SEC approves Nasdaq’s comply-or-explain board diversity requirement

Nasdaq-listed companies must have or explain why they do not have at least two board members who are “diverse,” including at least one female and one underrepresented minority or LGBTQ+ member

Under newly approved amendments, many companies listed on the Nasdaq Stock Exchange (“Nasdaq”) will soon be required to have, or explain why they do not have, at least two board of directors members who are diverse (i.e., female, an underrepresented minority or LGBTQ+), including (i) at least one female director; and (ii) at least one underrepresented minority or LGBTQ+ director. Nasdaq-listed companies will also have to provide annual numerical disclosure on the diversity of their board of directors. 

Certain issuers will be given more flexibility: non-U.S. issuers and smaller reporting companies will be allowed to satisfy the new requirements with only two female directors, and companies with smaller boards (i.e., five or fewer members) with only one diverse board member. Special purpose acquisition companies (“SPACs”) (but not the listed companies post-merger or acquisition), issuers of non-voting preferred securities, debt securities and derivative securities will be exempt from the requirements. 

Nasdaq-listed companies will have until at least August 7, 2023 – two years from when the U.S. Securities and Exchange Commission (the “SEC”) approved the amendments – to comply with the comply-or-explain requirement, and until at least until August 8, 2022 to begin providing annual board diversity statistics.  

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