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SEC approves Nasdaq rule to require disclosure

KPMG Board Leadership Center: Board diversity disclosure

The SEC approved a Nasdaq proposal that requires Nasdaq-listed companies to:

  • Have, or explain why it does not have, at least two members of its board of directors who are Diverse (as defined in the rule), including at least one director who self-identifies as female and at least one director who self-identifies as an Underrepresented Minority or LGBTQ+.
  • Publicly disclose its board-level diversity in a standardized format similar to the Board Diversity Matrix provided in the rule, which includes the number of directors:
  • Based on gender identity (female, male, or non-binary) and the number of directors who did not disclose gender
  • Based on race and ethnicity (African American or Black, Alaskan Native or Native American, Asian, Hispanic or Latinx, Native Hawaiian or Pacific Islander, White, or Two or More Races or Ethnicities), disaggregated by gender identity (or did not disclose gender)
  • Who self-identify as LGBTQ+
  • Who did not disclose a demographic background under race, ethnicity, or LGBTQ+.
  • Provide disclosure in any proxy statement or information statement or on the company website.
  • In general, comply by having at least one Diverse director beginning two calendar years after the SEC’s approval date, and at least two Diverse directors within four calendar years after the SEC’s approval date.
  • Be subject to delisting from the Nasdaq Exchange for failure to comply with the disclosure or explanation requirements.

Note: Exceptions/“flexibilities” are provided for Smaller Reporting Companies, Foreign Issuers, and companies with five or fewer directors.

Related links

  • SEC Chair Gensler and two SEC Commissioners provided public statements in support of the SEC’s approval of the Nasdaq proposal (available here and here.)
  • Two SEC Commissioners provided detailed dissenting statements, which are available here and here.
  • The SEC also approved a second, complementary Nasdaq proposal to provide certain eligible Nasdaq-listed companies (as defined in the rule) with one year of complimentary access to a board recruiting service, which would provide access to a network of board-ready diverse candidates for companies to identify and evaluate.

Focus of the Administration

Executive Orders. The President has signed multiple Executive Orders directed toward advancing diversity, equity, and inclusion both within government agencies and public policies as well as more broadly throughout the economy. Congress and individual regulatory agencies have taken related action within their jurisdictions. (see KPMG Regulatory Alerts herehere, and here.)

SEC Disclosures. Separately, as part of its Spring 2021 Regulatory Agenda, the SEC listed enhanced disclosures related to “Corporate Board Diversity” and “Human Capital Management” among its proposed rulemakings to be released in the fall of 2021. With regard to “Human Capital Management,” Chair Gensler said the proposal “could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety.”

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