September 26, 2021

Volume XI, Number 269

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September 23, 2021

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Nasdaq Amends Proposed Rule on Board Diversity to Provide Compliance Flexibility

On December 1, 2020, Nasdaq filed a proposed rule with the U.S. Securities and Exchange Commission (SEC) that would require certain Nasdaq-listed companies to have at least two diverse directors (according to self-reported gender, race, and sexual orientation) or explain why the company has not been able to meet the proposed minimum diversity standards, and disclose certain board diversity-related statistics.

While many have lauded Nasdaq’s proposed rule to promote board diversity, there have been vocal critics of the proposed rule. Notably, in a letter dated February 12, 2021, Republican members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs asked that the SEC disapprove the rule. Even certain diversity advocates opposed the rule; for example, some disability advocates objected that the rule promoted gender and racial diversity while excluding disability diversity.

In response to criticism and comments, on February 26, 2021, Nasdaq filed an amendment to its proposed rule and submitted a lengthy response to comments on the proposed rule. On March 10, 2021, the SEC published a notice and order to solicit comments on the revised proposed rule.

Summary of the Amended Proposed Rule

The revised proposed rule would provide more flexibility to listed companies in achieving compliance. Nasdaq also changed compliance to a “diversity objective” instead of the prior “diversity requirement.” Changes in the proposed rule include the following:

  • More flexibility to companies with smaller boards. A listed company with five or fewer directors would meet the diversity objective by having one diverse director instead of two.
  • One-year grace period for board vacancies. Listed companies would have a “one year grace period” to meet the proposed diversity objective due to a vacancy on the board (“for example if a diverse director falls ill or resigns”).
  • Alignment with annual meetings. The timing of the proposed disclosure requirements are revised such that disclosures would be made “publicly available in advance of annual shareholder meetings to align with the timing of other governance-related disclosures, such as those provided in the proxy.”
  • Longer phase-in period for new listings. Newly listed companies would have two years, rather than one year, to fully meet the diversity objectives.

Nasdaq’s proposed amendments are subject to SEC review and remain open for public comments.

The Takeaway

The fate of Nasdaq’s amended proposed rule and its SEC approval determination remains to be seen. However, in light of increasing social awareness of diversity and inclusion challenges, including a push by large investors and proxy advisory firms to champion diversity and other environmental, social, and governance (ESG) factors, public companies may want to consider steps to diversify boards and prepare for regulatory changes.

© 2021, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume XI, Number 84
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About this Author

Joseph B. Cartafalsa Labor & Employment Lawyer Ogletree Deakins Law Firm
Shareholder

Joseph B. Cartafalsa represents management in all aspects of labor and employment law and related litigation. He frequently represents and advises employers on their rights and obligations under the myriad of federal, state and local employment related laws and regulations. He has worked closely with employers to provide counseling during particularly sensitive times such as during layoffs, mergers or corporate restructuring; when sexual harassment or discrimination is alleged; and when an employee requests a medical leave or job accommodation. Mr. Cartafalsa has also been called...

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Josh Harrison, Ogletree Deakins, Lawyer, wage and hour compliance issues attorney, Birmingham, Alabama
Associate

Josh represents employers in all aspects of employment and labor law.  As a litigator, Josh is well-versed in virtually every aspect of employment litigation. From handling bench and jury trials to arguing before the Federal Courts of Appeals, he has an accomplished litigation track record spanning jurisdictions across the country.  Josh has obtained summary judgment for clients in federal employment lawsuits in a number of jurisdictions, including Alabama, Arkansas, Colorado, Georgia, Kansas, Louisiana, and Texas. Josh has successfully handled appeals before the United...

205-714-4414
Sierra J. Gray Traditional Labor Relations Ogletree, Deakins, Nash, Smoak & Stewart Birmingham, AL
Associate

Sierra Gray is an associate in the Birmingham office of Ogletree Deakins.

She advises employers in a variety of labor and employment matters. She is dedicated to helping her clients navigate complex workplace issues by providing practical advice and efficient, innovative representation. Sierra also represents employers in all aspects of traditional labor relations including representing and advising employers in union representation and unfair labor practice charges.

Prior to attending law school, Sierra graduated magna cum laude from Tuskegee University with a...

205-714-4431
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