The US Securities and Exchange Commission has approved rule changes proposed by The Nasdaq Stock Market LLC, a Self-Regulatory Organization overseen by the SEC, in December 2020, with amendments submitted in February 2021. The rule changes, described here in detail, require “each Nasdaq-listed company, subject to certain exceptions, to publicly disclose in an aggregated form, to the extent permitted by applicable law, information on the voluntary self-identified gender and racial characteristics and LGBTQ+ status … of the company’s board of directors,” and to explain why it does not have at least two diverse members of its board – namely one female and one underrepresented minority. A second rule change, the Board Recruiting Service Proposal, proposed together with the board diversity amendment, was also approved. It makes available to Nasdaq-listed companies a board recruiting service focused on diverse candidates. The rule changes include an annual reporting requirement, and set a 180-day (or next annual shareholders’ meeting) deadline for to cure deficiencies. Non-compliance could result in delisting.
Following a public comment period, the SEC found the two Nasdaq proposals to be consistent with Section 5(b)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(b)(5)), which requires national securities exchange rules to be designed to promote equitable principles of trade, to remove impediments and foster a free and open market, and to prevent discrimination and fraudulent and manipulative practices. In its order approving the proposed rule changes as amended, the SEC addressed the various concerns that had been raised about the proposals.