Over the last few weeks, we have seen a flurry of activity concerning diversity in the boardroom. The Nasdaq Stock Market LLC (Nasdaq) proposed to the Securities and Exchange Commission (SEC) a new diversity rule and proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis each announced expanded diversity proxy voting guidelines. These developments continue a trend of increased investor focus on board diversity.
Nasdaq Proposes Diversity Requirement
Nasdaq filed a proposal this week that, if approved by the SEC (subject to certain exceptions), would ultimately require boards of Nasdaq-listed companies to have at least two diverse directors, consisting of at least one director whose self-identified gender is female and at least one director who self-identifies as either an underrepresented minority or LGBTQ+ (in each case as defined in the proposal).
If approved by the SEC, all Nasdaq-listed companies would be required to disclose certain statistical information regarding the diversity of their boards within one year of approval by the SEC (the Effective Date) and have at least one diverse director within two years of the Effective Date. Additionally, companies listed on the Nasdaq Global Select or Global Market tiers would be required to have at least two diverse directors within four years of the Effective Date and companies listed on the Nasdaq Capital Market would have to meet the same requirement within five years of the Effective Date. Companies failing to meet applicable requirements would have to provide to Nasdaq an explanation of their non-compliance. According to Nasdaq’s study, currently, more than 75% of its listed companies would not meet the requirements set forth under the proposed rule.