SEC Approves Nasdaq Board Diversity Rules

SEC Approves Nasdaq Board Diversity Rules

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On August 6, 2021, the United States Securities and Exchange Commission (“SEC”) approved Nasdaq Stock Market LLC (“Nasdaq”) Rules 5605(f) and 5606 (“New Rules”), two listing rules designed to advance board diversity in Nasdaq-listed firms. Nasdaq first proposed these New Rules in December 2020, and they are the first of their kind in the United States. A preliminary review found that more than three-quarters of Nasdaq-listed companies would not meet the proposed requirements of the New Rules.

As of August 2021, there are no indications that other key exchanges, such as the New York Stock Exchange (“NYSE”) will follow Nasdaq’s lead. However, the New Rules follow a shift among investment advisers towards an emphasis on environmental, social and governance (“ESG”) issues.

The New Rules require Nasdaq-listed companies to disclose statistical information on gender and racial characteristics, as well as LGBTQ+ status, of the directors of the company board. Disclosure will be required on an annual basis through a Board Diversity Matrix (template found here), and will cover the current year, as well as the prior year after the first year of disclosure. The disclosure will include information on at least two self-identified “diverse” directors (generally defined as women, persons of a racial minority or LGBTQ+ persons), or it must publicly disclose why their board does not include such diverse directors. As part of the New Rules, Nasdaq will also offer listed companies complimentary access to a board recruiting service that can assist in recruiting diverse board directors.

The required disclosures, including the Board Diversity Matrix, may be posted on the listed company’s website, in its proxy statements, information statements, Form 10-Ks, and/or Form 20-Fs. The disclosure must be published concurrently with an applicable SEC filing if it is disclosed by posting on the company’s website. The company must also submit a URL link to the disclosures through the Nasdaq Listing Center within one day after publishing.

The compliance date for the New Rules for most companies begins in August 2022, although there are certain phase-in periods for companies that are newly listed on Nasdaq. A company not in compliance with the New Rules will have 45 calendar days to submit a plan of compliance to Nasdaq. Upon review, Nasdaq may opt to provide the company with up to 180 days to regain compliance or it may delist the company.

If you have any questions on how this might affect your firm, reach out to your Greyline representative. The full SEC order approving the New Rules is here.

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