If approved by the SEC, the new listing rules would require all companies listed on Nasdaq’s U.S. exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors, using a standardized disclosure matrix template.  Additionally, the rules would require most Nasdaq-listed companies to either (i) 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+ or (ii) explain why they do not have two Diverse directors.  Foreign companies and smaller reporting companies would have additional flexibility in satisfying the minimum diversity objective with two Female directors, and companies with boards of five or less members can satisfy it with one Diverse director.

 A copy of the amended rule filing can be accessed here. For more information, read What Your Company Should Know about Nasdaq’s Board Diversity Rule Proposal. View Nasdaq’s disclosure matrix template here and examples of acceptable (i.e., same or substantially similar) and unacceptable (i.e., substantially different) disclosures here.

Under the proposal, all Nasdaq-listed companies will be required to publicly disclose director self-identified board-level diversity statistics through Nasdaq’s proposed disclosure framework by the LATER of one calendar year from the date the SEC issues an order granting approval of the proposal (the “Effective Date”) or the date the company files its proxy statement or its information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F) for its annual meeting of shareholders during the calendar year of the Effective Date. 

The timeframe to either meet the minimum diversity objectives set forth in the proposal or explain why the company does not meet the minimum diversity objectives will be based on a company’s listing tier.  Specifically, the diversity objective for companies listed on Nasdaq Global Select Market or Nasdaq Global Market is to have one Diverse director within two years of the SEC’s approval of the listing rule (or at that time explain why the company does not have one Diverse director), and two Diverse directors within four years (or at that time explain why the company does not have two Diverse directors). The diversity objective for companies listed on the Nasdaq Capital Market is to have one Diverse director within two years of the SEC’s approval of the listing rule (or at that time explain why the company does not have one Diverse director), and two Diverse directors within five years (or at that time explain why the company does not have two Diverse directors).  The diversity objectives for companies on any tier with boards that have five or fewer members is to have one Diverse director within two years of the SEC’s approval of the listing rule (or at that time explain why the company does not have one Diverse director).  If a company files its proxy statement or its information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F) for the company’s annual shareholders meeting after the anniversary of the SEC’s approval of the listing rule in the calendar year for each respective year noted above, then the company will have until the date it makes such filing to meet, or explain why it does not meet, the applicable diversity objectives. 

Nasdaq is working to provide resources to help our listed companies and their advisors understand and achieve compliance with the proposed board diversity and disclosure requirements.  Nasdaq has developed a board diversity tool kit and created a dedicated mailbox to pose questions related to the proposed board diversity listing rules. Email your questions to drivingdiversity@nasdaq.com.

Nasdaq recognizes that companies want to leverage their own network to create a candidate pipeline, while also tapping into a broader community of candidates outside their immediate network through a cost effective, transparent process.  Therefore, Nasdaq has introduced a partnership with Equilar, a provider of corporate leadership data solutions, to aid Nasdaq-listed companies that have not yet met the proposed diversity objectives and would like assistance in doing so.  The services offered are complementary and are not mandatory.  Learn how your company can get free access to Equilar’s BoardEdge platform here.

Companies that choose to disclose the board diversity matrix only on their website must also submit a URL link to the disclosure through the Nasdaq Listing Center, within one business day after such posting.

Companies that choose to include the board diversity disclosure matrix in their proxy statement or information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F), do not need to provide a copy to Nasdaq.

Nasdaq proposes to provide Smaller Reporting Companies with additional flexibility with regard to the second Diverse director.  Smaller Reporting Companies could satisfy the second Diverse director objective by including another Female director, or an individual who self-identifies as LGBTQ+ or an Underrepresented Minority.  In addition, all companies listed on our Nasdaq Capital Market will receive an additional year to meet the minimum diversity objective or explain why they do not meet the minimum diversity objective.  The minimum diversity objectives for these companies are one director within two years after SEC approval of the rule and two within five years of SEC approval.  If a company files its proxy statement or its information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F) for the company’s annual shareholders meeting after the anniversary of the SEC’s approval of the listing rule in the calendar year for each respective year noted above, then the company will have until the date it makes such filing to meet, or explain why it does not meet, the applicable diversity objectives. 

Yes. The proposed rules currently exempt non-operating companies from the proposed rule. Consistent with Nasdaq’s corporate governance rules the following types of companies are exempt:

• acquisition companies listed under IM-5101-2;
• 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 only 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.

