On August 6, 2021, the SEC approved Nasdaq’s proposed rules related to board diversity. When phased in (see below), the rules will require each Nasdaq-listed company:
- to disclose information on board members’ voluntarily self-identified gender and racial characteristics and LGBTQ+ status; and
- to have, or explain why it does not have, at least two board members (in the case of boards with more than five members) who are “Diverse,” including at least one director who self-identifies as female and at least one director who self-identifies as an “Underrepresented Minority” or LGBTQ+. A company with a “Smaller Board” (i.e., five or fewer members) would only have to have, or explain why it does not have, at least one member who is “Diverse.” The rules provide some additional flexibility for Smaller Reporting Companies and foreign issuers. Notably, SPACs are exempt from the rule.
As defined, “Diverse” means an individual who self-identifies in one or more of the following categories: (i) Female, (ii) Underrepresented Minority, or (iii) LGBTQ; “Female” means an individual who self-identifies her gender as a woman, without regard to designated sex at birth; “Underrepresented Minority” 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 Two or More Races or Ethnicities; and “LGBTQ+” means an individual who self identifies as lesbian, gay, bisexual, transgender, or as a member of the queer community.
The required information would have to be disclosed annually in the company’s proxy statement or 10-K or on its website, using a prescribed Board Diversity Matrix. The rules will be phased in over periods ranging from two to five years, based upon whether the company is listed on the Nasdaq Global Select Market, Global Market, or Capital Market.
Nasdaq has posted a helpful summary of the rules, including details on the phase-in schedule and other items noted above. A more detailed discussion of the rules will appear in a future posting on The Securities Edge, Gunster’s securities and corporate governance blog.
Until then, please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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