80472 Federal Register / Vol. 85, No. 239 / Friday, December 11, 2020 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Deloitte and the Society for Corporate 

Governance, Board Practices Quarterly: Diversity, 

equity, and inclusion (Sept. 2020), available at: 

https://www2.deloitte.com/us/en/pages/center-forboard-effectiveness/articles/diversity-equity-andinclusion.html (finding, in a survey of over 200 

companies, that ‘‘most companies and/or their 

boards have taken, or intend to take, actions in 

response to recent events surrounding racial 

inequality and inequity; 71% of public companies 

and 65% of private companies answered this 

question affirmatively’’). 

4See ISS Governance, 2020 Global Benchmark 

Policy Survey, Summary of Results 6 (Sept. 24, 

2020), available at: https://www.issgovernance.com/ 

wp-content/uploads/publications/2020-iss-policysurvey-results-report-1.pdf (finding that ‘‘a 

significant majority of investors (61 percent) 

indicated that boards should aim to reflect the 

company’s customer base and the broader societies 

in which they operate by including directors drawn 

from racial and ethnic minority groups’’). 

5See International Corporate Governance 

Network, ICGN Guidance on Diversity on Boards 5 

(2016), available at: https://www.icgn.org/sites/ 

default/files/ICGN%20Guidance%20on%20

Diversity%20on%20Boards%20-%20Final.pdf 

(‘‘The ICGN believes that diversity is a core 

attribute of a well-functioning board which 

supports greater long-term value for shareholders 

and companies.’’). 

6See, e.g., John J. Cannon et al., Sherman & 

Sterling LLP, Washington State Becomes Next to 

Mandate Gender Diversity on Boards (May 28, 

2020), available at: https://www.shearman.com/ 

perspectives/2020/05/washington-state-becomesnext-to-mandate-gender-diversity-on-boards; Cal. 

S.B. 826 (Sept. 30, 2018); Cal. A.B. 979 (Sept. 30, 

2020) (California legislation requiring companies 

headquartered in the state to have at least one 

director who self-identifies as a Female and one 

from an Underrepresented Community). 

7See Commissioner Allison Herren Lee, 

Regulation S–K and ESG Disclosures: An 

Unsustainable Silence (Aug. 26, 2020), available at: 

https://www.sec.gov/news/public-statement/leeregulation-s-k-2020-08-26#_ftnref15 (‘‘There is evergrowing recognition of the importance of diversity 

from all types of investors . . . [a]nd large numbers 

of commenters on this [SEC] rule proposal 

emphasized the need for specific diversity 

disclosure requirements.’’); see also Commissioner 

Caroline Crenshaw, Statement on the 

‘‘Modernization’’ of Regulation S–K Items 101, 103, 

and 105 (August 26, 2020), available at: https://

www.sec.gov/news/public-statement/crenshawstatement-modernization-regulation-s-k (‘‘As 

Commissioner Lee noted in her statement, the final 

[SEC] rule is also silent on diversity, an issue that 

is extremely important to investors and to the 

national conversation. The failure to grapple with 

these issues is, quite simply, a failure to 

modernize.’’); Mary Jo White, Keynote Address, 

International Corporate Governance Network 

Annual Conference: Focusing the Lens of Disclosure 

to Set the Path Forward on Board Diversity, NonGAAP, and Sustainability (June 27, 2016), available 

at: https://www.sec.gov/news/speech/chair-whiteicgn-speech.html (‘‘Companies’ disclosures on 

board diversity in reporting under our current 

requirements have generally been vague and have 

changed little since the rule was adopted . . . Our 

lens of board diversity disclosure needs to be refocused in order to better serve and inform 

investors.’’). 

8See Vanguard, Investment Stewardship 2019 

Annual Report (2019), available at: https://

about.vanguard.com/investment-stewardship/ 

perspectives-and-commentary/2019_investment_

stewardship_annual_report.pdf (‘‘We want 

companies to disclose the diversity makeup of their 

boards on dimensions such as gender, age, race, 

ethnicity, and national origin, at least on an 

aggregate basis.’’); see also State Street Global 

Advisors, Diversity Strategy, Goals & Disclosure: 

Our Expectations for Public Companies (Aug. 27, 

2020) https://www.ssga.com/us/en/individual/etfs/ 

insights/diversity-strategy-goals-disclosure-ourexpectations-for-public-companies (announcing 

expectation that State Street’s portfolio companies 

(including US companies ‘‘and, to the greatest 

extent possible, non-US companies’’) provide board 

level ‘‘[d]iversity characteristics, including racial 

and ethnic makeup, of the board of directors’’). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90574; File No. SR– 

NASDAQ–2020–081] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Proposed Rule Change To 

Adopt Listing Rules Related to Board 

Diversity 

December 4, 2020. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

1, 2020, The Nasdaq Stock Market LLC 

(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt 

listing rules related to board diversity, 

as described in more detail below: 

(i) To adopt Rule 5605(f) (Diverse 

Board Representation), which would 

require Nasdaq-listed companies, 

subject to certain exceptions, (A) to have 

at least one director who self-identifies 

as a female, and (B) to have at least one 

director who self-identifies as Black or 

African American, Hispanic or Latinx, 

Asian, Native American or Alaska 

Native, Native Hawaiian or Pacific 

Islander, two or more races or 

ethnicities, or as LGBTQ+, or (C) to 

explain why the company does not have 

at least two directors on its board who 

self-identify in the categories listed 

above; 

(ii) to adopt Rule 5606 (Board 

Diversity Disclosure), which would 

require Nasdaq-listed companies, 

subject to certain exceptions, to provide 

statistical information in a proposed 

uniform format on the company’s board 

of directors related to a director’s selfidentified gender, race, and selfidentification as LGBTQ+; and 

(iii) to update Rule 5615 and IM– 

5615–3 (Foreign Private Issuers) and 

Rule 5810(c) (Types of Deficiencies and 

Notifications) to incorporate references 

to proposed Rule 5605(f) and Rule 5606; 

and 

(iv) to make certain other nonsubstantive conforming changes. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

I. The Diversity Imperative for Corporate 

Boards 

Over the past year, the social justice 

movement has brought heightened 

attention to the commitment of public 

companies to diversity and inclusion. 

Controversies arising from corporate 

culture and human capital management 

challenges, as well as technology-driven 

changes to the business landscape, 

already underscored the need for 

enhanced board diversity—diversity in 

the boardroom is good corporate 

governance. The benefits to stakeholders 

of increased diversity are becoming 

more apparent and include an increased 

variety of fresh perspectives, improved 

decision making and oversight, and 

strengthened internal controls. Nasdaq 

believes that the heightened focus on 

corporate board diversity by 

companies,3 investors,4 corporate 

governance organizations,5 and 

legislators 6 demonstrates that investor 

confidence is enhanced when 

boardrooms are comprised of more than 

one demographic group. Nasdaq has 

also observed recent calls from SEC 

commissioners 7 and investors 8 for 


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companies to provide more 

transparency regarding board diversity. 

Nasdaq conducted an internal study 

of the current state of board diversity 

among Nasdaq-listed companies based 

on public disclosures, and found that 

while some companies already have 

made laudable progress in diversifying 

their boardrooms, the national market 

system and the public interest would 

best be served by an additional 

regulatory impetus for companies to 

embrace meaningful and multidimensional diversification of their 

boards. It also found that current 

reporting of board diversity data was not 

provided in a consistent manner or on 

a sufficiently widespread basis. As such, 

investors are not able to readily compare 

board diversity statistics across 

companies. 

Accordingly, Nasdaq is proposing to 

require each of its listed companies, 

subject to certain exceptions, to: (i) 

Provide statistical information regarding 

diversity among the members of the 

company’s board of directors under 

proposed Rule 5606; and (ii) have, or 

explain why it does not have, at least 

two ‘‘Diverse’’ directors on its board 

under proposed rule 5605(f)(2). 

‘‘Diverse’’ means a director who selfidentifies as: (i) Female, (ii) an 

Underrepresented Minority, or (iii) 

LGBTQ+. Each listed company must 

have, or explain why it does not have, 

at least one Female director and at least 

one director who is either an 

Underrepresented Minority or LGBTQ+. 

Foreign Issuers (including Foreign 

Private Issuers) and Smaller Reporting 

Companies, by contrast, have more 

flexibility and may satisfy the 

requirement by having two Female 

directors. ‘‘Female’’ means an 

individual who self-identifies her 

gender as a woman, without regard to 

the individual’s designated sex at birth. 

‘‘Underrepresented Minority’’ means, 

consistent with the categories reported 

to the Equal Employment Opportunity 

Commission (‘‘EEOC’’) through the 

Employer Information Report EEO–1 

Form (‘‘EEO–1 Report’’), an individual 

who self-identifies as one or more of the 

following: Black or African American, 

Hispanic or Latinx, Asian, Native 

American or Alaska Native, Native 

Hawaiian or Pacific Islander, or Two or 

More Races or Ethnicities. ‘‘LGBTQ+’’ 

means an individual who self-identifies 

as any of the following: Lesbian, gay, 

bisexual, transgender or a member of the 

queer community. 

Under proposed Rule 5606, Nasdaq 

proposes to provide each company with 

one calendar year from the date that the 

Commission approves this proposal (the 

‘‘Approval Date’’) to comply with the 

requirement for statistical information 

regarding diversity. Under proposed 

Rule 5605(f)(2), no later than two 

calendar years after the Approval Date, 

each company must have, or explain 

why it does not have, one Diverse 

director. Further, each company must 

have, or explain why it does not have, 

two Diverse directors no later than: (i) 

Four calendar years after the Approval 

Date for companies listed on the Nasdaq 

Global Select or Global Market tiers; or 

(ii) five calendar years after the 

Approval Date for companies listed on 

the Nasdaq Capital Market tier. 

Nasdaq undertook extensive research 

and analysis and has concluded that the 

proposal will fulfill the objectives of the 

Act in that it is designed to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, to 

prevent fraudulent and manipulative 

acts and practices, and to protect 

investors and the public interest. In 

addition to conducting its own internal 

analysis as described above, Nasdaq 

reviewed a substantial body of thirdparty research and interviewed leaders 

representing a broad spectrum of market 

participants and other stakeholders to: 

• Determine whether empirical 

evidence demonstrates an association 

between board diversity, shareholder 

value, investor protection and board 

decision-making; 

• understand investors’ interest in, 

and impediments to obtaining, 

information regarding the state of board 

diversity at public companies; 

• review the current state of board 

diversity and disclosure, both among 

Nasdaq-listed companies and more 

broadly within the U.S.; 

• gain a better understanding of the 

causes of underrepresentation on 

boards; 

• obtain the views of leaders 

representing public companies, 

investment banks, corporate governance 

organizations, investors, regulators and 

civil rights groups on the value of more 

diverse corporate boards, and on various 

approaches to encouraging more 

diversity on corporate boards; and 

• evaluate the success of approaches 

taken by exchanges, regulators, and 

governments in both the U.S. and 

foreign jurisdictions to remedy 

underrepresentation on boards. 

While gender diversity has improved 

among U.S. company boards in recent 

years, the pace of change has been 

gradual, and the U.S. still lags behind 

other jurisdictions that have imposed 

requirements related to board diversity. 

Moreover, progress toward bringing 

underrepresented racial and ethnic 

groups into the boardroom has been 

even slower. Nasdaq is unable to 

provide definitive estimates regarding 

the number of listed companies that will 

be affected by the proposal due to the 

inconsistent disclosures and definitions 

of diversity across companies and the 

extremely limited disclosure of race and 

ethnicity information—an information 

gap the proposed rule addresses. Based 

on the limited information that is 

available, Nasdaq believes a 

supermajority of listed companies have 

made notable strides to improve gender 

diversity in the boardroom and have at 

least one woman on the board. Nasdaq 

also believes that listed companies are 

diligently working to add directors with 

other diverse attributes, although 

consistent with other studies of U.S. 

companies, Nasdaq believes the pace of 

progress, in this regard, is happening 

more gradually. While studies suggest 

that current candidate selection 

processes may result in diverse 

candidates being overlooked, Nasdaq 

also believes that the lack of reliable and 

consistent data creates a barrier to 

measuring and improving diversity in 

the boardroom. 

Nasdaq reviewed dozens of empirical 

studies and found that an extensive 

body of academic research 

demonstrates that diverse boards are 

positively associated with improved 

corporate governance and financial 

performance. For example, as discussed 

in detail below in Section II, Academic 

Research: The Relationship between 

Diversity and Shareholder Value, 

Investor Protection and Decision 

Making, studies have found that 

companies with gender-diverse boards 

or audit committees are associated with: 

More transparent public disclosures and 

less information asymmetry; better 

reporting discipline by management; a 

lower likelihood of manipulated 

earnings through earnings management; 

an increased likelihood of voluntarily 

disclosing forward-looking information; 

a lower likelihood of receiving audit 

qualifications due to errors, noncompliance or omission of information; 

and a lower likelihood of securities 

fraud. In addition, studies found that 

having at least one woman on the board 

is associated with a lower likelihood of 

material weaknesses in internal control 

over financial reporting and a lower 

likelihood of material financial 

restatements. Studies also identified 

positive relationships between board 

diversity and commonly used financial 

metrics, including higher returns on 

invested capital, returns on equity, 

earnings per share, earnings before 

interest and taxation margin, asset 

valuation multiples and credit ratings. 


