Securities Law Update | December 2020
Nasdaq Proposes Listing Rule to Promote Board Diversity
Nasdaq has filed a proposal with the Securities and Exchange Commission seeking approval for new listing requirements that promote board diversity. Foreign private issuers and other foreign issuers headquartered outside the U.S. would have more flexibility in meeting these requirements.
Citing studies demonstrating that diverse boards are associated with improved corporate governance and financial performance, the proposed rule would require companies listed on Nasdaq to annually provide specific statistical information in a proposed uniform format regarding diversity of its board of directors. The description would be included in a company’s proxy statement or posted on its website.
In addition, the rule would require most Nasdaq-listed companies to have at least (i) one director who self-identifies as a female and (ii) one director who self-identifies as either a racial minority or as LGBTQ+. Companies that do not meet these standards would face delisting unless they publicly explain why they have not complied with the requirements.
Racial minority would include Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander. LGBTQ+ would mean any of the following: lesbian, gay, bisexual, transgender or a member of the queer community.
Foreign private issuers and other foreign issuers that are headquartered outside the U.S. would have more flexibility and may satisfy the requirements by having two female directors on their board of directors. These companies would also be able to satisfy the requirements by having (i) one female and (ii) one person who self-identifies as an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the foreign companies’ home country jurisdiction.
The proposed rule would have limited impact on Israeli companies with external directors which are already required to have at least one female director under the Israeli Companies Law. In addition, Nasdaq specifically states that if an Israeli company is required only to have a minimum of one female director under Israeli law, it may choose to comply with Israeli home country law in lieu of the new proposed rules and publicly explain that the Israeli law requirement is the reason for not complying with the proposed diversity requirements.
The proposed rules are subject to review by the SEC and a public comment process.