The SEC has approved a Nasdaq proposal to amend the definition of “family member” when used to determine director independence. Under the amended definition, a stepchild not living in the director’s home will generally not be considered a family member; however, the board will still have to determine whether the relationship between the director and the stepchild could interfere with the director’s independent judgment.
The new definition aligns the NYSE and Nasdaq rules, but that may be where the good news ends. The new definition does not apply if a stepchild shares the director’s home, and even when the stepchild lives elsewhere, facts and circumstances may dictate that he or she may be deemed a family member. For example, the Nasdaq proposal states that when “a stepchild has been a dependent or was part of the director’s household since being a minor… the director/stepchild relationship is likely… to be similar to a relationship with a biological child”. In other words, D&O questionnaires addressing this point will tend to get more complicated to be sure they capture the details.
The new definition also clarifies that a domestic employee sharing the director’s home is not a family member, because that relationship tends to be commercial. However, the devil will be in the details here, as well.
If you have any questions, please contact Gunster securities law and corporate governance practice leader Bob Lamm.