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9 Vanguard announced in 2020 it would begin 

asking companies about the race and ethnicity of 

directors. See Vanguard, Investment Stewardship 

2020 Annual Report (2020), available at: https://

about.vanguard.com/investment-stewardship/ 

perspectives-and-commentary/2020_investment_

stewardship_annual_report.pdf. Starting in 2020, 

State Street Global Advisors will vote against the 

entire nominating committee of companies that do 

not have at least one woman on their boards and 

have not addressed questions on gender diversity 

within the last three years. See State Street Global 

Advisors, Summary of Material Changes to State 

Street Global Advisors’ 2020 Proxy Voting and 

Engagement Guidelines (2020), available at: https:// 

www.ssga.com/library-content/pdfs/global/proxyvoting-and-engagement-guidelines.pdf. Beginning 

in 2018, BlackRock stated in proxy voting 

guidelines they ‘‘would normally expect to see at 

least 2 women directors on every board.’’ See 

BlackRock Investment Stewardship, Corporate 

governance and proxy voting guidelines for U.S. 

securities (Jan. 2020), available at: https://

www.blackrock.com/corporate/literature/fact-sheet/ 

blk-responsible-investment-guidelines-us.pdf. The 

NYC Comptroller’s Office in 2019 asked companies 

to adopt policies to ensure women and people of 

color are on the initial list for every open board 

seat. See Scott M. Stringer, Remarks at the Bureau 

of Asset Management ‘Emerging Managers and 

MWBE Managers Conference (Oct. 11, 2019), 

available at: https://comptroller.nyc.gov/wpcontent/uploads/2019/10/10.11.19-SMS-BAMremarks_distro.pdf. 

10See Commission Guidance Regarding 

Management’s Discussion and Analysis of Financial 

Condition and Results of Operations, 68 FR 75,056 

(Dec. 29, 2003) (‘‘We believe that management’s 

most important responsibilities include 

communicating with investors in a clear and 

straightforward manner. MD&A is a critical 

component of that communication. The 

Commission has long sought through its rules, 

enforcement actions and interpretive processes to 

elicit MD&A that not only meets technical 

disclosure requirements but generally is informative 

and transparent.’’); see also Management’s 

Discussion and Analysis, Selected Financial Data, 

and Supplementary Financial Information, Release 

No. 33–10890 (Nov. 19, 2020) (citing the 2003 

MD&A Interpretative Release and stating that the 

purpose of the MD&A section is to enable investors 

to see a company ‘‘through the eyes of 

management’’). 

11See Michael Hatcher and Weldon Latham, 

States are Leading the Charge to Corporate Boards: 

Diversify!, Harv. L. Sch. Forum on Corp. 

Governance (May 12, 2020), available at: https://

corpgov.law.harvard.edu/2020/05/12/states-areleading-the-charge-to-corporate-boards-diversify/. 

12While the Exchange recognizes that it is only 

one part of an ecosystem in which multiple 

stakeholders are advocating for board diversity, that 

part is meaningful: The United Nations Sustainable 

Stock Exchanges Initiative, of which Nasdaq, Inc., 

is an official supporter, recognized that ‘‘[s]tock 

exchanges are uniquely positioned to influence 

their market in a way few other actors can.’’ See 

United Nations Sustainable Stock Exchanges 

Initiative, How Stock Exchanges Can Advance 

Gender Equality 2 (2017), available at: https://

sseinitiative.org/wp-content/uploads/2019/12/Howstock-exchanges-can-advance-gender-equality.pdf. 

13See Mary Jo White, Completing the Journey: 

Women as Directors of Public Companies (Sept. 16, 

2014), available at: https://www.sec.gov/news/ 

speech/2014-spch091614-mjw#.VBiLMhaaXDo. 

14See The Board Challenge, https://

theboardchallenge.org/. See also Nasdaq, Inc., 

Notice of 2020 Annual Meeting of Shareholders and 

Proxy Statement 52 (Mar. 31, 2020), available at: 

https://ir.nasdaq.com/static-files/ce5519d4-3a0b48ac-8441-5376ccbad4e5 (Nasdaq, Inc. believes that 

‘‘[d]iverse backgrounds lead to diverse perspectives. 

We are committed to ensuring diverse backgrounds 

are represented on our board and throughout our 

organization to further the success of our business 

and best serve the diverse communities in which 

we operate.’’). 

15See Final Interagency Policy Statement 

Establishing Joint Standards for Assessing the 

Diversity Policies and Practices of Entities 

Regulated by the Agencies, 80 FR 33,016 (June 10, 

2015). 

Nasdaq believes there are additional 

compelling reasons to support the 

diversification of company boards 

beyond a link to improved corporate 

governance and financial performance: 

• Investors are calling in greater 

numbers for diversification of 

boardrooms. Vanguard, State Street 

Advisors, BlackRock, and the NYC 

Comptroller’s Office include board 

diversity expectations in their 

engagement and proxy voting 

guidelines.9 The heightened investor 

focus on corporate diversity and 

inclusion efforts demonstrates that 

investor confidence is undermined 

when a company’s boardroom is 

homogenous and when transparency 

about such efforts is lacking. Investors 

frequently lack access to information 

about corporate board diversity that 

could be material to their decision 

making, and they might divest from 

companies that fail to take into 

consideration the demographics of their 

corporate stakeholders when they 

refresh their boards. Nasdaq explores 

these investor sentiments in Section III, 

Current State of Board Diversity and 

Causes of Underrepresentation on 

Boards. 

• Nasdaq believes, consistent with 

SEC disclosure requirements in other 

contexts,10 that management’s vision on 

key issues impacting the company 

should be communicated with investors 

in a clear and straightforward manner. 

Indeed, transparency is the bedrock of 

federal securities laws regarding 

disclosure, and this sentiment is 

reflected in the broad-based support for 

uniform disclosure requirements 

regarding board diversity that Nasdaq 

observed during the course of its 

outreach to the industry. In addition, 

organizational leaders representing 

every category of corporate stakeholders 

Nasdaq spoke with (including business, 

investor, governance, regulatory and 

civil rights communities) were 

overwhelmingly in favor of diversifying 

boardrooms. Nasdaq summarizes the 

findings of its stakeholder outreach in 

Section IV, Stakeholder Perspectives. 

• Legislators at the federal and state 

level increasingly are taking action to 

encourage or mandate corporations to 

diversify their boards and improve 

diversity disclosures. Congress currently 

is considering legislation requiring each 

SEC-registered company to provide 

board diversity statistics and disclose 

whether it has a board diversity policy. 

To date, eleven states have passed or 

proposed legislation related to board 

diversity.11 SEC regulations require 

companies to disclose whether diversity 

is considered when identifying director 

nominees and, if so, how. Nasdaq 

explores various state and federal 

initiatives in Section V, U.S. Regulatory 

Framework and Section VI, Nasdaq 

Proposal. 

In considering the merits and shaping 

the substance of the proposed listing 

rule, Nasdaq also sought and received 

valuable input from corporate 

stakeholders. During those discussions, 

Nasdaq found consensus across every 

constituency in the inherent value of 

board diversity. Business leaders also 

expressed concern that companies—and 

particularly smaller companies—would 

prefer an approach that allows 

flexibility to comply in a manner that 

fits their unique circumstances and 

stakeholders. Nasdaq recognizes that the 

operations, size, and current board 

composition of each Nasdaq-listed 

company are unique, and Nasdaq 

therefore endeavored to provide a 

regulatory impetus to enhance board 

diversity that balances the need for 

flexibility with each company’s 

particular circumstances. 

The Exchange also considered the 

experience of its parent company, 

Nasdaq, Inc., as a public company.12 In 

2002, Nasdaq, Inc. met the milestone of 

welcoming its first woman, Mary Jo 

White, who later served as SEC Chair, 

to its board of directors. In her own 

words, ‘‘I was the first and only woman 

to serve on the board when I started, 

but, happily, I was joined by another 

woman during my tenure . . . And then 

there were two. Not enough, but better 

than one.’’ 13 In 2019, Nasdaq, Inc. also 

welcomed its first Black director. As a 

Charter Pledge Partner of The Board 

Challenge, Nasdaq supports The Board 

Challenge’s goal of ‘‘true and full 

representation on all boards of 

directors.’’ 14

As a self-regulatory organization, 

Nasdaq also is cognizant of its role in 

advancing diversity within the financial 

industry, as outlined in the 

Commission’s diversity standards issued 

pursuant to Section 342 of the DoddFrank Wall Street Reform and Consumer 

Protection Act of 2010 (‘‘Standards’’).15

Authored jointly by the Commission 

and five other financial regulators, the 

Standards seek to provide a framework 

for exchanges and financial services 

organizations ‘‘to create and strengthen 


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16 Id. at 33,023. 

17 156 Cong. Rec. H5233–61 (June 30, 2010). 

18See infra Section III. 

19See Nasdaq Stock Market Rulebook, Rules 

5605(b), 5615(a), and 5605(b)(1)(A). 

20 Id., IM–5605–1 (emphasis added). 

21Some companies recently have expressed the 

belief that a company must consider the impact of 

its activities on a broader group of stakeholders 

beyond shareholders. See Business Roundtable, 

Statement on the Purpose of a Corporation (Aug. 

19, 2019), available at: https://s3.amazonaws.com/ 

brt.org/BRT-StatementonthePurposeofaCorporation

October2020.pdf. Commentators articulated this 

view as early as 1932. See E. Merrick Dodd, Jr., For 

Whom Are Corporate Managers Trustees?, 45 Harv. 

L. Rev. 1145, 1153 (1932). 

22See Commissioner Allison Herren Lee, 

Diversity Matters, Disclosure Works, and the SEC 

Can Do More: Remarks at the Council of 

Institutional Investors Fall 2020 Conference 

(September 22, 2020), available at: https://

www.sec.gov/news/speech/lee-cii-2020-conference20200922. 

23See Jason M. Thomas and Megan Starr, The 

Carlyle Group, Global Insights: From Impact 

Investing to Investing for Impact 5 (Feb. 24, 2020), 

available at: https://www.carlyle.com/sites/default/ 

files2020-02/From%20Impact%20Investing

%20to%20Investing%20for%20Impact_022420.pdf 

(analyzing Carlyle U.S. portfolio company data, 

February 2020). 

24 Id. 

25See FCLTGlobal, The Long-term Habits of a 

Highly Effective Corporate Board 11 (March 2019), 

available at: https://www.fcltglobal.org/wp-content/ 

uploads/long-term-habits-of-highly-effectiveContinued 

[their] diversity policies and practices.’’ 

Through these voluntary Standards, the 

Commission and other regulators 

‘‘encourage each entity to use the[ ] 

Standards in a manner appropriate to its 

unique characteristics.’’ 16 To that end, 

the proposed rule leverages the 

Exchange’s unique ability to influence 

corporate governance in furtherance of 

the goal of Section 342, which is to 

address the lack of diversity in the 

financial services industry.17 Finally, 

while the Exchange recognizes the 

importance of maximizing shareholder 

value, its role as a listing venue is to 

establish and enforce substantive 

standards that promote investor 

protection. As a self-regulatory 

organization, the Exchange must 

demonstrate to the Commission that any 

proposed rule is consistent with Section 

6(b) of the Act because, among other 

things, it is designed to protect 

investors, promote the public interest, 

prevent fraudulent and manipulative 

acts and practices, and remove 

impediments to the mechanism of a free 

and open market. The Exchange must 

also balance promoting capital 

formation, efficiency, and competition, 

among other things, alongside 

enhancing investor confidence. 

With these objectives in mind, Nasdaq 

believes that a listing rule designed to 

enhance transparency related to board 

diversity will increase consistency and 

comparability of information across 

Nasdaq-listed companies, thereby 

increasing transparency and decreasing 

information collection costs. Nasdaq 

further believes that a listing rule 

designed to encourage listed companies 

to increase diverse representation on 

their boards will result in improved 

corporate governance, thus 

strengthening the integrity of the 

market, enhancing capital formation, 

efficiency, and competition, and 

building investor confidence. To the 

extent a company chooses not to meet 

the diversity objectives of Rule 

5605(f)(2), Nasdaq believes that the 

proposal will provide investors with 

additional transparency through 

disclosure explaining the company’s 

reasons for not doing so. For example, 

the company may choose to disclose 

that it does not meet the diversity 

objectives of Rule 5605(f)(2) because it 

is subject to an alternative standard 

under state or foreign laws and has 

chosen to meet that standard instead, or 

has a board philosophy regarding 

diversity that differs from the diversity 

objectives set forth in Rule 5605(f)(2). 

