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NASDAQ Proposes New Board Diversity Listing Rules

Date: 14 December 2020
U.S. Capital Markets Alert
By: Mark L. Johnson, Bella Zaslavsky, Andrew H. Galtieri

On 1 December 2020, The Nasdaq Stock Market (Nasdaq) filed a proposal with the Securities and Exchange Commission (SEC) to adopt listing rules related to director diversity and disclosure. The proposed rules would not mandate the election of any “diverse” directors, but instead would reflect a “comply or explain” approach: listed companies generally would be required to either have two diverse directors or explain why they do not. In addition, listed companies would be required to annually disclose statistical information on the diversity of their boards of directors.

Companies already listed on Nasdaq would be required to comply with the new requirements by:

  • Disclosing board diversity statistics by the first anniversary of SEC approval of the rules.
  • Having at least one diverse director (or explaining why not) by the second anniversary of SEC approval.
  • Having at least two diverse directors (or explaining why not):
    • For a company listed on The Nasdaq Global Select Market or The Nasdaq Global Market, by the fourth anniversary of SEC approval; or
    • For a company listed on The Nasdaq Capital Market, by the fifth anniversary of SEC approval.

Each company newly listing on Nasdaq would be required to comply with all of the new requirements by the later of (a) the phase-in periods described above and (b) one year after the date of listing.

Diverse Board Representation

Proposed Rule 5605(f) would require each Nasdaq-listed company (except as described under “Exemptions” below) to either:

  • Have at least two diverse directors, including:
    • One director who self-identifies as female, without regard to her designated sex at birth, and
    • One director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or LGBTQ+, except that a “smaller reporting company” or foreign private issuer may comply with this requirement by electing a second director who self identifies as female;


  • Explain, in its proxy statement (or on its website, with a supplemental disclosure to the Nasdaq Listing Center), why the company does not meet the board diversity requirements described above—note that Nasdaq has stated it will verify that a company has provided the required explanation, but will not assess the explanation’s substance.

Board Diversity Disclosure

Proposed Rule 5606 would require each Nasdaq-listed company (except as described under “Exemptions” below) to provide, in a proposed uniform format referred to as a Board Diversity Matrix, statistical information with respect to directors’ self-identified gender, race, and LGBTQ+ status. The information would be required to be provided for the current year and, except in the first year of disclosure, the immediately prior year.


If the SEC approves the proposed rule for diverse board representation, any Nasdaq-listed company failing to timely satisfy the “comply or explain” requirements would be notified by Nasdaq that the company needs to address the deficiency by the later of its next annual shareholder meeting and 180 days from an event that caused the deficiency. The company could cure the deficiency by either electing any additional diverse director required to comply or providing an explanation for not having the diverse board representation. A continuing failure to “comply or explain” would subject the company to delisting.


Nasdaq proposes to exempt the following types of companies from the requirements of the proposed rules:

  • Acquisition companies listed under IM 5101-2;
  • Management investment companies;
  • Cooperatives;
  • Asset-backed issuers and other passive issuers;
  • Limited partnerships;
  • Issuers of non-voting preferred securities, debt securities, and derivative securities; and
  • Issuers of securities listed under the Rule 5700 Series

What’s Next?

Comments on the proposal may be submitted to the SEC by 1 January 2021, and SEC approval of the proposal would occur between 10 January 2021 and 8 August 2021.

Nasdaq has announced it is working to provide resources to help listed companies understand the new board diversity and disclosure requirements.

  • A list of frequently asked questions is available on the Nasdaq Listing Center website.
  • Questions and concerns may be addressed to Nasdaq at a dedicated email account,
  • Nasdaq will introduce a partnership with Equilar, a provider of corporate leadership data solutions, to assist with board composition planning objectives (subject to SEC approval).

This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.

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