On August 6, 2021, the Securities and Exchange Commission (“SEC”) approved the Nasdaq Stock Market LLC (“Nasdaq”) listing rule changes related to board diversity. Companies listed on Nasdaq should understand and make plans to comply with the rule changes prior to the implementation date.
Board Diversity Reporting Requirements
The new board diversity rule is a disclosure-based rule which requires each company listed on Nasdaq to meet and file with its proxy statement, information statement for its annual shareholder meeting, or on its website, the following requirements:
- two-years (only one year for first disclosure) of board-level diversity statistics using a standardized matrix template; and
- to have, or explain why it does not have, at least two diverse directors, including one director who self-identifies as female and one director who self-identifies as either an underrepresented minority or LGBTQ+.
The substance or merits of a company’s explanation, should the company choose to explain why it does not meet the diversity standard, will not be evaluated for purposes of compliance with the rule.
Smaller Reporting Companies and Foreign Issuers can meet the diversity objective by including two female directors, and companies with smaller boards (five or fewer directors) need only have one diverse director to meet the standards of the rule. Special purpose acquisition companies, or SPACs, listed under IM-5101-2 are exempt from the disclosure requirements until a business combination and various non-operating companies are also exempt from the disclosure requirements.
Companies have until the later of August 8, 2022, or the date the company files its proxy or information statement for its annual shareholders meeting during 2022 (or Form 10-K or 20-F if the company does not file a proxy) to publicly disclose the board-level diversity statistic using the standardized matrix template.
All companies have until August 7, 2023, to have, or explain why they do not have, at least one diverse director. Companies on the Nasdaq Global Select Market or Nasdaq Global Market have until August 6, 2025, while companies on the Nasdaq Capital Market have until August 6, 2026, to have, or explain why they do not have, at least two diverse directors.
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