Nasdaq believes that such disclosure 

will improve the quality of information 

available to investors who rely on this 

information to make informed 

investment and voting decisions, 

thereby promoting capital formation and 

efficiency. 

Nasdaq observed that studies suggest 

that certain groups may be 

underrepresented on boards because the 

traditional director nomination process 

is limited by directors looking within 

their own social networks for candidates 

with previous C-suite experience.18

Leaders from across the spectrum of 

stakeholders with whom Nasdaq spoke 

reinforced the notion that if companies 

recruit by skill set and expertise rather 

than title, they will find there is more 

than enough diverse talent to satisfy 

demand. In order to assist companies 

that strive to meet the diversity 

objectives of Rule 5605(f)(2), Nasdaq is 

proposing to provide listed companies 

that have not yet met its diversity 

objectives with free access to a network 

of board-ready diverse candidates and a 

tool to support board evaluation, 

benchmarking and refreshment. Nasdaq 

is contemporaneously submitting a rule 

filing to the Commission regarding the 

provision of such services. Nasdaq also 

plans to publish FAQs on its Listing 

Center to provide guidance to 

companies on the application of the 

proposed rules, and to establish a 

dedicated mailbox for companies and 

their counsel to email additional 

questions to Nasdaq regarding the 

application of the proposed rule. 

Nasdaq believes that these services will 

help to ease the compliance burden on 

companies whether they choose to meet 

the listing rule’s diversity objectives or 

provide an explanation for not doing so. 

II. Academic Research: The 

Relationship Between Diversity and 

Shareholder Value, Investor Protection 

and Decision Making 

A company’s board of directors plays 

a critical role in formulating company 

strategy; appointing, advising and 

overseeing management; and protecting 

investors. Nasdaq has recognized the 

importance of varied perspectives on 

boards since 2003, when the Exchange 

adopted a listing rule intended to 

enhance investor confidence by 

requiring listed companies, subject to 

certain exceptions and cure periods, to 

have a majority independent board.19

Accompanying the rule are interpretive 

materials recognizing that independent 

directors ‘‘play an important role in 

assuring investor confidence. Through 

the exercise of independent judgment, 

they act on behalf of investors to 

maximize shareholder value in the 

Companies they oversee and guard 

against conflicts of interest.’’ 20

a. Diversity and Shareholder Value 

There is a significant body of research 

suggesting a positive association 

between diversity and shareholder 

value.21 In the words of SEC 

Commissioner Allison Herren Lee: ‘‘to 

the extent one seeks economic support 

for diversity and inclusion (instead of 

requiring economic support for the lack 

of diversity and exclusion), the evidence 

is in.’’ 22

The Carlyle Group (2020) found that 

its portfolio companies with two or 

more diverse directors had average 

earnings growth of 12.3% over the 

previous three years, compared to 0.5% 

among portfolio companies with no 

diverse directors, where diverse 

directors were defined as female, Black, 

Hispanic or Asian.23 ‘‘After controlling 

for industry, fund, and vintage year, 

companies with diverse boards generate 

earnings growth that’s five times faster, 

on average, with each diverse board 

member associated with a 5% increase 

in annualized earnings growth.’’ 24

Several other studies also found a 

positive association between diverse 

boards and company performance. 

FCLTGlobal (2019) found that ‘‘the most 

diverse boards (top 20 percent) added 

3.3 percentage points to [return on 

invested capital], as compared to their 

least diverse peers (bottom 20 

percent).’’ 25 McKinsey (2015) found 


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corporate-boards.pdf (analyzing 2017 MSCI ACWI 

constituents from 2010 to 2017 using Bloomberg 

data). 26See Vivian Hunt et al., McKinsey & Company, 

Diversity Matters (February 2, 2015), available at: 

https://www.mckinsey.com/∼/media/mckinsey/ 

business%20functions/organization/ 

our%20insights/why%20diversity%20matters/ 

diversity%20matters.pdf (analyzing 366 public 

companies in the United Kingdom, Canada, the 

United States, and Latin America in industries for 

the years 2010 to 2013, using the ethnic and racial 

categories African ancestry, European ancestry, 

Near Eastern, East Asian, South Asian, Latino, 

Native American, and other). 

27See David A. Carter et al., Corporate 

Governance, Board Diversity, and Firm Value. 38(1) 

Fin. Rev. 33 (analyzing 638 Fortune 1000 firms in 

1997, measuring firm value by Tobin’s Q, with 

board diversity defined as the percentage of women, 

African Americans, Asians and Hispanics on the 

board of directors). 28See Gennaro Bernile et al., Board Diversity, 

Firm Risk, and Corporate Policies (March 6, 2017), 

available at: https://ssrn.com/abstract=2733394 

(analyzing 21,572 firm-year observations across 

non-financial, non-utility firms for the years 1996 

to 2014, based on the ExecuComp, RiskMetrics, 

Compustat and CRSP databases). 

29 Id. at 32. 

30See Credit Suisse, The CS Gender 3000: Women 

in Senior Management 16 (Sept. 2014), available at: 

https://www.credit-suisse.com/media/assets/ 

corporate/docs/about-us/research/publications/thecs-gender-3000-women-in-senior-management.pdf 

(analyzing 3,000 companies across 40 countries 

from the period from 2005 to 2013). 

31See Meggin Thwing Eastman et al., MSCI, The 

tipping point: Women on boards and financial 

performance 3 (December 2016), available at: 

https://www.msci.com/documents/10199/fd1f8228-

cc07-4789-acee-3f9ed97ee8bb (analyzing of U.S. 

companies that were constituents of the MSCI 

World Index for the entire period from July 1, 2011 

to June 30, 2016). 

32See Harvey M. Wagner, Catalyst, The Bottom 

Line: Corporate Performance and Women’s 

Representation on Boards (2004–2008) (March 1, 

2011), available at: https://www.catalyst.org/ 

research/the-bottom-line-corporate-performanceand-womens-representation-on-boards-2004-2008/ 

(analyzing gender diversity data from Catalyst’s 

annual Fortune 500 Census of Women Board 

Directors report series for the years 2005 to 2009, 

and corresponding financial data from S&P’s 

Compustat database for the years 2004 to 2008). 

33See Credit Suisse ESG Research, LGBT: The 

value of diversity 1 (April 15, 2016), available at: 

https://research-doc.credit-suisse.com/docView?

language=ENG&source=emfromsendlink

&format=PDF&document_id=807075590&extdocid=

807075590_1_eng_pdf&serialid=evu4w

XNcHexx7kusNLaZQphUkT9naxi1Pvpt

ZQvPjr1k%3d. 

34 Id. 

35See Quorum, Out Leadership’s LGBT+ Board 

Diversity and Disclosure Guidelines 3 (2019), 

available at: https://outleadership.com/content/ 

uploads/2019/01/OL-LGBT-Board-DiversityGuidelines.pdf. 

36See McKinsey & Company, Diversity wins: How 

inclusion matters 13 (May 2020), available at: 

https://www.mckinsey.com/∼/media/McKinsey/ 

Featured%20Insights/Diversity%20and

%20Inclusion/Diversity%20wins%20How

%20inclusion%20matters/Diversity-wins-Howinclusion-matters-vF.pdf (analyzing 1,039 

companies across 15 countries for the period from 

December 2018 to November 2019). 

37See Moody’s Investors Service, Gender 

diversity is correlated with higher ratings, but 

mandates pose short-term risk 2 (Sept. 11, 2019), 

available at: https://www.moodys.com/research/ 

Moodys-Corporate-board-gender-diversityassociated-with-higher-credit-ratingsPBC_1193768 

(analyzing 1,109 publicly traded North American 

companies rated by Moody’s). 

38See Jan Luca Pletzer et al., Does Gender Matter? 

Female Representation on Corporate Boards and 

Firm Financial Performance—A Meta-Analysis 1, 

PLOS One (June 18, 2015); see also Alice H. Eagly 

(2016), When Passionate Advocates Meet Research 

on Diversity, Does the Honest Broker Stand a 

Chance?, 72 J. Social Issues 199 (2016), available at 

https://doi.org/10.1111/josi.12163 (concluding that 

the ‘‘research findings are mixed, and repeated 

meta-analyses have yielded average correlational 

findings that are null or extremely small’’ with 

respect to board gender diversity and company 

performance). 

that ‘‘companies in the top quartile for 

racial/ethnic diversity were 35 percent 

more likely to have financial returns 

above their national industry 

median.’’ 26 Carter, Simkins and 

Simpson (2003) found among Fortune 

1000 companies ‘‘statistically significant 

positive relationships between the 

presence of women or minorities on the 

board and firm value.’’ 27 Bernile, 

Bhagwat and Yonker (2017) found that 

greater diversity on boards—including 

gender, ethnicity, educational 

background, age, financial expertise and 

board experience—is associated with 

increased operating performance, higher 

asset valuation multiples, lower stock 

return volatility, reduced financial 

leverage, increased dividend payouts to 

shareholders, higher investment in R&D 

and better innovation.28 The authors 

observed that ‘‘[t]his is in line with the 

results in Carter, Simkins, and Simpson 

(2003), which show a positive 

association between local demographic 

diversity and firm value.’’ 29

Several studies have found a positive 

association between gender diversity 

and financial performance. Credit 

Suisse (2014) found companies with at 

least one woman on the board had an 

average sector-adjusted return on equity 

(‘‘ROE’’) of 12.2%, compared to 10.1% 

for companies with no female directors, 

and average sector-adjusted ROEs of 

14.1% and 11.2%, respectively, for the 

previous nine years.30 MSCI (2016) 

found that U.S. companies with at least 

three women on the board in 2011 

experienced median gains in ROE of 

10% and earnings per share (‘‘EPS’’) of 

37% over a five year period, whereas 

companies that had no female directors 

in 2011 showed median changes of 

¥1% in ROE and ¥8% in EPS over the 

same five-year period.31 Catalyst (2011) 

found that the ROE of Fortune 500 

companies with at least three women on 

the board (in at least four of five years) 

was 46% higher than companies with 

no women on the board, and return on 

sales and return on invested capital was 

84% and 60% higher, respectively.32

Credit Suisse (2016) found an 

association between LGBTQ+ diversity 

and stock performance, finding that a 

basket of 270 companies ‘‘supporting 

and embracing LGBT employees’’ 

outperformed the MSCI ACWI index by 

an average of 3.0% per year over the 

past 6 years.33 Further, ‘‘[a]gainst a 

custom basket of companies in North 

America, Europe and Australia, the 

LGBT 270 has outperformed by 140 bps 

annually.’’ 34 Nasdaq acknowledges that 

this study focused on LGBTQ+ 

employees as opposed to directors, and 

that there is a lack of published research 

on the issue of LGBTQ+ representation 

on boards. However, Out Leadership 

(2019) suggests that the relationship 

between board gender diversity and 

corporate performance may extend to 

LGBTQ+ diversity: 

While the precise reason for the positive 

correlation between gender diversity and 

better corporate performance is unknown, 

many of the reasons that gender diversity is 

considered beneficial are also applicable to 

LGBT+ diversity. LGBT+ diversity in the 

boardroom may create a dynamic that 

enables better decisionmaking, and it brings 

to the boardroom the perspective of a 

community that is a critical component of the 

company’s consumer population and 

organizational talent.35

McKinsey (2020) found ‘‘a positive, 

statistically significant correlation 

between company financial 

outperformance and [board] diversity, 

on the dimensions of both gender and 

ethnicity,’’ with companies in the top 

quartile for board gender diversity ‘‘28 

percent more likely than their peers to 

outperform financially,’’ and a 

statistically significant correlation 

between board gender diversity and 

outperformance on earnings before 

interest and taxation margin.36 Moody’s 

(2019) found that greater board gender 

diversity is associated with higher credit 

ratings, with women accounting for an 

average of 28% of board seats at Aaarated companies but less than 5% of 

board seats at Ca-rated companies.37

While the overwhelming majority of 

studies on the association between 

economic performance and board 

diversity, including gender diversity, 

present a compelling case that board 

diversity is positively associated with 

financial performance, the results of 

some other studies on gender diversity 

are mixed. For example, Pletzer et al. 

