Written by Nimish Patel

On August 6, 2021 the U.S. Securities and Exchange Commission (SEC) formally approved Nasdaq’s proposed board diversity listing rules.

Key Takeaways

• The new rules will require companies listed on Nasdaq’s U.S. exchange to annually disclose self-identified board demographic data.
• Most companies will be required to have at least two diverse directors or explain why they do not.
• There will be a transition period to allow companies to meet the new rules.

The Specifics

• Board demographic data must be disclosed via a standardized matrix template through the company’s proxy statement, annual report, or website. The initial diversity matrix must be disclosed by August 8, 2022.
• Listed companies must have at least two diverse directors, including one who self-identifies as female and one who self identifies as an “underrepresented minority” or LGBTQ+. If a company is unable to meet this requirement they must provide an explanation for not doing so. There are exceptions for certain companies including:
  • Companies with 5 or fewer directors must have one diverse director or explain why they are unable to do so.
  • Smaller Reporting Companies can also meet the requirement with two self-identified female directors.
  • Foreign Issuers can meet the requirement with two self-identified female directors or one who self-identifies as female and one who self-identifies as an “underrepresented minority” based on the country of the principal place of business or LGBTQ+.
  • SPACs do not need to meet the requirements until business combination.
• Transition Period Timeline:
  • Companies listed on Nasdaq Global Select Market or Nasdaq Global Market must have, or explain why they do not have, one diverse director by August 7, 2023, and two diverse directors by August 6, 2025.
  • Companies listed on Nasdaq Capital Market must have, or explain why they do not have, one diverse director by August 7, 2023, and two diverse directors by August 6, 2026
  • Any company with 5 or fewer directors must have, or explain why they do not have, one diverse director by August 7, 2023.

Given the new requirements, it would be prudent for Nasdaq listed companies to begin reviewing the full text of the new listing rules and the related FAQs.