If a company has not been able to add two Diverse directors by the applicable deadlines, the company can satisfy the proposed board diversity rule by explaining why it does not have two Diverse directors, following the specific disclosure instructions set forth in proposed Rule 5605(f)(3).

If a company (i) does not meet the applicable diversity objectives set forth under Rule 5605(f)(2) and also fails to provide the alternative public disclosure set forth in proposed Rule 5605(f)(3) (and is not otherwise subject to a grace period), or (ii) fails to hold an annual meeting of shareholders during the applicable periods in Rule 5605(f)(5) or (7) and therefore fails to meet, or explain why it does not meet, the diversity objectives of Rule 5605(f)(2), then Nasdaq’s Listing Qualifications Department would promptly notify the company that it has until the later of its next annual shareholders meeting or 180 days from the event that caused the deficiency to cure the deficiency. The company can cure the deficiency either by meeting the applicable minimum diversity objectives of proposed Rule 5605(f)(2) or by providing the alternative public disclosure set forth in proposed Rule 5605(f)(3).  If a company does not regain compliance within the applicable cure period, the Listings Qualifications Department would issue a Staff Delisting Determination Letter.  A company that receives a Staff Delisting Determination can appeal the determination to the Hearings Panel through the process set forth in Rule 5815.

If a company fails to disclose board diversity metrics as required by proposed Rule 5606, Nasdaq will notify the company that it is not in compliance with a listing requirement, and the company will be allowed 45 calendar days to submit a plan sufficient to satisfy Nasdaq staff that the company has adopted processes and procedures designed to identify and disclose the information required under Rule 5606 in the future. If the company does not do so, it would be issued a Staff Delisting Determination, which the company could appeal to a Hearings Panel pursuant to Rule 5815.

No. Companies can instead disclose them on their websites.  However, if a company chooses to make this disclosure on its website, then the company must submit a URL link to the disclosure through the Nasdaq Listing Center, within one business day after such posting.

Nasdaq will not assess the substance of the company’s explanation, but will verify that the company has provided one.  Nasdaq believes these disclosures will provide stakeholders with a better understanding of the company’s current board composition and its philosophy regarding diversity.

The following are three examples of such disclosure included in the rule filing for the proposed board diversity and disclosure rules:

• If under Israeli law regarding board diversity, an Israeli company is required only to have a minimum of one woman on the board and such Israeli company chooses to comply with Israeli home country law in lieu of meeting the diversity objectives of Rule 5605(f)(2)(B), it may choose to disclose that “the Company is incorporated in Israel and required by Israeli law to have a minimum of one woman on the board, and satisfies home country requirements in lieu of Nasdaq Rule 5605(f)(2)(B), which requires each Foreign Issuer to have at least two Diverse directors.”
• If a U.S. company had two Diverse directors but one resigned due to unforeseen circumstances, it could disclose, for example: “Due to the unexpected resignation of Ms. Smith this year, the Company does not have at least one director who self-identifies as Female and one director who self-identifies as an Underrepresented Minority or LGBTQ+. We intend to undertake reasonable efforts to meet the diversity objectives of Rule 5605(f)(2)(A) prior to our next annual meeting and have engaged a search firm to identify qualified Diverse candidates. However, due to unforeseen circumstances, we may not achieve this goal.”  In this case, the proposed rules provide the company with a grace period of one year from the event that caused the departure to have, or explain why it does not have, at least two Diverse directors.

A U.S. company may disclose that it chooses to define diversity more broadly than Nasdaq’s definition by considering national origin, veteran status or individuals with disabilities when identifying nominees for director because it believes such diversity brings a wide range of perspectives and experiences to the board.

Yes, a company that is considered a SRC under Rule 12b-2 under the Exchange Act is treated as a SRC under Nasdaq’s proposal, whether or not it applies the scaled disclosure requirements available to SRCs.

Under 12b-2 of the Exchange Act, a company may qualify as a SRC if it has: (1) public float of less than $250 million; or (2) annual revenues of less than $100 million and either: (i) no public float; or (ii) public float of less than $700 million.

No. However, a company in this situation that does not meet the applicable timeline could provide an explanation, such as the below example, as to why it does not:

“While the Company is listed on Nasdaq Global Market, the Company believes that it is similarly situated to companies listed on Nasdaq Capital Market in terms of its annual revenues and public float, and therefore has chosen to meet the objectives of Rule 5605(f)(2)(C) in lieu of Rule 5605(f)(2)(A). The company has met these objectives by having at least two Diverse directors on the board within the timeframe provided under Rule 5605(f)(7) applicable to Nasdaq Capital Market-listed companies.”