Nasdaq to SEC: Adopt listing rules requiring board diversity disclosures

If approved by the SEC, the rules would require all companies listed on Nasdaq’s U.S. exchange “to publicly disclose consistent, transparent diversity statistics regarding their board of directors. Additionally, the rules would require 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+. Foreign companies and smaller reporting companies would have additional flexibility in satisfying this requirement with two female directors,” Nasdaq said.

Nasdaq said the goal of the proposed listing rules is “to provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity in the context of selecting directors.” Under the proposal, all Nasdaq-listed companies would be required to publicly disclose their board-level diversity efforts through Nasdaq’s disclosure framework within one year of the SEC approving the listing rule.

Under the diversity requirements themselves, all companies must have one diverse director within two years of the SEC approving the listing rule. Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market must have two diverse directors within four years of SEC approval, and companies listed on the Nasdaq Capital Market must have two diverse directors within five years of approval. Companies that cannot meet the board composition objectives within the required timeframes won’t be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives, Nasdaq said.

“Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies,” said Nasdaq President and CEO Adena Friedman in a press release. “Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders. We believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.”

Nasdaq will also introduce a partnership with Equilar, a provider of corporate leadership data solutions, to aid Nasdaq-listed companies with board composition planning challenges. “The partnership will enable Nasdaq-listed companies that have not yet met the proposed diversity objectives to access a larger community of highly-qualified, diverse, board-ready candidates to amplify director search efforts,” Nasdaq said.

Beyond Nasdaq, board diversity requirements are increasingly developing across the nation and around the world. In the United States, at least a dozen states, to date, have enacted or are weighing statutes that directly tackle diversity in the boardroom—or lack thereof. While some states mandate strict quotas, others are taking a softer approach by urging diversity efforts through disclosure requirements. In either case, corporate boards that have not already done so would be wise to begin strategizing their diversity efforts now.