(2015) found that board gender diversity 

alone has a ‘‘small and non-significant’’ 

relationship with a company’s financial 

performance.38 Post and Byron (2014) 

found a ‘‘near zero’’ relationship with a 

company’s market performance, but a 

positive relationship with a company’s 


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39See Corinne Post and Kris Byron, Women on 

Boards and Firm Financial Performance: A MetaAnalysis 1 (2014). In 2016, the same authors, based 

on a review of the results for 87 studies, ‘‘found that 

board gender diversity is weakly but significantly 

positively correlated with [corporate social 

responsibility],’’ although they noted that ‘‘a 

significant correlational relationship does not prove 

causality.’’ See Corinne Post and Kris Byron, 

Women on Boards of Directors and Corporate 

Social Performance: A Meta-Analysis, 24(4) Corp. 

Governance: An Int’l Rev. 428 (July 2016), available 

at http://dx.doi.org/10.1111/corg.12165. 

40See David A. Carter et al., The Gender and 

Ethnic Diversity of US Boards and Board 

Committees and Firm Financial Performance, 18(5) 

Corp. Governance 396, 410 (2010) (analysis of 541 

S&P 500 companies for the years 1998–2002). 

41See Kevin Campbell and Antonio MinguezVera, Gender Diversity in the Boardroom and Firm 

Financial Performance, 83(3) J. Bus. Ethics 13 (Feb. 

2008) (analyzing 68 non-financial companies listed 

on the continuous market in Madrid during the 

period from January 1995 to December 2000, 

measuring firm value by an approximation of 

Tobin’s Q defined as the sum of the market value 

of stock and the book value of debt divided by the 

book value of total assets). 

42See Renee B. Adams and Daniel Ferreira, 

Women in the boardroom and their impact on 

governance and performance, 94 J. Fin. Econ. 291 

(2009) (analyzing 1,939 S&P 500, S&P MidCaps, and 

S&P SmallCap companies for the period 1996 to 

2003, measuring company performance by a proxy 

for Tobin’s Q (the ratio of market value to book 

value) and return on assets). 

43See Carter et al., supra note 40, at 400 

(observing that the different ‘‘statistical methods, 

data, and time periods investigated vary greatly so 

that the results are not easily comparable.’’). 

44See United States Government Accountability 

Office, Report to the Ranking Member, 

Subcommittee on Capital Markets and Government 

Sponsored Enterprises, Committee on Financial 

Services, House of Representatives, Corporate 

Boards: Strategies to Address Representation of 

Women Include Federal Disclosure Requirements 5 

(Dec. 2015) (the ‘‘GAO Report’’), available at: 

https://www.gao.gov/assets/680/674008.pdf (‘‘Some 

research has found that gender diverse boards may 

have a positive impact on a company’s financial 

performance, but other research has not. These 

mixed results depend, in part, on differences in 

how financial performance was defined and what 

methodologies were used’’). 

45See, e.g., Benjamin E. Hermalin and Michael S. 

Weisbach, The Effects of Board Composition and 

Direct Incentives on Firm Performance, 20 Fin. 

Mgmt. 101, 111 (1991) (finding that ‘‘there appears 

to be no relation between board composition and 

performance’’); Sanjai Bhagat and Bernard Black, 

The Uncertain Relationship Between Board 

Composition and Firm Performance, 54(3) Bus. 

Law. 921, 950 (1999) (‘‘At the very least, there is 

no convincing evidence that increasing board 

independence, relative to the norms that currently 

prevail among large American firms, will improve 

firm performance. And there is some evidence 

suggesting the opposite—that firms with 

supermajority-independent boards perform worse 

than other firms, and that firms with more inside 

than independent directors perform about as well 

as firms with majority- (but not supermajority-) 

independent boards.’’). 

46See Order Approving Proposed Rule Changes, 

68 FR 64,154, 64,161 (Nov. 12, 2003) (approving 

SR–NASD–2002–77, SR–NASD–2002–80, SR– 

NASD–2002–138, SR–NASD–2002–139, and SR– 

NASD–2002–141). 

47 Id. at 64,176. 

48See also Lee, supra note 22 (‘‘I could never 

quite buy in to the view that some 40 percent of 

the population in our country (if we’re talking about 

minorities) or over half the country (if we’re talking 

about women) must rationalize their inclusion in 

corporate boardrooms and elsewhere in economic 

terms instead of the reverse. How can one possibly 

justify—in economic terms—the systematic 

exclusion of a major portion of our talent base from 

the corporate pool?’’). 

49See Adams and Ferreira, supra note 42, at 292. 

50See Bin Srinidhi et al., Female Directors and 

Earnings Quality, 28(5) Contemporary Accounting 

Research 1610, 1612–16 (Winter 2011) (analyzing 

3,132 firm years during the period from 2001 to 

2007 based on S&P COMPUSTAT, Corporate 

Library’s Board Analyst, and IRRC databases; 

‘‘choos[ing] the accruals quality as the metric that 

best reflects the ability of current earnings to reflect 

future cash flows’’ (noting that it ‘‘best predicts the 

incidence and magnitude of fraud relative to other 

commonly used measures of earnings quality’’) and 

analyzing surprise earnings results that exceeded 

previous earnings or analyst forecasts, because 

‘‘managers of firms whose unmanaged earnings fall 

marginally below the benchmarks have [an] 

incentive to manage earnings upwards so as to meet 

or beat previous earnings’’). 

accounting returns.39 Carter, D’Souza, 

Simkins and Simpson (2010) found that 

‘‘[w]hen Tobin’s Q is used as the 

measure of financial performance, we 

find no relationship to gender diversity 

or ethnic minority diversity, neither 

positive nor negative.’’ 40 A study 

conducted by Campbell and MinguezVera (2007) ‘‘suggests, at a minimum, 

that increased gender diversity can be 

achieved without destroying 

shareholder value.’’ 41 Adams and 

Ferreira (2009) found that ‘‘gender 

diversity has beneficial effects in 

companies with weak shareholder 

rights, where additional board 

monitoring could enhance firm value, 

but detrimental effects in companies 

with strong shareholder rights.’’ 42

Carter et al. (2010) 43 and the U.S. 

Government Accountability Office 

(‘‘GAO’’) (2015) 44 concluded that the 

mixed nature of various academic 

studies may be due to differences in 

methodologies, data samples and time 

periods. 

While there are studies drawing 

different conclusions, Nasdaq believes 

that there is a compelling body of 

credible research on the association 

between economic performance and 

board diversity. At a minimum, Nasdaq 

believes that the academic studies 

support the conclusion that board 

diversity does not have adverse effects 

on company financial performance. This 

is not the first time Nasdaq has 

considered whether, on balance, various 

studies finding mixed results related to 

board composition and company 

performance are a sufficient rationale to 

propose a listing rule. For example, in 

2003, notwithstanding the varying 

findings of studies at the time regarding 

the relationship between company 

performance and board independence,45

Nasdaq adopted listing rules requiring a 

majority independent board that were 

‘‘intended to enhance investor 

confidence in the companies that list on 

Nasdaq.’’ 46 In its Approval Order, the 

SEC stated that ‘‘[t]he Commission has 

long encouraged exchanges to adopt and 

strengthen their corporate governance 

listing standards in order to, among 

other things, enhance investor 

confidence in the securities markets.’’ 47

Along the same lines, even without 

clear consensus among studies related 

to board diversity and company 

performance, the heightened focus on 

corporate board diversity by investors 

demonstrates that investor confidence is 

undermined when data on board 

diversity is not readily available and 

when companies do not explain the 

reasons for the apparent absence of 

diversity on their boards. Therefore, 

Nasdaq believes that the proposal will 

enhance investor confidence that all 

listed companies are considering 

diversity in the context of selecting 

directors, either by including at least 

two Diverse directors on their boards or 

by explaining their rationale for not 

meeting that objective. Further, Nasdaq 

believes that the proposal is consistent 

with the Act because it will not 

negatively impact capital formation, 

competition or efficiency among its 

public companies, and will promote 

investor protection and the public 

interest.48

b. Diversity and Investor Protection 

There is substantial evidence that 

board diversity enhances the quality of 

a company’s financial reporting, 

internal controls, public disclosures and 

management oversight. In reaching this 

conclusion, Nasdaq evaluated the 

results of more than a dozen studies 

spanning more than two decades that 

found a positive association between 

gender diversity and important investor 

protections, and the assertions by some 

academics that such findings may 

extend to other forms of diversity, 

including racial and ethnic diversity. 

The findings of the studies reviewed by 

Nasdaq are summarized below. 

Adams and Ferreira (2009) found that 

women are ‘‘more likely to sit on’’ the 

audit committee,49 and a subsequent 

study by Srinidhi, Gul and Tsui (2011) 

found that companies with women on 

the audit committee are associated with 

‘‘higher earnings quality’’ and ‘‘better 

reporting discipline by managers,’’ 50

leading the authors to conclude that 

‘‘including female directors on the 

board and the audit committee are 

plausible ways of improving the firm’s 

reporting discipline and increasing 


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51 Id. at 1612. 

52See Maria Consuelo Pucheta-Martı ́nez et al., 

Corporate governance, female directors and quality 

of financial information. 25(4) Bus. Ethics: A 

European Rev. 363, 378 (2016) (analyzing a sample 

of non-financial companies listed on the Madrid 

Stock Exchange during 2004–2011). 

53 Id. at 363. 

54 Id. at 368. 

55See Ammar Gull et al., Beyond gender diversity: 

How specific attributes of female directors affect 

earnings management, 50(3) British Acct. Rev. 255 

(Sept. 2017), available at: https://ideas.repec.org/a/ 

eee/bracre/v50y2018i3p255-274.html (analyzing 

394 French companies belonging to the CAC AllShares index listed on Euronext Paris from 2001 to 

2010, prior to the implementation of France’s 

gender mandate law that required women to 

comprise 20% of a company’s board of directors by 

2014 and 40% by 2016). 

56See Francisco Bravo and Maria Dolores 

Alcaide-Ruiz, The disclosure of financial forwardlooking information, 34(2) Gender in Mgmt. 140, 

142–44 (2019) (analyzing companies included in 

the S&P 100 Index in 2016, ‘‘focus[ing] on the 

disclosure of financial forward-looking information 

(which is likely to require financial expertise), such 

as earnings forecasts, expected revenues, 

anticipated cash flows or any other financial 

indicator’’). 

57 Id. at 150. 

58See Lawrence J. Abbott et al., Female Board 

Presence and the Likelihood of Financial 

Restatement, 26(4) Accounting Horizons 607, 626 

(2012) (analyzing a sample of 278 pre-SOX annual 

financial restatements and 187 pre-SOX quarterly 

financial restatements of U.S. companies from 

January 1, 1997 through June 30, 2002 identified by 

the U.S. General Accounting Office restatement 

report 03–138 (which only included ‘‘material 

misstatements of financial results’’), and 75 postSOX annual financial restatements from July 1, 

2002, to September 30, 2005 identified by U.S. 

General Accounting Office restatement report 06– 

678 (which only included ‘‘restatements that were 

being made to correct material misstatements of 

previously reported financial information’’), 

consisting almost exclusively of non-Fortune 1000 

companies). 

59See Aida Sijamic Wahid, The Effects and the 

Mechanisms of Board Gender Diversity: Evidence 

from Financial Manipulation, J. Bus. Ethics 

(forthcoming) (Dec. 2017) Rotman School of 

Management Working Paper No. 2930132 at 1, 

available at: https://ssrn.com/abstract=2930132 

(analyzing 6,132 U.S. public companies during the 

period from 2000 to 2010, for a total of 38,273 firmyear observations). 

60 Id. at 23. 

61See Barbara Shecter, Diverse boards tied to 

fewer financial ‘irregularities,’ Canadian study 

finds. Financial Post (Feb. 5, 2020), https://

business.financialpost.com/news/fp-street/diverseboards-tied-to-fewer-financial-irregularitiescanadian-study-finds (last accessed Nov. 27, 2020). 

62See Douglas J. Cumming et al., Gender Diversity 

and Securities Fraud, Academy of Management 

Journal 34 (forthcoming) (Feb. 2, 2015), available at 

https://ssrn.com/abstract=2562399 (analyzing 

China Securities Regulatory Commission data from 

2001 to 2010, including 742 companies with 

enforcement actions for fraud, and 742 nonfraudulent companies for a control group). 

63 Id. at 33. 

64See Yu Chen et al., Board Gender Diversity and 

Internal Control Weaknesses, 33 Advances in Acct. 

11 (2016) (analyzing a sample of 4267 Érm-year 

observations during the period from 2004 to 2013, 

beginning ‘‘the first year internal control 

weaknesses were required to be disclosed under 

section 404 of SOX’’). 

