing and to promote: (i) honest and ethical conduct including related to conflicts of interest; (ii) full, fair, accurate, timely and understandable disclosure in reports filed with the SEC and public communications; (iii) compliance with applicable laws, rules and regulations; (iv) prompt internal reporting of violations of the code; and (v) accountability.
SOX requires that companies file a copy of their code of ethics as an exhibit to their annual report and post the code on their website. The annual report must include a statement that the code is posted to the website with the corresponding URL. Moreover, companies must agree to provide any requesting person with a copy of the code free of charge.
A code of ethics is important enough to warrant its own disclosure item in Form 8-K. In particular, Item 5.05 to Form 8-K requires the disclosure of amendments to or waiver of a provision of a company code of ethics. Waiver disclosures must include a description of the nature of the waiver, the name of the person to whom it was granted and the date of the waiver. However, Form 8-K and SOX allow a company to instead disclose amendments and waivers on its website as long as it has clearly indicated its intention to do so in its most recent annual report, maintains the website disclosures for at least 12 months and retains the information for at least five years.
Nasdaq Code of Conduct
The Nasdaq rules are both broader and more specific than SOX. Nasdaq Listing Rule 5610 requires all listed companies to adopt a code of conduct applicable to all directors, officers and employees, (not just those enumerated in SOX) and to make the code of conduct publicly available. The code of conduct must comply with SOX Section 406 described above.
The new amendment: (i) allows a board committee to approve a waiver; and (ii) requires waivers to be disclosed within four business days.
Building on the SOX provisions, Nasdaq requires (including the recent amendments) that: (i) the code provide for an enforcement mechanism; (ii) any waivers be approved by the board or a committee of the board; (iii) that domestic filers file a Form 8-K or press release within four business days of any waivers; and (iv) that foreign private issuers disclose any waivers in a Form 6-K, press release, 20-F or 40-F within four business days of such waiver. Nasdaq rules also allow for alternative disclosure on a company’s website in accordance with Item 5.05 of Form 8-K, within four business days of such waiver.
Nasdaq Listing Rule IM-5610 expounds on the code of conduct ideology. The basic premise is that ethical behavior is required and expected regardless of written codes. The written code is meant to let investors know that a company takes this responsibility seriously and has a system in place to enforce violations.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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