On December 1, 2020, Nasdaq submitted a proposal to the SEC to adopt new listing rules related to board diversity and disclosure.1 If approved by the SEC, the new listing rules would require most Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority2 or LGBTQ+. In addition, the new listing rules would require all companies listed on Nasdaq's US exchange to publicly disclose "consistent, transparent diversity statistics regarding their board of directors" using a standardized disclosure matrix template either in their annual meeting proxy statements or on their websites.3
Timeframes for Compliance
The two main aspects of the proposed new listing rules are as follows:
1. Disclosure of Board-Level Diversity Statistics
Under the proposal, all Nasdaq-listed companies (other than exempt companies, as described below) would be required to publicly disclose board-level diversity statistics through Nasdaq's proposed disclosure framework within one calendar year of the SEC's approval of the listing rule.
Once applicable, companies would be required to annually disclose board-level diversity data using the matrix provided by Nasdaq (or a substantially similar format) in the company's proxy or information statement for its annual meeting, or on the company's website. Both the current year and immediately prior year's board diversity statistics would be required in each matrix disclosure.
If a company elects to disclose the information on its website, the company must also submit such disclosure and a URL link to such disclosure through the Nasdaq Listing Center within 15 calendar days of the company's annual shareholders meeting. Companies that elect to include the board diversity disclosure matrix in their proxy or information statement for their annual meeting would not need to provide a separate copy to Nasdaq.
2. Board Diversity Composition Requirements for Operating Companies
In addition to public disclosure, the proposed rules would also require Nasdaq-listed companies to meet specified board diversity composition expectations as follows:
- All operating companies would be expected to have one diverse director within two calendar years of the SEC's approval of the listing rule.
- Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market would be expected to have a second diverse director within four calendar years of the SEC's approval.
- Companies listed on the Nasdaq Capital Market would be expected to have a second diverse director within five calendar years of the SEC's approval.
For most companies, the new proposed listing rules would require, once fully applicable, at least one female director and at least one director who self-identifies as an underrepresented minority or LGBTQ+. Companies that are not in a position to meet the board composition objectives within the required timeframes would not be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives. Such an explanation for a non-diverse board would need to be provided in a company's annual meeting proxy statement or on the company's website (however, if provided on the website, the company would need to notify Nasdaq of the location where the information is available, as specified in the proposed rule).
Exemptions and Phase-Ins for Newly Listed Companies
The proposed rules provide the following exemptions and phase-in periods for certain companies:
Companies Exempt from Both the Board Diversity Disclosure and Composition Rule Proposals ("Exempt Companies")
- Special purpose acquisition companies ("SPACs") listed under IM-5101-2 would be exempt from the proposed board diversity and disclosure rules until one year following the completion of their business combination. In addition, the following companies would be exempt from both of the proposed rule requirements: asset-backed issuers and other passive issuers (as set forth in Rule 5615(a)(1)); cooperatives (as set forth in Rule 5615(a)(2)); limited partnerships (as set forth in Rule 5615(a)(4)); management investment companies (as set forth in Rule 5615(a)(5)); issuers of non-voting preferred securities, debt securities and Derivative Securities (as set forth in Rule 5615(a)(6)); and issuers of securities listed under the Rule 5700 Series.
Partial Exemption from Board Diversity Composition Proposal for Smaller Reporting Companies and Foreign Issuers
- Smaller reporting companies would be permitted to satisfy the board diversity composition objective in the proposed rules by having two female directors (instead of one female director and one who self-identifies as either an underrepresented minority or LGBTQ+, as required for other issuers).
- Foreign issuers (which include foreign private issuers and certain other foreign companies)4 could satisfy the second director objective by including either another female director, an individual who self-identifies as LGBTQ+ or an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the company's home country jurisdiction.
- Both smaller reporting companies and foreign issuers would be required to provide the board diversity disclosure under the proposed rule. However, foreign issuers would also be able to elect to satisfy the board composition disclosure requirement through an alternative disclosure matrix template.
Phase-In Periods for Newly Listed Companies and Certain Other Companies
- Newly listed companies would have one year from the date of listing to satisfy both the proposed board diversity disclosure and composition rule requirements.
- Any company that ceases to be a foreign issuer, a smaller reporting company or an exempt company would have one year from the date that it no longer qualifies as such to satisfy the board diversity composition rule requirements.
Public Comment Period
The proposal will be open for a public comment period of a minimum of 21 days from the time the proposed rules are published in the Federal Register. After publication in the Federal Register, the SEC has 30 to 240 calendar days to approve the rule proposal.
Nasdaq will be hosting a webinar on December 9, 2020, where it will provide details on the proposal and answer questions from the issuer community.
Text of Proposed Nasdaq Listing Rules
Set forth below in Appendix A is the text of the proposed rule change and the Board Diversity Matrix form for disclosing diversity statistics annually to Nasdaq.
Click here to download full 'Nasdaq Proposes New Board Diversity Listing Requirements' (including Appendix A) PDF.
1 The proposal is available here. Nasdaq's FAQs are available here.
2 Defined as "an individual who self-identifies in one or more of the following groups: 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."
3 See Nasdaq's press release, available here.
4 Under the proposed rule, a "Foreign Issuer" means (a) a Foreign Private Issuer (as defined in Rule 5005(a)(19)) or (b) a company that (i) is considered a "foreign issuer" under Rule 3b-4(b) under the Act and (ii) has its principal executive offices located outside of the United States.
Alexandra Munson (Associate, White & Case New York) also assisted in the development of this publication.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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