65 Id. at 18. 

66See Ferdinand A. Gul et al., Does board gender 

diversity improve the informativeness of stock 

prices?, 51(3) J. Acct. & Econ. 314 (April 2011) 

(analyzing 4,084 firm years during the period from 

2002 to 2007, excluding companies in the utilities 

and financial industries, measuring public 

information disclosure using ‘‘voluntary continuous 

disclosure of ‘other’ events in 8K reports’’ and 

measuring stock price informativeness by 

‘‘idiosyncratic volatility,’’ or volatility that cannot 

be explained to systematic factors and can be 

diversified away). 

investor confidence in financial 

statements.’’ 51

A study conducted in 2016 by 

Pucheta-Martı ́nez et al. concluded that 

gender diversity on the audit committee 

‘‘improves the quality of financial 

information.’’ 52 They found that ‘‘the 

percentage of females on [audit 

committees] reduces the probability of 

[audit] qualifications due to errors, noncompliance or the omission of 

information,’’ 53 and found a positive 

association between gender diverse 

audit committees and disclosing audit 

reports with uncertainties and scope 

limitations. This suggests that gender 

diverse audit committees ‘‘ensure that 

managers do not seek to pressure 

auditors into issuing a clean opinion 

instead of a qualified opinion’’ when 

any uncertainties or scope limitations 

are identified.54

More recently, a study by Gull in 2018 

found that the presence of female audit 

committee members with business 

expertise is associated with a lower 

magnitude of earnings management,55

and a study conducted in 2019 by Bravo 

and Alcaide-Ruiz found a positive 

association between women on the 

audit committee with financial or 

accounting expertise and the voluntary 

disclosure of forward-looking 

information.56 Bravo and Alcaide-Ruiz 

concluded that ‘‘female [audit 

committee] members with financial 

expertise play an important role in 

influencing disclosure strategies that 

provide forward-looking information 

containing projections and financial 

data useful for investors.’’ 57

While the above studies demonstrate 

a positive association between gender 

diverse audit committees and the 

quality of a company’s earnings, 

financial information and public 

disclosures, other studies found a 

positive association between board 

gender diversity and important investor 

protections regardless of whether or not 

women are on the audit committee. 

Abbott, Parker & Persley (2012) found, 

within a sample of non-Fortune 1000 

companies, ‘‘a significant association 

between the presence of at least one 

woman on the board and a lower 

likelihood of [a material financial] 

restatement.’’ 58 Their findings are 

consistent with a subsequent study by 

Wahid (2017), which concluded that 

‘‘gender-diverse boards commit fewer 

financial reporting mistakes and engage 

in less fraud.’’ 59 Specifically, 

companies with female directors have 

‘‘fewer irregularity-type [financial] 

restatements, which tend to be 

indicative of financial manipulation.’’ 60

Wahid suggested that the implications 

of her study extend beyond gender 

diversity: 

If you’re going to introduce perspectives, 

those perspectives might be coming not just 

from male versus female. They could be 

coming from people of different ages, from 

different racial backgrounds . . . [and] [i]f we 

just focus on one, we could be essentially 

taking away from other dimensions of 

diversity and decreasing perspective.61

Cumming, Leung and Rui (2015) also 

examined the relationship between 

gender diversity and fraud, and found 

that the presence of women on boards 

is associated with a lower likelihood of 

securities fraud; indeed, they found 

‘‘strong evidence of a negative and 

diminishing effect of women on boards 

and the probability of being in our fraud 

sample.’’ 62 The authors suggested that 

‘‘other forms of board diversity, 

including but not limited to gender 

diversity, may likewise reduce fraud.’’ 63

Chen, Eshleman and Soileau (2016) 

suggested that the relationship between 

gender diversity and higher earnings 

quality observed by Srinidhi, Gul and 

Tsui (2011) is ultimately driven by 

reduced weaknesses in internal control 

over financial reporting, noting that 

‘‘prior literature has established a 

negative relationship between internal 

control weaknesses and earnings 

quality.’’ 64 The authors found that 

having at least one woman on the board 

(regardless of whether or not she is on 

the audit committee) ‘‘may lead to [a] 

reduced likelihood of material 

weaknesses [in internal control over 

financial reporting].’’ 65

Board gender diversity also was found 

to be positively associated with more 

transparent public disclosures. Gul, 

Srinidhi & Ng (2011) concluded that 

‘‘gender diversity improves stock price 

informativeness by increasing voluntary 

public disclosures in large firms and 

increasing the incentives for private 

information collection in small 

firms.’’ 66 Abad et al. (2017) concluded 

that companies with gender diverse 

boards are associated with lower levels 

of information asymmetry, suggesting 

that increasing board gender diversity is 

associated with ‘‘reducing the risk of 


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67See David Abad et al., Does Gender Diversity 

on Corporate Boards Reduce Information 

Asymmetry in Equity Markets? 20(3) BRQ Business 

Research Quarterly 192, 202 (July 2017) (analyzing 

531 company-year observations from 2004 to 2009 

of non-financial companies traded on the electronic 

trading platform of the Spanish Stock Exchange 

(SIBE)). 

68See Adams and Ferreira, supra note 42, at 292. 

69See Maria Encarnacion Lucas-Perez et al., 

Women on the Board and Managers’ Pay: Evidence 

from Spain, 129 J. Bus. Ethics 285 (April 2014). 

70 Id. 

71See James D. Westphal and Edward J. Zajac, 

Who Shall Govern? CEO/Board Power, 

Demographic Similarity, and New Director 

Selection, 40(1) Admin. Sci. Q. 60, 77 (March 1995). 

72See Wahid, supra note 59, at 5. 

73See Proxy Disclosure Enhancements, 74 FR 

68,334, 68,355 (Dec. 23, 2009). 

74See Daniel P. Forbes and Frances J. Milliken, 

Cognition and Corporate Governance: 

Understanding Boards of Directors as Strategic 

Decision-Making Groups, 24(3) Acad. Mgmt. Rev. 

489, 496 (Jul. 1999). 

75See International Monetary Fund, IMF 

Performance in the Run-Up to the Financial and 

Economic Crisis (August 2011), available at: https:// 

www.elibrary.imf.org/view/IMF017/11570- 

9781616350789/11570-9781616350789/ 

ch04.xml?language=en&redirect=true (‘‘The 

evaluation found that incentives were not well 

aligned to foster the candid exchange of ideas that 

is needed for good surveillance—many staff 

reported concerns about the consequences of 

expressing views contrary to those of supervisors, 

[m]anagement, and country authorities.’’). 

76See Lynne L. Dallas, Does Corporate Law 

Protect the Interests of Shareholders and Other 

Stakeholders?: The New Managerialism and 

Diversity on Corporate Boards of Directors, 76 Tul. 

L. Rev. 1363, 1391 (June 2002). 

77See Bernile et al., supra note 28, at 38. 

78See Aaron A. Dhir, Challenging Boardroom 

Diversity: Corporate Law, Governance, and 

Diversity 150 (2015) (emphasis removed) (sample 

included 23 directors of Norwegian corporate 

boards, representing an aggregate of 95 board 

appointments at more than 70 corporations). 

79 Id. at 124 (emphasis removed). 

80See Petition for Amendment of Proxy Rule 

(March 31, 2015), available at: https://www.sec.gov/ 

rules/petitions/2015/petn4-682.pdf. 

81See Forbes and Milliken, supra note 74, at 492. 

82 Id. 

informed trading and enhancing stock 

liquidity.’’ 67

Other studies have found that diverse 

boards are better at overseeing 

management. Adams and Ferreira (2009) 

found ‘‘direct evidence that more 

diverse boards are more likely to hold 

CEOs accountable for poor stock price 

performance; CEO turnover is more 

sensitive to stock return performance in 

firms with relatively more women on 

boards.’’ 68 Lucas-Perez et al. (2014) 

found that board gender diversity is 

positively associated with linking 

executive compensation plans to 

company performance,69 which may be 

an effective mechanism to deter 

opportunistic behavior by management 

and align their interests with 

shareholders.70 A lack of diversity has 

been found to have the opposite effect. 

Westphal and Zajac (1995) found that 

‘‘increased demographic similarity 

between CEOs and the board is likely to 

result in more generous CEO 

compensation contracts.’’ 71

c. Diversity and Decision Making 

Wahid (2017) suggests that ‘‘at a 

minimum, gender diversity on corporate 

boards has a neutral effect on 

governance quality, and at best, it has 

positive consequences for boards’ ability 

to monitor firm management.’’ 72

Nasdaq reviewed studies suggesting that 

board diversity can indeed enhance a 

company’s ability to monitor 

management by reducing ‘‘groupthink’’ 

and improving decision making. 

In 2009, the Commission, in adopting 

rules requiring proxy disclosure 

describing whether a company 

considers diversity in identifying 

director nominees, recognized the 

impact of diversity on decision making 

and corporate governance: 

A board may determine, in connection 

with preparing its disclosure, that it is 

beneficial to disclose and follow a policy of 

seeking diversity. Such a policy may 

encourage boards to conduct broader director 

searches, evaluating a wider range of 

candidates and potentially improving board 

quality. To the extent that boards branch out 

from the set of candidates they would 

ordinarily consider, they may nominate 

directors who have fewer existing ties to the 

board or management and are, consequently, 

more independent. To the extent that a more 

independent board is desirable at a particular 

company, the resulting increase in board 

independence could potentially improve 

governance. In addition, in some companies 

a policy of increasing board diversity may 

also improve the board’s decision making 

process by encouraging consideration of a 

broader range of views.73

Nasdaq agrees with the Commission’s 

suggestion that board diversity improves 

board quality, governance and decision 

making. Nasdaq is concerned that 

boards lacking diversity can 

inadvertently suffer from ‘‘groupthink,’’ 

which is ‘‘a dysfunctional mode of 

group decision making characterized by 

a reduction in independent critical 

thinking and a relentless striving for 

unanimity among members.’’ 74 The 

catastrophic financial consequences of 

groupthink became evident in the 2008 

global financial crisis, after which the 

IMF’s Independent Evaluation Office 

concluded that ‘‘[t]he IMF’s ability to 

correctly identify the mounting risks [as 

the crisis developed] was hindered by a 

high degree of groupthink.’’ 75

Other studies suggest that increased 

diversity reduces groupthink and leads 

to robust dialogue and better decision 

making. Dallas (2002) observed that 

‘‘heterogeneous groups share conflicting 

opinions, knowledge, and perspectives 

that result in a more thorough 

consideration of a wide range of 

interpretations, alternatives, and 

consequences.’’ 76 Bernile et al. (2017) 

found that ‘‘diversity in the board of 

directors reduces stock return volatility, 

which is consistent with diverse 

backgrounds working as a governance 

mechanism, moderating decisions, and 

alleviating problems associated with 

‘groupthink.’’’ 77 Dhir (2015) concluded 

that gender diversity may ‘‘promote 

cognitive diversity and constructive 

conflict in the boardroom.’’ 78 After 

interviewing 23 directors about their 

experience with Norway’s board gender 

mandate, he observed: 

First, many respondents contended that 

gender diversity promotes enhanced 

dialogue. Interviewees frequently spoke of 

their belief that heterogeneity has resulted in: 

(1) Higher quality boardroom discussions; (2) 

broader discussions that consider a wide 

range of angles or viewpoints; (3) deeper or 

more thorough discussions; (4) more frequent 

and lengthier discussions; (5) better informed 

discussions; (6) discussions that are more 

frequently brought inside the boardroom (as 

opposed to being held in spaces outside the 

boardroom, either exclusively or in addition 

to inside the boardroom); or (7) discussions 

in which items that directors previously took 

for granted are drawn out and addressed— 

where the implicit becomes explicit. Second, 

and intimately related, many interviewees 

indicated that diversification has led to (or 

has the potential to lead to) better decision 

making processes and/or final decisions.79

Investors also have emphasized the 

importance of diversity in decision 

making. A group of institutional 

investors charged with overseeing state 

investments and the retirement savings 

of public employees asserted that 

‘‘board members who possess a variety 

of viewpoints may raise different ideas 

and encourage a full airing of dissenting 

views. Such a broad pool of talent can 

be assembled when potential board 

candidates are not limited by gender, 

race, or ethnicity.’’ 80

Nasdaq believes that cognitive 

diversity is particularly important on 

boards because in their advisory role, 

especially related to corporate strategy, 

‘‘the ‘output’ that boards produce is 

entirely cognitive in nature.’’ 81 While in 

1999, Forbes and Milliken characterized 

boards as ‘‘large, elite, and episodic 

decision making groups that face 

complex tasks pertaining to strategicissue processing,’’ 82 over the past two 

decades, their role has evolved; boards 

are now more active, frequent advisors 

on areas such as cybersecurity, social 

media, and environmental, social and 

governance (‘‘ESG’’) issues such as 

climate change and racial and gender 


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83On Nasdaq’s Nordic and Baltic exchanges, large 

companies must comply with EU Directive 2014/ 

95/EU (the ‘‘EU Directive’’), as implemented by 

each member state, which requires companies to 

disclose a board diversity policy with measurable 

objectives (including gender), or explain why they 

do not have such a policy. On Nasdaq Vilnius, 

companies are also required to comply with the 

Nasdaq Corporate Governance Code for Listed 

Companies or explain why they do not, which 

requires companies to consider diversity and seek 

gender equality on the board. Similarly, on Nasdaq 

Copenhagen, companies are required to comply 

with the Danish Corporate Governance 

Recommendations or explain why they do not, 

which requires companies to adopt and disclose a 

diversity policy that considers gender, age and 

international experience. On Nasdaq Iceland, listed 

companies must have at least 40% women on their 

board (a government requirement) and comply with 

the EU Directive. 

