NASDAQ PROPOSES RULE CHANGES REQUIRING NASDAQ-LISTED COMPANIES TO DIVERSIFY THEIR BOARDS

On December 1, 2020, The Nasdaq Stock Market LLC (“Nasdaq”) filed proposed Rule 5605(f) (Diverse Board Representation) and proposed Rule 5606 (Board Diversity Disclosure) with the U.S. Securities and Exchange Commission (“SEC”) to advance board diversity while at the same time enhance the transparency of board diversity statistics.  The proposal is subject to review by the SEC and public comment, and will ultimately need to be approved by the SEC Commissioners.  If approved, a company’s continued listing on Nasdaq’s U.S. exchange would be subject to board diversity and disclosure requirements.  

According to proposed Rule 5605(f), Nasdaq-listed companies, subject to certain exceptions, would be required “(A) to have at least one director who self-identifies as a female, and (B) to have at least one director who self-identifies as” either LGBTQ+ or a racial or ethnic minority consistent with the categories established by the Equal Employment Opportunity Commission, “or (C) to explain why the company does not have at least two directors on its board who self-identify in the categories listed above.”

According to proposed Rule 5606, Nasdaq-listed companies, subject to certain exceptions, would be required to disclose statistical information of each company’s board of directors based upon each director’s optional self-identification of certain diversity statistics.

The proposed rules come on the heels of an internal Nasdaq study which found that more than 75 percent of Nasdaq-listed companies did not meet the proposed diversity requirements.  Further, Nasdaq’s proposed rules follow an ever-increasing trend to ensure diversity and inclusion on corporate boards.

Nasdaq’s full proposal can be found here.