On December 1, 2020, The Nasdaq Stock Market LLC (“Nasdaq”) filed proposed rules with the U.S. Securities and Exchange Commission (“SEC”) regarding board diversity and transparency.  If adopted, the proposed rules would require Nasdaq-listed companies to disclose diversity statistics with respect to their boards of directors (the “Board Diversity Disclosure Rule”) and include members on their boards from certain specified groups or provide an explanation as to why their boards do not include those members  (“Diverse Board Representation Rule”). As Nasdaq’s President and CEO, Adena Friedman, explained: “Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders; we believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.”​

Board Diversity Disclosure

The Board Diversity Disclosure Rule would require Nasdaq-listed companies, subject to certain exceptions, to publicly disclose  diversity statistics regarding the company’s board of directors, including a director’s self-identified gender (male, female, or non-binary), self-identified race, and self-identification as LGBTQ+ (lesbian, gay, bisexual, transgender, or a member of the queer community). Companies would be required to provide this information in their proxy or information statements for their annual shareholders’ meetings, or on their websites.

Under the proposal, all Nasdaq-listed companies would be required to publicly disclose board-level diversity statistics through Nasdaq’s proposed disclosure framework within one year of the SEC’s approval of the proposal.

Diverse Board Presentation

The Diverse Board Representation Rule would require each Nasdaq-listed company, subject to certain exceptions, to have (i) at least one director who self-identifies as a female, and (ii) at least one director who self-identifies as either (a) an underrepresented minority (Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities), or (b) as LGBTQ+, or (iii) to explain why it does not have at least two directors on its board who self-identify in the categories listed above.

The timeframe to meet the board diversity objectives set forth in the proposal will be based on a company’s listing tier. However, all Nasdaq-listed companies (except for certain exempt entities) will be expected to have one diverse director within two years of the SEC’s approval of the proposal. Notably, a company that is not in a position to meet the board diversity objectives within the required timeframes will not be subject to Nasdaq-delisting if the company provides a public explanation for why it failed to meet the board diversity objectives.

Key Takeaways

Nasdaq-listed companies, as well as companies seeking to become listed on Nasdaq, need to start thinking about ways to implement the board diversity objectives set forth in the Nasdaq board diversity proposal. Even for companies that are not listed on Nasdaq, the submission of this proposal in conjunction with similar rules proposed in other states (and in some cases adopted, such as in California), illustrate the demand for change in corporate board rooms. As we noted in our prior article on this subject, companies (whether public or private) need to start thinking about ways to diversify upper management as this demand for change continues to make headway across the country.

For more information on the proposal, Nasdaq has released FAQs, which can be found here, and a summary, which can be found here.

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Photo of David R. Earhart David R. Earhart

Leader of the Capital Markets and Securities Practice Group, David’s practice covers all areas of corporate, transactional and securities law, everything from complex mergers, acquisitions and dispositions to representation of both issuers and underwriters in all types of public and private offerings of…

Leader of the Capital Markets and Securities Practice Group, David’s practice covers all areas of corporate, transactional and securities law, everything from complex mergers, acquisitions and dispositions to representation of both issuers and underwriters in all types of public and private offerings of debt and equity.

Photo of Lynsey J. Hyde Lynsey J. Hyde

Lynsey Hyde focuses her legal practice on corporate governance and transactional matters.