Nasdaq-specified board REPORTING requirements for Nasdaq-listed companies.


In the recent past, there has been a widespread trend favoring greater diversity at the top level of management—the corporate board of directors. According to a recent Institutional Shareholder Services (ISS) survey, there is widespread approval of at least the disclosure of board diversity, or the lack thereof.1 Some states, including California, have passed laws requiring diversity on corporate boards.2 Goldman Sachs made headlines by announcing it would not represent companies going public that did not meet its standards of diversity.3 Yet, as far as can be ascertained, corporate boards are largely composed of white males.4

Only about 10% of S&P 500 companies explicitly disclose the race (ethnicity) of individual directors, and eight out of ten of those board members are white. Female directors continue to represent less than one-fifth of the total population of board members in the Russell 3000, and 13.4% of Russell 3000 companies do not yet have a single woman on their board.5 Appointment of women to boards of public companies has reportedly increased in the past two years.6 Many companies do not have a single black director.7

In late 2020, Nasdaq required Nasdaq-listed companies to disclose whether the companies meet Nasdaq-specified board diversity requirements. Specifically, the new listing rules require companies to have at least one female director and one director who is a racial minority or who self-identifies as LGBTQ+, or to provide an explanation why they do not.8

On August 6, 2021, the SEC approved Nasdaq's proposed board diversity rules. The rules require Nasdaq-listed companies to disclose annually statistical information on board diversity using a standardized board diversity matrix. The rules also require companies to have or explain why they do not have at least two diverse directors. To assist companies in identifying diverse directors, the SEC also approved rules that provide Nasdaq-listed companies with access to a variety of board recruiting services at no cost for a limited time.9

The requirement to have a diverse board or explain the lack of diverse directors becomes effective in two steps: August 7, 2023, for one director and August 6, 2025 (August 6, 2026, for companies listed on the Nasdaq Capital Market), for two directors. A Nasdaq FAQ states that if a company files its proxy or information statement (or, if the company does not file a proxy or information statement, its Form 10K or 20F) for the company's annual shareholders meeting after the applicable effective date noted in the previous sentence during that calendar year, then the company will have until the date it makes that filing to meet, or explain why it does not meet, the applicable diversity objectives.10

The Nasdaq rules does not compel any specific board diversity or set any quota. If a corporation does not meet Nasdaq standards, the rules require an explanation. According to Nasdaq:

If a company chooses to explain why it does not meet the diversity objectives, it would provide its explanation in its proxy statement, information statement for its annual shareholder meeting, or on the company's website. Nasdaq will verify that the company has provided an explanation, but will not assess the merits of the explanation. There is no right or wrong reason that a company may give for not having at least two directors.11

Some companies are exempt from the rule, including limited partnerships, asset-backed companies and special purpose acquisition companies (SPACs). With respect to SPACs, any post-business combination entity will have at least two years after it completes a business combination to comply with the new rules.

Not every commentator approves of the Nasdaq rule. Two of the SEC commissioners, while claiming to support diversity, questioned the rule's validity. At least one lawsuit has been filed, seeking to block the rule.12

What Does This Mean for Our Clients?

It must be stressed that there is no current federal law setting a quota for diversity on corporate boards. Nevertheless, seating a board that reflects the gender and racial characteristics of the corporate workforce, the country or both has gained increasing attention, as referenced above.

Fortunately, there is no shortage of advice available. Consultants, law firms and even Nasdaq13 can provide assistance in responding to both the new Nasdaq rules and activist investors. Some commonsense steps that corporations can consider:

  • Seek the guidance of outside advisors, especially counsel, on the relevant legal and financial considerations.
  • Develop a strategy for addressing diversity issues, including identifying appropriate managers for assessing current conditions and implementing future steps.
  • Encourage current board members to consider their own succession, focusing on seeking diverse candidates.
  • Educate all levels of management on the benefit of fostering an inclusive workplace.

As always, Gallagher professionals are ready to assist in exploring and creating risk management strategies in this and other areas.



2 ,discussing state law proposals in Hawaii, New York, Maryland, Michigan, and New Jersey.


4Racial justice in the workplace: In-depth look at diversity's struggle to crack corporate boardrooms: money/business/2021/07/18/workplace-diversity-struggles-break-into-corporate-boardrooms/7906529002/ ; Corporate boards are still mostly white, mostly male — and getting even older:




8; The rules apply to nearly all Nasdaq-listed companies, including smaller reporting companies and, with some accommodations for home country requirements, foreign private issuers. The rules provide limited exemptions for companies such as asset-backed issuers and SPACs listed under Nasdaq IM-5101-2. Companies with five or fewer directors can satisfy the board diversity requirement by adding a single diverse director without becoming subject to the requirement to have two or more diverse directors. The requirement to disclose board diversity factors using the Nasdaq matrix will become effective on the later of August 8, 2022, or the date on which the company files its proxy statement or information statement for its annual shareholders meeting during calendar year 2022 (or, if the company does not file a proxy or information statement, the date on which it files its Form 10K or 20F annual report). A Nasdaq FAQ published on August 13 states that a company that files its 2022 proxy or information statement (or its Form 10K or 20F) before August 8, 2022, and does not include the Nasdaq matrix will have until August 8, 2022, to disclose its matrix. The company can make this disclosure either on its website or in an amendment to its annual report, such as on Form 10K/A or 20F/A.

9See Securities Exchange Act Release No. 34-92590 (August 6, 2021) (order approving SR-NASDAQ-2020-081 and SR-NASDAQ-2020-082) (Order).

10Further information can be found at




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