How Updating Your D&O Questionnaires Can Help You Meet Nasdaq’s New Board Diversity Rule

Certain Nasdaq-listed companies should start taking steps now to make sure they comply with Nasdaq’s new rule on board diversity. Keep reading for a breakdown of the new requirements and deadlines.

What is Nasdaq’s Board Diversity Rule?

The SEC approved Nasdaq’s new Board Diversity Rule on Aug. 6, 2021. The rule generally requires companies to:

• Publicly disclose board-level diversity statistics using a standardized template (the Board Diversity Matrix)
• Have, or explain why they do not have, at least two diverse directors

When do companies need to meet these requirements?

Board Diversity Matrix Deadline

The deadline for Nasdaq-listed companies to disclose the initial Board Diversity Matrix is the later of Aug. 8, 2022, or the date the company files its proxy or information statement for its annual shareholders’ meeting (or, as applicable, its Form 10-K or 20-F) during the 2022 calendar year. If a company files its 2022 proxy or information statement (or Form 10-K or 20-F) before Aug. 8, 2022, and does not include the matrix, or if a listed company will not file a proxy statement in 2022, then it will have until Aug. 8, 2022, to disclose its matrix on its website or in an amended annual report, as applicable. If a company files its 2022 proxy or information statement (or Form 10-K or 20-F) on or after Aug. 8, 2022, then it is required to either include the matrix in such document or post the matrix on its website within one business day of filing its proxy statement.

Companies choosing to only post the matrix on their website will also be required to complete a short form through the Nasdaq Listing Center. Nasdaq has released instructions for completing the matrix and examples of acceptable formats.

Board Composition Deadline

As set forth below, the effective time for the board composition rule depends on a company’s listing tier and board size.

• Nasdaq Global Select Market or Nasdaq Global Market: Have, or explain why they do not have, one diverse director by Aug. 7, 2023, and two diverse directors by Aug. 6, 2025
• Nasdaq Capital Market: Have, or explain why they do not have, one diverse director by Aug. 7, 2023, and two diverse directors by Aug. 6, 2026
• Boards of Five or Fewer Directors: Have, or explain why they do not have, one diverse director by Aug. 7, 2023 (regardless of listing tier)

There is also some added flexibility for Smaller Reporting Companies and Foreign Issuers.

How can companies prepare for the new rule?

Now is the time to review last year’s D&O Questionnaire to determine if it requests the information required to comply with Nasdaq’s Board Diversity Rule. To help you revise your questionnaire to obtain the necessary information, Nasdaq has posted sample questions. Nasdaq’s suggested questions pertain primarily to race, ethnicity and gender identity.

Please contact Phelps’ Business team if you have questions or need compliance advice and guidance. You can also email questions to Nasdaq’s dedicated mailbox.