Zillow seems to be in hot water as they’ve been given notice of delisting, or failure to satisfy a continued listing rule or standard. In essence, they have violated a NASDAQ stock market listing rule and are in danger of losing their stock market presence if they do not resolve this issue by the deadline. This could be a blaring case of negligence on Zillow’s part, given the extent to which the rules have been violated.
Which NASDAQ rule was violated?
Nasdaq Stock Market Listing Rule 5605(b)(1) requires that a majority of the company’s Board of Directors be comprised of directors who satisfy the independence requirements of the Nasdaq Stock Market Listing Rule. The actual rule states: “Independent Directors (as defined in Rule 5605.a.2) play an important role in assuring investor confidence.
Through the exercise of independent judgment, they act on behalf of investors to maximize shareholder value in the Companies they oversee and guard against conflicts of interest. Requiring that the board be comprised of a majority of Independent Directors empowers such directors to carry out more effectively these responsibilities.”
How was it violated?
On a previously disclosed Current Report (Form 8-K), filed with the Securities and Exchange Commission on March 8, 2016, it was stated that Gregory Waldorf did not stand for re-election to Zillow’s Board of Directors at the expiration of his (then-current) term at the company’s annual shareholders’ meeting. While Waldorf’s departure was voluntary, it did create a bit of a problem for Zillow, and not just in creating a vacant place on the Board of Directors.
As a result of Waldorf’s departure, a majority of the company’s Board is not longer comprised of directors who meet the independence requirements set forth by NASDAQ.
On June 15, 2016, Zillow notified Nasdaq of their non-compliance (to Rule 5605.b.1) as well as their intent to reestablish a majority of independent directors before the expiration date.
According to NASDAQ’s rules, the expiration date will be the first anniversary of Waldorf’s departure, Zillow’s 2017 Annual Shareholders’ Meeting, and December 12, 2016 if the company’s next annual meeting is held before that date.
If you’re curious how NASDAQ defines “independent majority or independent boards,” you can read their rather lengthy definition in section 5605.a.2, here.
In essence, the definition states that individuals serving as independent directors do not have a relationship with the listed company that would impair their independence.
There are several paragraphs of stipulation and exception that follow.
What will happen?
More likely than not Zillow will be able to resolve their issues of non-compliance by the deadline; however it does speak to a larger issue of rules and regulations. If you are a large company and expect other people to play by your rules, you need to make sure you’re in compliance with all the rules you’re expected to follow as well.
If you are not mindful of this, the moment you step even one toe over that line, someone will be there watching what you do and how you react.
It appears to us that Zillow is taking proactive steps to keep Nasdaq informed about their decisions and resolve their issues of non-compliance. We anticipate this is just a bump in the road that will be settled prior to the imposed deadline.
#ZillowDelisted
