SEC Approves Nasdaq Board Diversity Framework

A divided SEC voted to approve Nasdaq’s proposed rule changes requiring issuers to disclose certain information about the diversity of the company’s board and to offer certain companies access to a complimentary board recruiting service. “These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have the flexibility to make decisions that best serve their shareholders,” Chairman Gary Gensler said in a statement. He continued that the rules reflect calls from investors for greater transparency about the people who lead public companies and noted that a broad cross-section of commenters supported the proposed board diversity disclosure rule. “Investors are looking for consistent and comparable data when making decisions about their investments. I believe that our markets work best when investors have access to such information,” Gensler said. A blog post from law firm Perkins Coie summarizes the measure and its practical aspects, including effective dates for compliance. Under the Board Diversity Proposal, Nasdaq requires each Nasdaq-listed company, subject to certain exceptions, to publicly disclose in an aggregated form information on the voluntary self-identified gender and racial characteristics and LGBTQ+ status of the company’s board of directors. Nasdaq, which describes the proposal as a disclosure framework, also requires each listed company, subject to certain exceptions, to have, or explain why it does not have, at least two members of its board of directors 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+. Under the Board Recruiting Service Proposal, Nasdaq proposes to provide certain Nasdaq-listed companies with one year of complimentary access for two users to a board recruiting service, which would provide access to a network of board-ready diverse candidates for companies to identify and evaluate. SEC Commissioners Hester Peirce and Elad Roisman stated their opposition to the proposal. Peirce stated that while she shares the proposal’s goal to expand opportunity, Nasdaq did not show that its proposal is consistent with the Exchange Act and that the proposal was “contrary to fundamental Constitutional principles.” Roisman also lauded the proposal’s goals but pointed to shortcomings. “While I support the goal of having more diverse and inclusive boards of directors, a noble goal does not justify short-changing the agency’s legal obligations. Regrettably, I do not believe that the Commission has fulfilled its obligations to find that this Proposal, which has delisting implications for companies, meets the legal standards that we are required to apply in evaluating rules proposed by self-regulatory organizations.”