84See World Economic Forum, Global Gender 

Gap Report 2020 33 (2019), available at: http://

www3.weforum.org/docs/WEF_GGGR_2020.pdf. 

85See Kosmas Papadopoulos, ISS Analytics, U.S. 

Board Diversity Trends in 2019 4–5 (May 31, 2019), 

available at: https://www.issgovernance.com/file/ 

publications/ISS_US-Board-Diversity-Trends2019.pdf. 

86See Deloitte, Women in the Boardroom: A 

global perspective (6th ed. 2019), available at: 

https://www2.deloitte.com/content/dam/Deloitte/ 

global/Documents/Risk/gx-risk-women-in-theboardroom-sixth-edition.pdf. 

87See GAO Report, supra note 44. 

88See Russell Reynolds, Ethnic & Gender 

Diversity on US Public Company Boards 6 

(September 8, 2020). 

89See Papadopoulous, supra note 85, at 5. 

90See Out Leadership, supra note 35. 

91See Deloitte, Missing Pieces Report: The 2018 

Board Diversity Census of Women and Minorities 

on Fortune 500 Boards 9 (2018), available at: 

https://www2.deloitte.com/content/dam/Deloitte/us

/Documents/center-for-board-effectiveness/us-cbemissing-pieces-report-2018-board-diversitycensus.pdf. 

92See Catalyst, Too Few Women of Color on 

Boards: Statistics and Solutions (Jan. 31, 2020), 

https://www.catalyst.org/research/womenminorities-corporate-boards/. 

93See Deloitte, Missing Pieces Report, supra note 

91; United States Census Bureau, QuickFacts, 

available at: https://www.census.gov/quickfacts/ 

fact/table/US/PST045219. 

94See 2020 Women On Boards Gender Diversity 

Index 4 (2019), available at: https://2020wob.com/ 

wp-content/uploads/2019/10/2020WOB_Gender_

Diversity_Index_Report_Oct2019.pdf. 

95See Dhir, supra note 78, at 47. 

96See Women on Boards 17 (Feb. 2011), available 

at: https://ftsewomenleaders.com/wp-content/ 

uploads/2015/08/women-on-boards-review.pdf. 

97See Sir John Parker, A Report into the Ethnic 

Diversity of UK Boards 38 (Oct. 12, 2017), available 

at: https://assets.ey.com/content/dam/ey-sites/eycom/en_uk/news/2020/02/ey-parker-review-2017- 

report-final.pdf. 

inequality. Nasdaq believes that boards 

comprised of directors from diverse 

backgrounds enhance investor 

confidence by ensuring that board 

deliberations include the perspectives of 

more than one demographic group, 

leading to more robust dialogue and 

better decision making. 

III. Current State of Board Diversity 

and Causes of Underrepresentation on 

Boards 

While the above studies suggest a 

positive association between board 

diversity, company performance, 

investor protections, and decision 

making, there is a noticeable lack of 

diversity among U.S. public companies. 

Nasdaq is a global organization and 

operates in many countries around the 

world that already have implemented 

diversity-focused directives. In fact, 

Nasdaq-listed companies in Europe 

already are subject to diversity 

requirements.83 This first-hand 

experience provides Nasdaq with a 

unique perspective to incorporate global 

best practices into its proposal to 

advance diversity on U.S. corporate 

boards. Given that the U.S. ranks 53rd 

in board gender diversity, according to 

the World Economic Forum in its 2020 

Global Gender Gap Report, Nasdaq 

believes advancing board diversity in 

the U.S. is a critical business and market 

imperative. This same report also found 

that ‘‘American women still struggle to 

enter the very top business positions: 

only 21.7% of corporate managing board 

members are women.’’ 84 As of 2019, 

women directors held 19% of Russell 

3000 seats (up from 16% in 2018).85 In 

comparison, women hold more than 

30% of board seats in Norway, France, 

Sweden and Finland.86 At the current 

pace, the U.S. GAO estimates that it 

could take up to 34 years for U.S. 

companies to achieve gender parity on 

their boards.87

Progress toward greater racial and 

ethnic diversity in U.S. company 

boardrooms has been even slower. Over 

the past ten years, the percentage of 

African American/Black directors at 

Fortune 500 companies has remained 

between 7 and 9%, while the percentage 

of women directors has grown from 16 

to 23%.88 In 2019, only 10% of board 

seats at Russell 3000 companies were 

held by racial minorities, reflecting an 

incremental increase from 8% in 

2008.89 Among Fortune 500 companies 

in 2018, there were fewer than 20 

directors who publicly self-identified as 

LGBT+, and only nine companies 

reported considering sexual orientation 

and/or gender identity when identifying 

director nominees.90

Women and minority directors 

combined accounted for 34% of Fortune 

500 board seats in 2018.91 While women 

of color represent 18% of the U.S. 

population, they held only 4.6% of 

Fortune 500 board seats in 2018.92 Male 

underrepresented minorities held 11.5% 

of board seats at Fortune 500 companies 

in 2018, compared to 66% of board seats 

held by Caucasian/White men. Overall 

in 2018, 83.9% of board seats among 

Fortune 500 companies were held by 

Caucasian/White individuals (who 

represent 60.1% of the U.S. population), 

8.6% by African American/Black 

individuals (who represent 13% of the 

U.S. population), 3.8% by Hispanic/ 

Latino(a) individuals (who represent 

19% of the U.S. population) and 3.7% 

by Asian/Pacific Islander individuals 

(who represent 6% of the U.S. 

population).93 In its analysis of Russell 

3000 companies, 2020 Women on 

Boards concluded that ‘‘larger 

companies do better with their diversity 

efforts than smaller companies.’’ 94

Based on the limited information that 

is available, Nasdaq believes a 

supermajority of listed companies have 

made notable strides to improve gender 

diversity in the boardroom and have at 

least one woman on the board. Nasdaq 

also believes that listed companies are 

diligently working to add directors with 

other diverse attributes, although 

consistent with other studies of U.S. 

companies, Nasdaq believes the pace of 

progress, in this regard, is happening 

more gradually. Thus, and for the 

reasons discussed in this Section 

II.A.1.III, Nasdaq has concluded that a 

regulatory approach to encouraging 

greater diversity and data transparency 

would be beneficial. 

Nasdaq reviewed academic studies on 

the causes of underrepresentation on 

boards and the approaches taken by 

other jurisdictions to remedy 

underrepresentation. Those studies 

suggest that the traditional director 

candidate selection process may create 

barriers to considering qualified diverse 

candidates for board positions. Dhir 

(2015) explains that ‘‘[t]he presence of 

unconscious bias in the board 

appointment process, coupled with 

closed social networks, generates a 

complex set of barriers for diverse 

directors; these are the ‘phantoms’ that 

prevent entry.’’ 95 In 2011, the Davies 

Review found that ‘‘informal networks 

influential in board appointments’’ 

contribute to the underrepresentation of 

women in the boardrooms of U.K. listed 

companies.96 In 2017, the Parker 

Review acknowledged that ‘‘as is the 

case with gender, people of colour 

within the UK have historically not had 

the same opportunities as many 

mainstream candidates to develop the 

skills, networks and senior leadership 

experience desired in a FTSE 

Boardroom.’’ 97 In 2020, the United 

Kingdom Financial Reporting Council 

commissioned a report to analyze 

barriers to LGBTQ+ inclusion and 

promotion in the workplace. Leaders 

who self-identified as LGBTQ+ 

expressed concerns about the current 


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98See Catriona Hay et al., The Financial 

Reporting Council, Building more open business 25 

(2020), available at: https://www.frc.org.uk/ 

getattachment/19f3b216-bd45-4d46-af2ff191f5bf4a07/The-Good-Side-x-FinancialReporting-Council-1811-AMENDED.pdf. 

99See GAO Report, supra note 44, at 15. 

100See Vell Executive Search, Women Board 

Members in Tech Companies: Strategies for 

Building High Performing Diverse Boards 6 (2017), 

available at: https://www.vell.com/images/pdf/ 

VELL%20Report%20Women%20Board%20

Members%20on%20Tech%20Boards

%202017%203%2029.pdf. 

101See Deloitte and the Society of Corporate 

Governance, Board Practices Report: Common 

threads across boardrooms 5 (2019), available at: 

https://higherlogicdownload.s3.amazonaws.com/ 

GOVERNANCEPROFESSIONALS/a8892c7c-6297- 

4149-b9fc-378577d0b150/UploadedImages/ 

1202241_2018_Board_Practices_Report_FINAL.pdf. 

102 Id. at 6. 

103See Dhir, supra note 78, at 52. 

104See Deborah Rhode and Amanda K. Packel, 

Diversity on Corporate Boards: How Much 

Difference Does Difference Make?, 39(2) Del. J. 

Corp. L. 377, 402–403 (2014); see also Dhir, supra 

note 78, at 39 (‘‘[T]here is an apparent preference 

for either CEOs (whether current or retired) or 

senior management who have experience at the 

helm of a particular business stream or unit. . . . 

The fact that far fewer women than men have been 

CEOs has a potentially devastating effect on access 

to the boardroom, which in turn can have an effect 

on the number of women who rise to the level of 

CEO and to the executive suite.’’). 

105See Amy J. Hillman et al., Women and Racial 

Minorities in the Boardroom: How Do Directors 

Differ?, 28(6) J. Mgmt. 747, 749, 754 (2002). 

106See Dhir, supra note 78, at 42. 

107See GAO Report supra note 44, at 18. 

108See Leslie P. Norton, The Number of Black 

Board Members Surged After George Floyd’s Death, 

Barron’s, Oct. 27, 2020, available at: https://

www.barrons.com/articles/after-george-floydsdeath-the-number-of-black-board-members-surges51603809011. 

109 Id. 

board nomination process, which 

includes ‘‘relying on personal 

recommendations without transparent 

competition or due process [and] 

informal ‘interviewing’ outside the 

selection process.’’ 98

These concerns are not unique to the 

United Kingdom. The U.S. GAO (2015) 

found that women’s representation on 

corporate boards may be hindered by 

directors’ tendencies to ‘‘rely on their 

personal networks to identify new board 

candidates.’’ 99 Vell (2017) found that 

‘‘92% of board seats [of public U.S. and 

Canadian technology companies] are 

filled through networking, and women 

have less access to these networks.’’ 100

Deloitte and the Society for Corporate 

Governance (2019) found that this is 

also common in other industries 

including media, communications, 

energy, consumer products, financial 

services and life sciences.101 They 

observed that although 94% of 

companies surveyed were looking to 

increase diversity among their boards, 

77% of those boards looked to referrals 

from current directors when identifying 

diverse director candidates, suggesting 

that ‘‘networking is still key to board 

succession.’’ 102 Dhir (2015), in a 

qualitative study of Norwegian 

directors, observed that ‘‘[b]oard seats 

tend to be filled by directors engaging 

their networks, and the resulting 

appointees tend to be of the same sociodemographic background.’’ 103

Another contributing factor may be 

the traditional experience sought in 

director nominees. Rhode & Packel 

(2014) observed that: 

One of the most common reasons for the 

underrepresentation of women and 

minorities on corporate boards is their 

underrepresentation in the traditional 

pipeline to board service. The primary route 

to board directorship has long been through 

experience as a CEO of a public 

corporation. . . . Given the low 

representation of women and minorities in 

top executive positions, their talents are 

likely to be underutilized if selection criteria 

are not broadened.104

Hillman et al. (2002) found that while 

white male directors of public 

companies were more likely to have 

current or former experience as a CEO, 

senior manager or director, AfricanAmerican and white women directors 

were more likely to have specialized 

expertise in law, finance, banking, 

public relations or marketing, or 

community influence from positions in 

politics, academia or clergy.105 Dhir 

(2015) suggests that ‘‘[c]onsidering 

persons from other, non-management 

pools, such as academia, legal and 

accounting practice, the not-for-profit 

sector and politics, may help create a 

broader pool of diverse candidates.’’ 106

Directors surveyed by the U.S. GAO also 

‘‘suggested, for example, that boards 

recruit high performing women in other 

senior executive level positions, or look 

for qualified female candidates in 

academia or the nonprofit and 

government sectors. . . . [I]f boards 

were to expand their director searches 

beyond CEOs more women might be 

included in the candidate pool.’’ 107

Investors have begun calling for 

greater transparency surrounding ethnic 

diversity on company boards, and in the 

past several months as the U.S. has seen 

an uprising in the racial justice 

movement, there has been an increase in 

the number of African Americans 

appointed to Russell 3000 corporate 

boards.108 In a five-month span, 130 

directors appointed were African 

American, in comparison to the 38 

African American directors who were 

appointed in the preceding five 

months.109 Although tracking the 

acceleration in board diversity is 

feasible for some Russell 3000 

companies, many of the companies do 

not disclose the racial makeup of the 

board, making it impossible to more 

broadly assess the impact of recent 

events on board diversity. 

