Nasdaq Board Diversity Proposals Update: SEC Issues Notice of Amendments and Establishes Proceedings To Move Forward
On March 10, 2021, in relation to pending board diversity proposals filed by the Nasdaq Stock Market LLC (Nasdaq), the Securities and Exchange Commission (SEC) issued its Notice of Filing of Amendments No. 1 and Order Instituting Proceedings to Determine Whether to Approve or Disapprove the Proposed Rule Changes, to Adopt Listing Rules Related to Board Diversity and to Offer Certain Listed Companies Access to a Complimentary Board Recruiting Solution to Help Advance Diversity on Company Boards. A full copy is available here.
As previously covered in the December 17, 2020 edition of this newsletter, the original Nasdaq board diversity proposal was filed with the SEC on December 6, 2020. A summary of the proposal is available here. On January 19, 2021, the SEC designated a longer period of time to approve or disapprove the proposed rule changes, or to institute proceedings to make such a determination. On February 26, 2021, Nasdaq filed Amendment No. 1 which, among other technical and timing changes, amends the Board Diversity Proposal to:
Add a defined term for “Two or More Races or Ethnicities” to proposed Rule 5605(f)(1) (a person who identifies with more than one of the following categories: White (not of Hispanic or Latinx origin), Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian, or Pacific Islander).
Modify the application of proposed Rule 5605(f) to Foreign Issuers and clarify the scope of Exempt Companies (certain types of companies that do not have boards, do not list equity securities, or are not operating companies).
Provide a lower diversity objective for a company with five or fewer members on its board (to have, or explain why it does not have, at least one diverse board member, instead of two).
Modify certain disclosures required by proposed Rule 5606.
Modify the process by which a company may provide public disclosure if it does not meet the applicable board diversity objectives of proposed Rule 5605(f)(2) and similarly conform the process for providing the public disclosures under proposed Rule 5606. For example, companies could choose to disclose the diversity matrix on their websites, in their proxy statements, or in their Forms 10-K or 20-F. The information should be published in a searchable format.
Provide a grace period for a company that no longer meets the board diversity objectives of proposed Rule 5605(f)(2) due to a vacancy on its board and clarify the cure period for a company that does not satisfy proposed Rule 5605(f).
Provide additional justification and support for the proposed rule change.
The full text of Amendment No. 1 to the Board Diversity Proposal is available here.
Separately, Nasdaq also filed an amendment to its proposed Board Recruiting Service Proposal by which it would offer certain listed companies access to a complimentary board recruiting solution to help advance diversity on company boards. In addition to making various conforming changes, Amendment No. 1 specified the application of the Board Recruiting Service Proposal to a company with five or fewer members on its board and provided additional justification for the proposal to allow eligible companies until December 1, 2022, to begin using the complimentary board recruiting solution. The full text of Amendment No. 1 to the Board Recruiting Service Proposal is available here.
On March 10, 2021, the SEC issued its Notice and Order Instituting Proceedings. The SEC’s Notice and Order Instituting Proceedings invites interested persons to submit written data, views, arguments, and requests for oral presentations by 21 days following publication of the Notice and Order Instituting Proceedings in the Federal Register.