On December 1, 2020, Nasdaq submitted a proposal to the Securities and Exchange Commission (the “SEC”) seeking approval of new listing rules relating to board diversity. If approved, the new listing rules will require companies listed on Nasdaq’s U.S. exchange to disclose diversity statistics regarding their boards of directors and require most of these Nasdaq-listed companies to have, or explain why they don’t have, at least two diverse directors. Nasdaq stated that the goal of the proposed requirements for U.S.-listed companies is to provide stakeholders with a better understanding of a company’s current board composition and enhance investor confidence that Nasdaq-listed companies are considering diversity in the context of selecting directors, either by including at least two diverse directors on their boards or by explaining their rationale for not meeting that standard.
Annual Board Diversity Disclosures
Under the proposed listing rules, all operating companies listed on Nasdaq’s U.S. exchange would be required to publicly disclose on an annual basis consistent, transparent diversity statistics regarding their boards of directors using a standardized Board Diversity Matrix, or a format substantially similar. Companies would be required to provide this disclosure in their proxy statement or information statement for their annual shareholder meeting or on their website. For the first year a company is required to disclose board diversity statistics, the company would be required to publish board diversity statistics for the current year only. Each subsequent year, the company will be required to publish its data for the last two years. The initial disclosures under this listing requirement would be required within one year of the SEC’s approval of the proposed listing rules.
Diverse Board Membership and Phase-in Periods
Additionally, the proposed listing rules would compel 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 minority or LGBTQ+. Both Smaller Reporting Companies and Foreign Issuers as defined by Nasdaq are required to have at least one director who is female and would be able to satisfy the second diverse director requirement with a director who is female, an underrepresented minority, or LGBTQ+.
Companies listed on Nasdaq Global Select Market or Nasdaq Global Market will be expected to have one diverse director within two years of the SEC’s approval of the proposed listing rules, and two diverse directors within four years. Companies listed on the Nasdaq Capital Market will be expected to have one diverse director within two years of the SEC’s approval of the listing rules, and two diverse directors within five years. After the four- or five-year phase-in period expires, newly listed companies on Nasdaq, including IPOs, direct listings, or a SPAC company listing in connection with a business combination under IM-5101-2, will have one year from the date of listing to satisfy the diversity objective. Companies listing before the expiration of the phase-in would have the remainder of phase-in period or one year from the date of listing, whichever is longer, to satisfy the requirement. There are also additional one-year phase-in periods for certain Nasdaq-listed companies that cease to meet exemption criteria and companies transferring to the Nasdaq from another exchange. For companies that are not in a position to meet the expected board composition objectives within the required timeframes, they will not be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives.
SEC Review Process
The SEC will provide a minimum of 21 days from the time the proposed rule changes are published in the Federal Register for the public (including investors, companies, and their representatives) to have an opportunity to comment on the proposal. After publication in the Federal Register, the SEC has 30 to 240 calendar days to review the proposal.
If you have questions about the proposed changes to the Nasdaq’s listing rules, please contact the author of this Viewpoints Advisory or your regular counsel at Mintz.
 Under the proposed listing rules, for companies incorporated in the United States, this means an individual who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or as a member of the Two or More Races or Ethnicities category as set forth in the proposal. For a Foreign Issuer, this means a person who self-identifies as an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the listed company’s home country jurisdiction.
 See previous note.