IV. Stakeholder Perspectives 

To gain a better understanding of the 

current state of board diversity, benefits 

of diversity, causes of 

underrepresentation on boards and 

potential remedies to address 

underrepresentation, Nasdaq spoke with 

leaders representing a broad spectrum of 

market participants and other 

stakeholders. Nasdaq sought their 

perspectives to inform its analysis of 

whether the proposed rule changes 

would promote the public interest and 

protection of investors without unduly 

burdening competition or conflicting 

with existing securities laws. The group 

included representatives from the 

investor, regulatory, investment 

banking, venture capital and legal 

communities. Nasdaq also spoke with 

leaders of civil rights and corporate 

governance organizations, and 

organizations representing the interests 

of private and public companies, 

including Nasdaq-listed companies. 

Specifically, Nasdaq obtained their 

views on: 

• The current state of board diversity 

in the U.S.; 

• the inherent value of board 

diversity; 

• increasing pressure from legislators 

and investors to improve diverse 

representation on boards and board 

diversity disclosure; 

• whether a listing rule related to 

board diversity is in the public interest; 

• how to define a ‘‘diverse’’ director; 

and 

• the benefits and challenges of 

various approaches to improving board 

diversity disclosures and increasing 

diverse representation on boards, 

including mandates and disclosurebased models. 

The discussions revealed strong 

support for disclosure requirements that 

would standardize the reporting of 

board diversity statistics. The majority 

of organizations also were in agreement 

that companies would benefit from a 

regulatory impetus to drive meaningful 

and systemic change in board diversity, 

and that a disclosure-based approach 

would be more palatable to the U.S. 

business community than a mandate. 

While many organizations recognized 

that mandates can accelerate the rate of 

change, they expressed that a 

disclosure-based approach is less 

controversial and would spur 

companies to take action and achieve 

the same results. Business leaders also 


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80482 Federal Register / Vol. 85, No. 239 / Friday, December 11, 2020 / Notices 

110 In 2009, when the Commission proposed 

enhancements to proxy disclosures, including 

addressing board diversity disclosures, the 

Commission received over 130 comment letters 

related to its proposal, including from corporations, 

pension funds, professional associations, trade 

unions, accounting firms, law firms, consultants, 

academics, individual investors and other 

interested parties. See Proxy Disclosure 

Enhancements, 74 FR at 68,335; see also David A. 

Katz and Laura McIntosh, Raising the Stakes for 

Board Diversity, Law.com (July 22, 2020), available 

at: https://www.law.com/newyorklawjournal/2020/ 

07/22/raising-the-stakes-for-board-diversity/ 

?slreturn=20201017021522; Office of the Illinois 

State Treasurer, The Investment Case For Board 

Diversity: A Review of the Academic and 

Practitioner Research on the Value of Gender and 

Racial/Ethnic Board Diversity for Investors 7 (Oct. 

2020), available at: https://

illinoistreasurergovprod.blob.core.

usgovcloudapi.net/twocms/media/doc/il%20

treasurer%20white%20paper%20-%20the%

20investment%20case%20for%20

board%20diversity%20(oct%202020).pdf. 

111See Comments on Proposed Rule: Proxy 

Disclosure and Solicitation Enhancements, 

available at: https://www.sec.gov/comments/s7-13- 

09/s71309.shtml. See also CGLytics, Diversity on 

the Board? Metrics Used by Fortune 100 Companies 

(June 29, 2020), available at: https://

www.cglytics.com/diversity-on-the-board-metricsof-fortune-100-companies/; Office of the Illinois 

State Treasurer, supra note 110. 

112For example, California requires companies 

headquartered in the state to have at least one 

director who self-identifies as a Female and one 

director from an Underrepresented Community. See 

Cal. S.B. 826 (Sept. 30, 2018); Cal. A.B. 979 (Sept. 

30, 2020). Washington requires companies 

headquartered in the state to have at least 25% 

women on the board by 2022 or provide certain 

disclosures. See Wash. Subst. S.B. 6037 (June 11, 

2020). At least eleven states have proposed 

diversity-related requirements. See Hatcher and 

Latham, supra note 11. 

113See Proxy Disclosure and Solicitation 

Enhancements, 74 FR 35,076, 35,084 (July 17, 2009) 

(proposed rule). 

114See Thomas Lee Hazen and Lissa Lamkin 

Broome, Board Diversity and Proxy Disclosure, 37:1 

Univ. Dayton L. Review 41, 51, n. 82 (citing the 

comment letters). 

115 In the five comments that opposed diversity 

disclosure, three stated that diversity was an 

important value. See Comments on Proposed Rule, 

supra note 111; see also Hazen and Broome, supra 

note 114, at 54 n.88 (citing the 56 comment letters). 

116See Hazen and Broome, supra note 114, at 53 

n. 84–86. 

117See 17 CFR 229.401(e)(1). 

118See Securities and Exchange Commission, 

Regulation S–K Compliance & Disclosure 

Interpretations (Sept. 21, 2020), available at: https:// 

www.sec.gov/divisions/corpfin/guidance/regskinterp.htm. 

119 Id. 

120 Id. 

121See 17 CFR 229.407(c)(2)(vi). 

expressed concern that smaller 

companies would require flexibility and 

support to comply with any timesensitive requirements to add diverse 

directors. Some stakeholders 

highlighted additional challenges that 

smaller companies, and companies in 

certain industries, may face finding 

diverse board members. Leaders from 

across the spectrum of stakeholders that 

Nasdaq surveyed reinforced the notion 

that if companies recruit by skill set and 

expertise rather than title, then they will 

find there is more than enough diverse 

talent to satisfy demand. Leaders from 

the legal community emphasized that 

any proposed rule that imposed 

additional burdens beyond, or is 

inconsistent with, existing securities 

laws—by, for example, requiring 

companies to adopt a diversity policy or 

include disclosure solely in their proxy 

statements—would present an 

additional burden and potentially more 

legal liability for listed companies. 

V. U.S. Regulatory Framework 

As detailed above, diversity has been 

the topic of a growing number of studies 

over the past decade and, in recent 

years, some investors have been 

increasingly advocating for greater 

diversity among directors of public 

companies.110 Over the past year, the 

social justice movement has 

underscored the importance of having 

diverse perspectives and representation 

at all levels of decision-making, 

including on public company boards. In 

recent years, diversity has become 

increasingly important to the public, 

including institutional investors, 

pension funds and other stakeholders 

who believe that board diversity 

enhances board performance and is an 

important factor in the voting decisions 

of some investors.111 Legislators 

increasingly are taking action to 

encourage corporations to diversify their 

boards and improve diversity 

disclosures.112

a. SEC Diversity Disclosure 

Requirements—Background 

In 2009, the Commission sought 

comment on whether to amend Item 

407(c)(2)(vi) of Regulation S–K to 

require disclosure of whether a 

nominating committee considers 

diversity when selecting a director for a 

position on the board.113 The 

Commission received more than 130 

comment letters on its proposal. 

According to a University of Dayton 

Law Review analysis of those comment 

letters, most were submitted by groups 

with a specific interest in diversity, or 

by institutional investors, including 

mutual funds, pension funds, and 

socially responsible investment 

funds.114 Further, the analysis showed 

that 56 commenters addressed the issue 

of diversity disclosures, and only 5 of 

those 56 commenters did not favor such 

disclosure.115 Twenty-seven of the 56 

mentioned gender diversity, 18 

mentioned racial diversity, and 13 

mentioned ethnic diversity. However, 

neither the proposed rule nor the final 

rule defined diversity.116

Ten years after its adoption of board 

diversity disclosure rules, the 

Commission revisited the rules by 

establishing new Compliance and 

Disclosure Interpretations (‘‘C&DI’’). 

However, the Commission did not 

provide a definition of diversity, and 

therefore issuers currently are not 

required to disclose the race, ethnicity 

or gender of their directors or nominees. 

Currently, Item 401(e)(1) of 

Regulation S–K requires a company to 

‘‘briefly discuss the specific experience, 

qualifications, attributes or skills that 

led to the conclusion that the person 

should serve as a director.’’ 117 The 

C&DI clarifies that if a board considered 

a director’s self-identified diversity 

characteristics (e.g., race, gender, 

ethnicity, religion, nationality, 

disability, sexual orientation or cultural 

background) during the nomination 

process, and the individual consents to 

disclose those diverse characteristics, 

the Commission ‘‘would expect that the 

company’s discussion required by Item 

401 would include, but not necessarily 

be limited to, identifying those 

characteristics and how they were 

considered.’’ 118

Rather than providing a specific 

definition of diversity, the C&DI 

provides a non-exhaustive list of 

examples of diverse characteristics that 

a company could consider for purposes 

of Item 401(e)(1), including ‘‘race, 

gender, ethnicity, religion, nationality, 

disability, sexual orientation, or cultural 

background.’’ 119 Additionally, the 

Commission stated that any description 

of a company’s diversity policy would 

be expected to include ‘‘a discussion of 

how the company considers the selfidentified diversity attributes of 

nominees as well as any other 

qualifications its diversity policy takes 

into account, such as diverse work 

experiences, military service, or socioeconomic or demographic 

characteristics.’’ 120

Item 407(c)(2)(vi) of Regulation S–K 

requires proxy disclosure regarding 

whether diversity is considered when 

identifying director nominees and, if so, 

how. In addition, if the board or 

nominations committee has adopted a 

diversity policy, the company must 

describe how the policy is implemented 

and its effectiveness is assessed.121

When adopting Item 407(c)(2)(vi), the 

Commission explained: 

We recognize that companies may define 

diversity in various ways, reflecting different 

perspectives. For instance, some companies 

may conceptualize diversity expansively to 


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122See Proxy Disclosure Enhancements, 74 FR at 

68,344. 

123See Petition for Rulemaking (July 6, 2017), 

available at: https://www.sec.gov/rules/petitions/ 

2017/petn4-711.pdf. 

124See Press Release, Illinois State Treasurer 

Frerichs Calls on Russell 3000 Companies to 

Disclose Diversity Data (Oct. 28, 2020), available at 

https://illinoistreasurer

govprod.blob.core.usgovcloudapi.net/twocms/ 

media/doc/october2020_russell3000.pdf. 

125See Office of Illinois State Treasurer, supra 

note 110, at 3–4. 

126See Lee, supra note 22. 

127See Proxy Disclosure Enhancements, 74 FR at 

68,355 (‘‘Although the[se] amendments are not 

intended to steer behavior, diversity policy 

disclosure may also induce beneficial changes in 

board composition. A board may determine, in 

connection with preparing its disclosure, that it is 

beneficial to disclose and follow a policy of seeking 

diversity.’’); see also Office of Illinois State 

Treasurer, supra note 110, at 3. 

128See, e.g., CGLytics, supra note 111, at https:// 

www.cglytics.com/diversity-on-the-board-metricsof-fortune-100-companies/; Petition for Amendment 

of Proxy Rule, supra note 80; Office of Illinois State 

Treasurer, supra note 110. 

129See Office of the Illinois State Treasurer, 

Russell 3000 Board Diversity Disclosure Initiative, 

https://www.illinoistreasurer.gov/Financial_

Institutions/Equity,_Diversity__Inclusion/Russell_

3000_Board_Diversity_Disclosure_Initiative (last 

accessed Nov. 25, 2020). 

130See Petition for Rulemaking, supra note 123, 

at 2. 

131See, e.g., Gwen Le Berre, Parametric, Investors 

Need Data to Make Diversity a Reality (Aug. 24, 

2020), https://www.parametricportfolio.com/blog/ 

investors-need-data-to-make-diversity-a-reality. 

132See Petition for Amendment of Proxy Rule, 

supra note 80. 

