Nasdaq’s New Board Diversity Rule


Late last week (August 6), the SEC approved Nasdaq’s Board Diversity Rule (the Rule), which aims to diversify the boards of directors for Nasdaq-listed companies. By way of the Rule, Nasdaq-listed companies will be required to have at least two diverse directors, one who self-identifies as female and one who self-identifies as an underrepresented minority (read: Black or African American; Hispanic or Latinx; Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander; or two or more races or ethnicities ) or LGTBQ+.

To begin, all Nasdaq-listed companies must disclose board level diversity statistics on an annual basis using Nasdaq’s standardized matrix (or using a substantially similar format). For this initial disclosure, companies have until the later of August 8, 2022, or the date the company files its proxy or information statement for the company’s annual shareholder meeting during 2022. Of note, companies are not required to make this disclosure on their proxy or information statement and can instead disclose on their websites. That being said, if a company chooses to make the disclosure on its website, then the company’s URL link to the disclosure must be submitted through the Nasdaq Listing Center within one business day after the website posting.

Transition Period for Nasdaq-Listed Companies by Listing Tier

Companies have a transition period—based on their listing tier set forth below—to meet the diversity objective or explain their reasons for not having done so.

  • Companies listed on the Nasdaq Global Select Market or Nasdaq Global Market are required to have in place (or explain why they do not) one diverse director by August 7, 2023, and two diverse directors by August 6, 2025.
  • Companies listed on the Nasdaq Capital Market are required to have in place (or explain why they do not) one diverse director by August 7, 2023, and two diverse directors by August 6, 2026.
  • Companies with boards that have five or fewer directors, regardless of listing tier, are required to have in place (or explain why they do not) one diverse director by August 7, 2023.

If a company has not seated one or two diverse directors, Nasdaq will verify the justification for failing to do so; however, Nasdaq will not assess the merits of the explanation.

Additional Flexibility for Smaller Reporting Companies, Foreign Issuers, and Companies with Five or Fewer Directors

Smaller reporting companies, foreign issuers, and companies with five or fewer directors have additional flexibility to meet the diversity objectives:

  • Smaller reporting companies can meet the requirement by having two female directors.
  • Foreign issuers can meet the requirement by having either two female directors, or one female director and one director who is an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the country of the company’s principal executive offices, or LGTBQ+.
  • Companies with five or fewer directors can meet the requirement by having at least one diverse director.

SPACs Listed under IM-5101-2

SPACs listed under IM-5101-2 are not required to follow the Rule until completion of their business combination, at which point they must meet the applicable diversity objectives or explain why they have failed to do so. Diverse directors must be seated, or the company has to provide an explanation as to whey that did not materialize, by the later of two years from the date of listing, or the date the company files its proxy or information statement for their second annual meeting of shareholders.

Resources for Nasdaq-Listed Companies

Nasdaq has developed a board diversity tool kit and created a dedicated email address (drivingdiversity@nasdaq.com) for questions related to the Rule. A variety of free board recruiting services for companies is also being made available through Nasdaq’s partnerships with Equilar, Athena Alliance, and the Boardlist.

Recommendations by M&R

In preparation for compliance with the Rule, we recommend the following:

  • In consultation with company advisors, you should implement a survey in which your company gathers self-identity information from your board of directors and prepare a matrix disclosing such information either to post on the company’s website or use in the company’s annual report on Form 10-K or proxy statement.
  • If your company does not yet have a diverse director, you should begin the process of seeking and evaluating diverse board candidates with the goal of hiring a diverse board director before the initial disclosure deadline of August 8, 2022.

Of course, if you have any questions or concerns regarding the Rule, M&R’s team of corporate and securities lawyers are here with answers.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.