On Friday, the SEC approved Nasdaq listing rules related to board diversity. The new Board Diversity Rule establishes diversity objectives for different classes of Nasdaq-listed companies and related disclosure requirements.
The Board Diversity Rule establishes the following diversity objectives:
|
Company Type |
Diversity Objective |
|
Nasdaq-listed Companies Generally (i.e., a company that is not a foreign issuer, a smaller reporting company, a company with a Board of five members or less or an exempt company) |
At least two diverse Board members, including one who self-identifies as female and one who self-identifies as an underrepresented minority or LGBTQ+ |
|
Foreign Issuers |
Two female directors or one female director and one director who is LGBTQ+ or an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the country of the company’s principal executive offices |
|
Smaller Reporting Companies |
Two female directors or one female director and one director who is LGBTQ+ or an underrepresented minority |
|
Companies with a Board of Five Members or Less (including foreign issuers and smaller reporting companies) |
At least one diverse director |
If a company does not meet its diversity objective, it must provide an explanation for not doing so. While Nasdaq plans to verify that companies have provided an explanation, Nasdaq will not assess the merits of the explanation.
Each Nasdaq-listed company (subject to limited exceptions) is also required under the Board Diversity Rule to publicly disclose, in an aggregated form and on a standardized matrix template or a format substantially similar thereto, information on the voluntarily self-identified gender, racial and LGBTQ+ status of the company’s board of directors, to the extent permitted by applicable law. Such information must be reported annually in the Nasdaq-listed company’s proxy or information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F), or on its website. If the company chooses to publish the information on its website, then the disclosure must be published concurrently with the filing of its proxy statement (or Form 10-K or 20-F, if applicable), and the company must also submit a URL link to the disclosure through the Nasdaq Listing Center within one business day after such posting. After the first year, companies must include the current year and immediately prior year diversity statistics.
Notably, the Board Diversity Rule does not apply to SPACs until their initial business combination.
The Board Diversity Rule is not effective immediately, and Nasdaq has provided for phase-in periods. With respect to satisfying Nasdaq’s diversity objectives, the phase-in period depends on the company’s listing tier, which Nasdaq explained as follows:
- Nasdaq Global Select Market and Nasdaq Global Market companies will have, or explain why they do not have, one diverse director by the later of two years of the SEC’s approval date (August 7, 2023), and two diverse directors within four years (August 6, 2025), or the date the company files its proxy or information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F) for the company’s annual shareholder meeting in that year.
- Nasdaq Capital Market companies will have, or explain why they do not have, one diverse director by the later of two years from the SEC’s approval date (August 7, 2023), and two diverse directors within five years (August 6, 2026), or the date the company files its proxy or information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F) for the company’s annual shareholder meeting in that year.
- If a company has five or fewer directors on its board, regardless of its listing tier, it will be required to explain why it does not have at least one diverse director by the later of August 7, 2023 or the date the company files its proxy statement (or Form 10-K or Form 20-F if it does not file a proxy) for that year.
With respect to the diversity matrix disclosures, companies have until the later of August 8, 2022, or the date the company files its proxy statement or its information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F) for its annual shareholder meeting during 2022. For calendar year companies that plan to file their proxy statements by May 2, 2022, the phase-in guidelines presumably mean that such companies would need to include the diversity matrix disclosure in their 2022 proxy statement, or choose to publish diversity matrix disclosures on their website after filing their proxy statements for their 2022 annual shareholder meetings, so long as such disclosures are published by August 8, 2022.
The Board Diversity Rule includes transition periods for newly listed companies and companies whose company type changes and a cure period for situations where a company no longer meets the diversity objectives due to the departure of a diverse director.
Among other resources to assist companies in complying with the Board Diversity Rule, Nasdaq has published a brief summary entitled What Nasdaq-listed Companies Should Know, FAQs, and examples of acceptable and unacceptable disclosure. In addition, Nasdaq is offering access to several resources to assist in locating board candidates, including Equilar’s BoardEdge Platform and Equilar Diversity Network, Athena Alliance’s community of women leaders, and the Boardlist’s premium talent marketplace. Nasdaq has also established a dedicated mailbox for compliance questions, which is [email protected]m.
