The Nasdaq exchange, one of the largest in the world, requires that firms listed on its exchange have at least one woman director and one director who self-identified as being part of an underrepresented minority group by 2025. The SEC complemented this move by issuing compliance and disclosure interpretations related to the disclosure of self-identified diversity factors such as gender, race, ethnicity, nationality, religion, disability, sexual orientation, and cultural background for directors. The interpretations cover what should be included for sitting directors’ qualifications and director nominee qualifications.
The SEC wants the disclosure to include how the nominating committee or board took these diversity factors into consideration. However, the SEC does not require the committee to ask for this diversity information. In other words, if the company asks for this information, then the SEC would require the diversity considerations to be disclosed. In a recent article, my co-authors and I looked at the unintended consequences of such a policy and found that this lack of specificity with the term and meaning of diversity has allowed firms to claim significant progress on this front. However, in a research project – published in Business Ethics and the Environment – I stress that when disclosing information companies often overlook the ethical implications of including only some information to certain audiences. Properly conducted materiality assessments have become a popular tool to inform and prioritize various environmental, social and governance issues based on a company’s key stakeholders and their expectations.
SEC issued compliance and disclosure interpretations (C&DIs) related to disclosure of self-identified diversity factors such as gender, race, ethnicity, nationality, religion, disability, sexual orientation and cultural background for directors. The C&DIs cover what should be included for directors’ qualifications – specifically 116.11 (Item 401) and director nominee qualifications – 133.13 (Item 407).
Nasdaq’s Board Diversity Rule requires companies listed on Nasdaq’s U.S. exchange to: 1) Publicly disclose board-level diversity statistics annually using a standardized template; and
2) Have, or explain why they do not have, diverse directors. Importantly, a company could have its shares delisted from the exchange if it does not comply.
The schedule for companies to comply is the following:
Two Diverse Directors or Provide Explanation – Dec. 31, 2025
One Diverse Director or Provide Explanation – Dec. 31, 2023
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