Nasdaq proposes board-diversity rule for listed companies

NASDAQ Proposes New Board Diversity Listing Rules

Nasdaq proposes board-diversity rule for listed companies

Date: 14 December 2020

U.S. Capital Markets Alert

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;

or

  • 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.

Noncompliance

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.

Exemptions

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, drivingdiversity@nasdaq.com.
  • 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).

Источник: https://www.klgates.com/Nasdaq-Proposes-New-Board-Diversity-Listing-Rules-12-14-2020

Nasdaq Proposed Rules Promote Board Diversity: What Businesses Need to Know

Nasdaq proposes board-diversity rule for listed companies

In light of the accelerating societal, institutional, and governmental recognition in recent years of the critical importance of diversity, Nasdaq recently proposed new rules that would require listed companies to have certain minimum diverse representation on their boards of directors—or explain why they do not—and provide disclosure regarding their diverse board representation.

According to Nasdaq, the proposal is designed both to provide investors with greater transparency regarding the composition of boards of directors and to substantively promote greater diverse board representation, which, according to cited studies, is associated with better financial performance and corporate governance. More broadly, Nasdaq’s effort to promote diversity is emblematic of the private sector’s increasing focus on environmental, social and governance (ESG) factors.

If adopted as proposed, the changes would have a significant impact, given that most Nasdaq-listed companies now fall short of these goals. The proposed rules are subject to review by the Securities and Exchange Commission and will undergo a public comment process prior to approval.

Details of the Proposal

Under the proposed rules, subject to certain exceptions, a Nasdaq-listed company must:

  • have (i) at least one director who self-identifies as a female, and (ii) at least 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 as LGBTQ+, or explain why the company does not have at least two directors on its board who self-identify in the categories listed above; and
  • provide statistical information in a uniform matrix format regarding its directors’ self-identified gender, race and self-identification as LGBTQ+.

A company may provide the board diversity information (both the above statistical information and the explanation for the lack of diverse directors, if applicable) either in the proxy statement for its annual meeting of shareholders, or on its website, provided it also provides Nasdaq with a link to such information within 15 days of the annual meeting.

Individual directors would have the right to opt disclosing their gender, race or LGBTQ+ status. In such event, the company would be required to report such directors as “Gender Undisclosed” or “Undisclosed” depending on the category.

If a company fails to make the required disclosure explaining why it does not meet the diversity requirement, Nasdaq’s Listing Qualification department would notify the company of the deadline to cure the deficiency by the later of its next annual meeting or 180 days from the event that caused the deficiency.

Accommodations and Exemptions

The proposed rules make accommodations for both foreign private issuers and smaller reporting companies by allowing them to satisfy the requirement by having two female directors instead of one female director and another in one of the other diverse categories.

Consistent with the approach taken by Nasdaq with respect to other board corporate governance requirements, the rules would not apply to companies with only non-voting preferred securities, debt securities or derivative securities listed, or to acquisition companies, asset-backed issuers, limited partnerships or management investment companies.

Effective Date and Transition Periods

Under proposed Rule 5605(f), no later than two calendar years after the approval date, each listed company must have, or explain why it does not have, one diverse director.

For companies listed on the Nasdaq Global Select or Global Market tiers, each company must have, or explain why it does not have, two diverse directors no later than four calendar years after the approval date. For companies listed on the Nasdaq Capital market tier, each company must have or explain why it does not have two diverse directors no later than five calendars years after the approval date.

In addition, a newly listed company that was not subject previously to a substantially similar requirement of another national securities exchange would be allowed one year from the date of listing to satisfy the diversity requirements.

Impact of the Proposed Rules

The rules, if adopted as proposed, would ly have a significant impact. More than three-quarters of Nasdaq-listed companies would have fallen short of the proposed requirements, according to a recent study conducted by Nasdaq. Although 80% to 90% of companies had at least one female director, only a quarter had a second female director who would satisfy the diversity requirements.

If the rules are adopted, most listed companies that are not currently in compliance with the proposed requirements would ly add diverse directors to bring themselves into compliance, rather than have to explain why they do not meet these minimal diversity requirements.

Nasdaq’s effort to promote diversity is part of the private sector’s increasing focus on ESG factors.

For example, BlackRock, State Street Global, and other influential investors have encouraged their portfolio companies to have more female directors, and Goldman Sachs Group stated last year it would no longer underwrite initial public offerings of companies that did not have at least one diverse board member.

So far, only states—for example, California and Washington—have adopted board diversity requirements; however, the SEC under the new Biden administration is expected to move away from its current trend of “principles-based” disclosure, instead adopting specific disclosure mandates, particularly relating to diversity, climate change, and other ESG-related areas.

Following Nasdaq’s proposal, the SEC is ly to adopt additional measures regarding board diversity and other ESG issues.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Write for Us: Author Guidelines

Author Information

Jeffrey S. Hochman is a partner in the Corporate & Financial Services Department at Willkie Farr & Gallagher LLP.

He focuses on mergers and acquisitions of public and private companies, public offerings, private equity transactions and general corporate and securities law.

He regularly advises boards of directors and executives regarding corporate governance issues and other sensitive matters.

William J. Stellmach, former head of the Department of Justice’s Criminal Division’s Fraud Section, is a partner in Willkie’s Litigation Department in Washington, D.C.

, and co-chair of the firm’s White-Collar Defense Group.

His practice focuses on representing companies, financial institutions and their boards and senior officers in internal and government-facing investigations and enforcement actions, and enhancing compliance programs.

Todd G. Cosenza is a partner in the Litigation Department and vice-chair of Willkie’s Securities Litigation Practice Group in New York, where he focuses on complex financial litigation.

The authors wish to thank Willkie associates Myia Williams and John Brennan for their contributions to the article.

Источник: https://news.bloomberglaw.com/esg/nasdaq-proposed-rules-promote-board-diversity-what-businesses-need-to-know

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.

Noncompliance 

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.

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.

Copyright 2020 K & L GatesNational Law Review, Volume X, Number 349

Источник: https://www.natlawreview.com/article/nasdaq-proposes-new-board-diversity-listing-rules

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