SEC Approves Nasdaq Board Diversity Rule
On August 6, 2021, the Securities and Exchange Commission (SEC) approved new listing standards of the Nasdaq Stock Market that promote board diversity. Foreign private issuers and foreign issuers with their principal executive offices located outside the U.S. have more flexibility in meeting these requirements.
Standards for Board Diversity. The new rules require Nasdaq-listed companies to have, or to explain why they do not have, at least two diverse directors, including (i) at least one director who self-identifies as female and (ii) at least one director who self-identifies as either an “Underrepresented Minority,” as defined in the Nasdaq rules or as LGBTQ+. Foreign issuers (including foreign issuers with their principal executive offices located outside the U.S.) and smaller reporting companies may satisfy the diversity standards by having two directors who self-identify as female. Companies with five or fewer directors may satisfy the diversity standards by having one diverse director.
Listed SPAC’s are not required to have, or disclose that they do not have, any minimum number of diverse directors until after their business combination. Exemptions also apply to other types of issuers as described in the new rules.
It should be noted that the Israeli Companies Law already requires that boards of directors of Israeli public companies include at least one member of each gender.
Disclosure of Board Diversity. The new rules also require Nasdaq-listed companies to annually disclose directors’ self-identified gender, race and ethnicity (i.e., African American or Black, Alaskan Native or Native American, Asian, Hispanic or Latinx, Native Hawaiian or Pacific Islander, White, or Two or More Races or Ethnicities) and LGBTQ+ status in a standardized board diversity matrix.
A foreign issuer may elect to use an alternative board diversity matrix format, which, among other things, requires disclosing the number of directors who self-identify as underrepresented individuals in the foreign issuer’s home country jurisdiction and LGBTQ+ status, as well as indicating whether diversity disclosure is prohibited under its home country law.
Disclosure of any reasons for non-compliance with the diversity standards and disclosure of the board diversity matrix described above must be provided in (i) the company’s proxy statement or its information statement (or if the company does not file a proxy, its Form 10-K or 20-F) or (ii) on the company’s website. If the company provides such disclosure on its website, it must add this disclosure to its website concurrently with the filing described in (i) above and submit a URL link to the disclosure through the Nasdaq Listing Center within one business day after such posting.
Compliance Dates
Compliance with Diversity Rule. The timeframe for compliance with Nasdaq’s board diversity ruledepends on the company’s listing tier and board size:
- Nasdaq Global Select Market and Nasdaq Global Market companies must have, or explain why they do not have, at least one diverse director by August 7, 2023, and two diverse directors by August 6, 2025.
- Nasdaq Capital Market companies must have, or explain why they do not have, at least one diverse director by August 7, 2023, and two diverse directors by August 6, 2026.
- Companies with boards of five or less directors, regardless of listing tier, must have, or explain why they do not have, at least one diverse director by August 7, 2023.
In each of these cases, the deadline would be extended to the date, if later, that the company files its proxy or information statement (or, if the company does not file a proxy, its Form 10-K or 20-F) for the company’s annual shareholder meeting in the applicable year.
Companies newly listing on Nasdaq before the expiration of the phase-in period described above must meet, or explain why they do not meet, the applicable diversity standards by the later of (i) the remainder of the applicable phase-in period described above or (ii) two years from the date of listing. Following expiration of the applicable phase-in period, newly listed companies on Nasdaq must meet the board diversity standards by the later of (i) two years from the date of listing or (ii) the date the company files its proxy statement or information statement (or, if the company does not file a proxy, in its Form 10-K or 20-F) for the company’s second annual meeting of shareholders after its initial listing, with differing milestones depending on the company’s market tier.
Board Diversity Matrix.
Companies have until the later of August 8, 2022, or the date the company files its proxy or information statement for the company’s annual shareholder meeting during 2022. Newly listed companies must satisfy this requirement within one year of listing.
For more information, please contact your Gross & Co. attorney or Adv. Perry Wildes (perry@gkh-law.com).
Gross & Co. Law Firm (GKH) is one of the leading law firms in Israel, with over 170 attorneys. Gross & Co. specializes, both in Israel and abroad, in various fields of law including Mergers and Acquisitions, Capital Markets, Technology, Healthcare and Life Science, Banking, Real Estate, Project Finance, Litigation, Antitrust, Energy and Infrastructure, Environmental Law, Intellectual Property, Labor Law and Tax.
This alert is prepared as an informational service to clients and colleagues of Gross & Co. (GKH) and the information presented is not intended to provide legal opinions or advice. Readers should seek professional legal advice regarding the matters about which they are particularly concerned.
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