Nasdaq Proposes Diversity Requirements for Listed Company Boards

January 7, 2020

Last month, the Nasdaq Stock Market (Nasdaq) proposed a new rule that would require Nasdaq-listed companies to a) have (or explain why they do not have) at least two directors meeting certain diversity requirements; and b) provide ongoing disclosure about diversity statistics pertaining to their boards of directors. This is another predictable (and predicted) step in the growing focus on corporate diversity spearheaded in tandem by institutional shareholders, state governments and regulatory organizations. Our prior summaries of these efforts are found here and here.

Summary of Proposed Rule 560(f) – Board Diversity Requirement

Proposed Rule 5605(f) would require each Nasdaq-listed company to have at least two diverse directors, including one female and one who self-identifies as an underrepresented minority or as LGBTQ+. For purposes of the proposal:

  • Diverse means an individual who self-identifies in one or more of the following categories: female, underrepresented minority or LGBTQ+;
  • Female means an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth;
  • LGBTQ+ means an individual who self-identifies as lesbian, gay, bisexual, transgender and/or a member of the queer community; and
  • Underrepresented Minority means an individual who self-identifies as 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.

Diversity Matrix 

Proposed Rule 5606 requires each Nasdaq-listed company, subject to certain exceptions, to disclose on an annual basis statistical board diversity data about the self-identified gender, race and LGBTQ+ status of its company’s directors, in a table format. Any director who chooses not to disclose a gender would be included under “Gender Undisclosed,” and any director who chooses not to identify as a particular race or as LGBTQ+ would be included in the “Undisclosed” category at the bottom of the table.

Effectiveness and Phase-in

If approved as proposed, Nasdaq-listed companies would be required to comply as follows:

  • All companies would be required to have (or explain why they do not have) at least one diverse director no later than two years following approval; and
  • Each Global Select- or Global Market-listed company would be required to have (or explain why they do not have) at least two diverse directors within four years of the approval date (five years for Nasdaq Capital Market-listed companies).

SPACSs, asset-based issuers and certain other passive issuers would be exempt, and smaller reporting companies could satisfy the requirements by having two female directors. Companies with uncured deficiencies would be subject to delisting.

In sum, we believe the rules will be adopted substantially as proposed. We are now seeing companies beginning to make significant efforts toward increasing diversity and promoting inclusion within their boardrooms and in their executive officer ranks. For counsel on how to effectively enhance boardroom diversity and inclusion, please contact your Croke Fairchild Morgan & Beres attorney, or Geoff or Jessica:

About Croke Fairchild Morgan & Beres

Croke Fairchild Morgan & Beres is a corporate law firm providing services to businesses, private equity and venture firms and their portfolio companies, public companies, founders and family offices. Formed by partners who worked at preeminent international law firms, the firm boasts a deep bench of sophisticated and experienced corporate lawyers. With offices in Chicago, Lake Forest, and Milwaukee, our team provides exceptional legal service while affording our clients the benefits of working with a small, agile, and driven law firm. For more information, please visit us online at crokefairchild.com.

Nasdaq Proposes Diversity Requirements for Listed Company Boards

January 7, 2020

Last month, the Nasdaq Stock Market (Nasdaq) proposed a new rule that would require Nasdaq-listed companies to a) have (or explain why they do not have) at least two directors meeting certain diversity requirements; and b) provide ongoing disclosure about diversity statistics pertaining to their boards of directors. This is another predictable (and predicted) step in the growing focus on corporate diversity spearheaded in tandem by institutional shareholders, state governments and regulatory organizations. Our prior summaries of these efforts are found here and here.

Summary of Proposed Rule 560(f) – Board Diversity Requirement

Proposed Rule 5605(f) would require each Nasdaq-listed company to have at least two diverse directors, including one female and one who self-identifies as an underrepresented minority or as LGBTQ+. For purposes of the proposal:

  • Diverse means an individual who self-identifies in one or more of the following categories: female, underrepresented minority or LGBTQ+;
  • Female means an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth;
  • LGBTQ+ means an individual who self-identifies as lesbian, gay, bisexual, transgender and/or a member of the queer community; and
  • Underrepresented Minority means an individual who self-identifies as 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.

Diversity Matrix 

Proposed Rule 5606 requires each Nasdaq-listed company, subject to certain exceptions, to disclose on an annual basis statistical board diversity data about the self-identified gender, race and LGBTQ+ status of its company’s directors, in a table format. Any director who chooses not to disclose a gender would be included under “Gender Undisclosed,” and any director who chooses not to identify as a particular race or as LGBTQ+ would be included in the “Undisclosed” category at the bottom of the table.

Effectiveness and Phase-in

If approved as proposed, Nasdaq-listed companies would be required to comply as follows:

  • All companies would be required to have (or explain why they do not have) at least one diverse director no later than two years following approval; and
  • Each Global Select- or Global Market-listed company would be required to have (or explain why they do not have) at least two diverse directors within four years of the approval date (five years for Nasdaq Capital Market-listed companies).

SPACSs, asset-based issuers and certain other passive issuers would be exempt, and smaller reporting companies could satisfy the requirements by having two female directors. Companies with uncured deficiencies would be subject to delisting.

In sum, we believe the rules will be adopted substantially as proposed. We are now seeing companies beginning to make significant efforts toward increasing diversity and promoting inclusion within their boardrooms and in their executive officer ranks. For counsel on how to effectively enhance boardroom diversity and inclusion, please contact your Croke Fairchild Morgan & Beres attorney, or Geoff or Jessica:

About Croke Fairchild Morgan & Beres

Croke Fairchild Morgan & Beres is a corporate law firm providing services to businesses, private equity and venture firms and their portfolio companies, public companies, founders and family offices. Formed by partners who worked at preeminent international law firms, the firm boasts a deep bench of sophisticated and experienced corporate lawyers. With offices in Chicago, Lake Forest, and Milwaukee, our team provides exceptional legal service while affording our clients the benefits of working with a small, agile, and driven law firm. For more information, please visit us online at crokefairchild.com.