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NASDAQ Board Diversity Rule Approved by the SEC

Capital Markets
November 22, 2021

The Nasdaq Stock Market’s new Board Diversity Rule approved by the SEC and adopted in August, 2021, is a disclosure standard designed to encourage minimum corporate board diversity objectives for companies listed on the Nasdaq Exchange and provide stakeholders with consistent, comparable disclosures concerning public company board composition. The new rule reflects the desire of a new generation of shareholders demanding more diversity from reporting companies. Under the rule, most Nasdaq-listed U.S. companies will need to have at least two “diverse” members on their board including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ. Alternatively, if these companies do not meet the diversity standard within the proscribed periods, they must explain their reasoning as to why in writing.

Companies will have different transition period deadlines to meet these new diversity objectives, depending on their following listing tier:

Nasdaq Global Select Market and Nasdaq Global Market companies are required to have, or explain why they do not have, one diverse director by August 7, 2023, and two diverse directors by August 6, 2025.

Nasdaq Capital Market companies are required to have, or explain why they do not have, one diverse director by August 7, 2023 and two diverse directors by August 6, 2026.

Companies with boards of five or less directors, regardless of listing tier, are required to have, or explain why they do not have, one diverse director by August 7, 2023.

Special Purpose Acquisition Companies, or SPACS, and will be exempt from the Nasdaq rules until they complete a business combination. Upon completing a business combination, the post-combination entity would have the remainder of the transition period to satisfy the diversity objectives or one year, whichever is longer. In addition, foreign private issuers are subject to the new Nasdaq rules, however they will be able to satisfy the diversity requirements with two female directors and may be able to rely on alternative diversity categories.

All operating companies listed on Nasdaq’s U.S. exchange will need to use the Board Diversity Matrix, or a format substantially similar, to annually disclose detailed information about their boards' demographics, including gender, ethnicity and sexual orientation. Companies will provide this disclosure in the company’s proxy statement, annual report or on its website. Companies will be required to file the board diversity matrix either one calendar year from the rule's approval date, or when they next make certain proxy statement or company filings, whichever comes later.

This rule is another step in bolstering the diversity of public company boards in the US capital markets. While the New York Stock Exchange has publicly supported greater board diversity of listed companies and has established an NYSE Board Advisory Council to address diverse board leadership by assisting diverse board candidates connect with companies seeking new directors, it has not proposed amendments to its own listing rules similar to the Nasdaq changes. Additionally, Goldman Sachs announced in July of 2020 that it would only take public companies that had at least one diverse board member, and raised this threshold to two members effective in July of this year, and certain states have previously adopted diversity requirements for public companies having principal executive offices within their borders.

Seward & Kissel will continue to monitor this and other diversity rules, including what steps are taken towards implementation, including any proposed amendments.

If you have any questions regarding the information discussed above, please contact your Capital Markets Group attorney at Seward & Kissel LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


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