The Securities and Exchange Commission approved the proposed rule change by Nasdaq which will require listed companies to disclose information about the diversity of a company's board of directors. For a limited time, Nasdaq will offer certain listed companies access to a board recruitment service. The rule will require, to the extent permissible under applicable law, for a listed company to disclose, in aggregated form, "information on the voluntary self-identified gender and racial characteristics and LGBTQ+ status of the company's board of directors." It will also "require each Nasdaq-listed company, subject to certain exceptions, to have, or explain why it does not have, at least two members of its board of directors who are diverse, including at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented minority or LGBTQ+." Failure to comply could eventually, after a specified period, subject companies to delisting.
In a much longer statement, dissenting from the vote, Commissioner Roisman applauded Nasdaq's commitment to diversity and inclusion. He did note that he voted to support Nasdaq's proposal to offer listed companies recruiting services to potentially identify new candidates outside these companies' go-to networks, and commended Nasdaq for this effort. However, he stated he could not join in supporting the portion of the Commission's order that approves Nasdaq's proposed disclosure requirements for listed companies. The Commissioner noted that he does not believe the Commission fulfilled its obligations to find that the proposal, which has delisting implications for companies, meets the legal standards the Commission is required to apply while evaluating rules proposed by self-regulatory organizations ("SROs").
The Order, according to Commissioner Roisman, rests in large part on the idea that investors, as evidenced by the proposal's comment file and Nasdaq's assertions, demand the type of diversity information the proposal aims to elicit from Nasdaq's listed companies. Based largely on this demand, the Commission appears to conclude that the proposal would "promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest." Yet, Commissioner Roisman indicated that the Commission mostly reiterates these Nasdaq assertions without undertaking its own "reasoned analysis" to evaluate the merits of the proposal.
A client alert will follow. The Order can be found here: Order Approving Proposed Rule Changes, as Modified by Amendments No. 1, to Adopt Listing Rules Related to Board Diversity and to Offer Certain Listed Companies Access to a Complimentary Board Recruiting Service.
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