133See Petition for Rulemaking, supra note 123. 

include differences of viewpoint, 

professional experience, education, skill and 

other individual qualities and attributes that 

contribute to board heterogeneity, while 

others may focus on diversity concepts such 

as race, gender and national origin. We 

believe that for purposes of this disclosure 

requirement, companies should be allowed to 

define diversity in ways that they consider 

appropriate. As a result we have not defined 

diversity in the amendments.122

Moreover, Item 407(c)(2)(vi) does not 

require companies to adopt a formal 

policy and does not require them to 

explain why they have not. It also does 

not require public disclosure of boardlevel diversity statistics. 

b. Complaints Surrounding Current 

Diversity Disclosure Requirements 

Given the broad latitude afforded to 

companies by the Commission’s rules 

related to board diversity and proxy 

disclosure, current reporting of boardlevel diversity statistics has been 

significantly unreliable and unusable to 

investors. This has been due to myriad 

data collection challenges, including the 

scarcity of reported information, the 

lack of uniformity in the information 

that is disclosed and inconsistencies in 

the definitions of diversity 

characteristics across companies.123 The 

heightened national discourse around 

diversity and mounting grievances from 

investors surrounding transparency on 

board diversity prompted Nasdaq to 

examine the state of board diversity 

among its listed companies. While 

conducting that research, Nasdaq 

identified a number of key challenges, 

such as: (1) Inconsistent disclosure and 

definitions of diversity across 

companies; (2) limited data on diverse 

characteristics outside of gender; (3) 

inconsistent or no disclosure of a 

director’s race, ethnicity, or other 

diversity attributes (e.g., nationality); (4) 

difficult-to-extract data because 

statistics are often embedded in 

graphics; and (5) aggregation of 

information, making it difficult to 

separate gender from other categories of 

diversity. Investors and data analysts 

have raised similar criticisms. 

As the Illinois Treasurer observed, the 

paucity of data on race and ethnicity 

creates barriers to investment analysis, 

due diligence and academic study.124

For example, the scarcity of such data 

is an impediment to academics who 

want to study the performance impact of 

racially diverse boards.125 Nasdaq is 

concerned that investors also face the 

many data collection challenges Nasdaq 

encountered, rendering current diversity 

disclosures unreliable, unusable, and 

insufficient to inform investment and 

voting decisions. Commissioner Allison 

Herren Lee expressed similar concerns, 

stating that the current SEC disclosure 

requirements have ‘‘led to spotty 

information that is not standardized, not 

consistent period to period, not 

comparable across companies, and not 

necessarily reliable. . . . And the 

current state of disclosure reveals the 

shortcomings of a principles-based 

materiality regime in this area.’’ 126

Some stakeholders believe there is a 

correlation between companies that 

disclose the gender, racial and ethnic 

composition of their board and the 

number of diverse directors on those 

companies’ boards.127 Currently, the 

lack of reliable and consistent data 

makes it difficult to measure diversity in 

the boardroom, and a common set of 

standards for diversity definitions and 

disclosure format is greatly needed. At 

present, U.S. companies must navigate a 

complex patchwork of federal and state 

regulations and disclosure 

requirements. The limited disclosure 

currently provided voluntarily, which is 

primarily focused on gender (due in part 

to that data being the most readily 

available), fails to provide the full scope 

of a board’s diverse characteristics.128 It 

is difficult to improve what one cannot 

accurately measure. This lack of 

transparency is impacting investors who 

are increasingly basing public advocacy, 

proxy voting and direct shareholdercompany engagement decisions on 

board diversity considerations.129

c. Support for Updating Diversity 

Disclosure Requirements 

Nasdaq’s surveys of investors and 

reviews of their disclosed policies and 

actions show that board diversity is a 

priority when assessing companies, and 

investors report, in some cases, relying 

on intuition when there is a lack of 

empirical, evidenced-based data. 

Furthermore, the continued growth of 

ESG investing raises the importance of 

quality data, given the data-driven 

nature of investment products such as 

diversity-specific indices and broader 

ESG funds. 

Investors have a unique platform from 

which to engage and influence a 

company’s position on important topics 

like diversity. Similarly, Nasdaq, like 

other self-regulatory organizations, is 

uniquely positioned to establish 

practices that will assist in carrying out 

Nasdaq’s mandate to protect investors 

and remove impediments from the 

market. Various stakeholders, including 

Nasdaq, believe that clear and concise 

annual disclosure of board diversity 

information that disaggregates the data 

by race, ethnicity, gender identity and 

sexual orientation will provide the 

public, including key stakeholders, with 

a better sense of a company’s approach 

to improving corporate diversity and the 

support needed to effectuate any 

changes. Required disclosures also 

would eliminate the number of 

shareholder proposals asking for these 

key metrics and the need for companies 

to respond to multiple investor requests 

for information.130 Moreover, 

companies manage issues more closely 

and demonstrate greater progress when 

data is available.131

In 2015, nine large public pension 

funds who collectively supervised $1.12 

trillion in assets at the time petitioned 

the Commission to require registrants to 

disclose information related to, among 

other things, the gender, racial, and 

ethnic diversity of the registrant’s board 

nominees.132 In 2017, Human Capital 

Management Coalition, which described 

itself as a group of institutional 

investors with $2.8 trillion in assets at 

the time, made a similar petition to the 

Commission.133 More recently, in 

October 2020, the Illinois Treasurer 

spearheaded an initiative along with 

twenty other investor organizations, 

asking for all companies in the Russell 


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134See Press Release, supra note 124. 

135See ISS Governance, ISS Announces 2021 

Benchmark Policy Updates (November 12, 2020), 

available at: https://www.issgovernance.com/issannounces-2021-benchmark-policy-updates/. 

136See Glass Lewis, 2019 Policy Guideline 

Updates (Oct. 24, 2018), available at: https://

www.glasslewis.com/2019-policy-guidelineupdates-united-states-canada-shareholderinitiatives-israel/. 

137See Glass Lewis, 2021 Proxy Paper Guidelines: 

An Overview of the Glass Lewis Approach to Proxy 

Advice—United States (2020), available at: https:// 

www.glasslewis.com/wp-content/uploads/2020/11/ 

US-Voting-GuidelinesGL.pdf?hsCtaTracking=7c712e31-24fb-4a3a-b396- 

9e8568fa0685%7C86255695-f1f4-47cb-8dc0- 

e919a9a5cf5b. 

138 Id. 

139 Gender Diversity in Corporate Leadership Act 

of 2017, H.R. 1611, 115th Cong. (2017). 

140 Improving Corporate Governance Through 

Diversity Act of 2019, H.R. 5084, 116th Cong. 

(2019). 

141 Improving Corporate Governance Through 

Diversity Act of 2019, S. 360, 116th Cong. (2019). 

142See Letter from Various U.S. Chamber of 

Commerce Associations and Members to Chairman 

Mike Crapo and Ranking Member Sherrod Brown, 

U.S. House Committee on Banking, Housing, and 

Urban Affairs (July 27, 2020), available at: https:// 

www.uschamber.com/sites/default/files/200727_

coalition_h.r._5084_senatesmallbusiness.pdf. 

143 Id. 

144See Joe Mont, SEC, Congress seek better 

diversity disclosures, Compliance Week (Feb. 20, 

2019), https://www.complianceweek.com/seccongress-seek-better-diversity-disclosures/ 

24802.article. 

145See Lee, supra note 22. 

146 Id. Commissioner Crenshaw also expressed 

disappointment with the Commission’s silence on 

diversity. See Crenshaw, supra note 7. 

147See Nasdaq Stock Market Rulebook, Rules 

5250(c) and (d). 

3000 Index to disclose the composition 

of their board, including each board 

member’s gender, race and ethnicity.134

The largest proxy advisory firms have 

aligned their voting policies to 

encourage increased board diversity 

disclosure. Institutional Shareholder 

Services (‘‘ISS’’), recently adopted a 

new voting policy under which it will 

identify boards of companies in the 

Russell 3000 or S&P 1500 that ‘‘lack 

racial and ethnic diversity (or lack 

disclosure of such)’’ in 2021 and, 

beginning in 2022, will recommend 

voting against the chair of the 

nominating committee of such 

companies. The stated goal of the policy 

is ‘‘helping investors identify companies 

with which they may wish to engage 

and to foster dialogue between investors 

and companies on this topic.’’ 135 In 

2017, proxy advisory firm Glass Lewis 

announced a policy regarding board 

gender diversity that took effect in 2019. 

Glass Lewis generally recommends 

voting against the nominating 

committee chair of a board that has no 

female members, and when making 

such a recommendation, the firm 

closely examines the company’s 

disclosure of its board diversity 

considerations and other relevant 

contextual factors.136 On November 24, 

2020, Glass Lewis announced the 

publication of its 2021 Proxy Voting 

Policy Guidelines, which expand its 

board gender diversity policy to vote 

against nominating chairs if there are 

fewer than two female directors, 

beginning in 2022.137 Most notably, 

beginning with the 2021 proxy season, 

the company will include an assessment 

report of company proxy disclosures 

relating to board diversity, skills and the 

director nomination process for 

companies in the S&P 500 index. 

According to Glass Lewis, it ‘‘will 

reflect how a company’s proxy 

statement presents: (i) The board’s 

current percentage of racial/ethnic 

diversity; (ii) whether the board’s 

definition of diversity explicitly 

includes gender and/or race/ethnicity; 

(iii) whether the board has adopted a 

policy requiring women and minorities 

to be included in the initial pool of 

candidates when selecting new director 

nominees (aka ‘Rooney Rule’); and (iv) 

board skills disclosure.’’ 138

Congress and members of the 

Commission also have weighed in on 

the importance of improving board 

transparency. In 2017, Representative 

Carolyn Maloney introduced the 

‘‘Gender Diversity in Corporate 

Leadership Act of 2017,’’ which 

proposed requiring public companies to 

provide proxy disclosure regarding the 

gender diversity of the board of 

directors and nominees.139 In November 

2019, the U.S. House of Representatives, 

with bipartisan support, passed the 

‘‘Corporate Governance Through 

Diversity Act of 2019,’’ which requires 

certain registrants annually to disclose 

the racial, ethnic, and gender 

composition of their boards and 

executive officers, as well as the veteran 

status of any of those directors and 

officers, in their proxy statements.140

The bill also requires the disclosure of 

any policy, plan or strategy to promote 

racial, ethnic, and gender diversity 

among these groups. Legislators have 

proposed a companion bill in the U.S. 

Senate.141

The Council of Institutional Investors 

(‘‘CII’’), U.S. Chamber of Commerce,142

National Urban League, Office of New 

York State Comptroller and the National 

Association for the Advancement of 

Colored People praised the House of 

Representatives’ for passing the 2019 

legislation. According to the U.S. 

Chamber of Commerce’s members and 

associations, it has become increasingly 

important to see improvements in board 

diversity.143 Additionally, CII’s General 

Counsel stated that the proxy statement 

disclosure requirement in the legislation 

‘‘could contribute to enhancing U.S. 

public company board consideration of 

diversity.’’ 144

More recently, SEC Commissioners 

have called for greater transparency 

surrounding ethnic diversity on 

company boards. In a September 2020 

speech titled ‘‘Diversity Matters, 

Disclosure Works, and the SEC Can Do 

More’’ given at the CII Fall Conference, 

Commissioner Lee advocated advancing 

corporate diversity and for various 

approaches by which the Commission 

could promote diversity, including 

among other things, strengthening the 

C&DI’s guidance related to disclosure of 

board candidate diversity 

characteristics.145 Commissioner Lee 

stated: 

[The SEC has] largely declined to require 

diversity-related disclosure. In 2009, we 

adopted a requirement for companies to 

disclose if and how diversity is considered as 

a factor in the process for considering 

candidates for board positions, including any 

policies related to the consideration of 

diversity. In 2018, we issued guidance 

encouraging the disclosure of self-identified 

characteristics of board candidates. While I 

appreciate these measures, given that women 

of color hold just 4.6% of Fortune 500 board 

seats and less than one percent of Fortune 

500 CEOs are Black, it’s time to consider how 

to get investors the diversity information they 

need to allocate their capital wisely.146

VI. Nasdaq Proposal 

a. Overview of Disclosure Requirements 

Disclosure of information material to 

an investor’s voting and investment 

decision is the bedrock of federal 

securities laws. The Exchange’s listing 

rules require companies to comply with 

federal securities laws, including the 

registration requirements under the 

Securities Act of 1933. Once listed, 

companies are obligated to solicit 

proxies and file all annual and periodic 

reports with the Commission under the 

Act at the prescribed times.147 In 

discharging its obligation to protect 

investors, Nasdaq monitors listed 

companies for compliance with those 

disclosure obligations, and the failure to 

do so results in a notice of deficiency or 

delisting. 

Nasdaq believes it is well within the 

Exchange’s delegated regulatory 

authority to propose listing rules 

designed to enhance transparency so 

long as they do not conflict with 

existing federal securities laws. For 

example, Nasdaq requires listed 

companies to publicly disclose 

compensation or other payments by 

third parties to a company’s directors or 


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148See Order Granting Accelerated Approval of a 

Proposed Rule Change, 81 FR 44,400, 44,403 (July 

7, 2016). 

149See Petition for Amendment of Proxy Rule, 

supra note 80, at 2. 

150While the EEO–1 report refers to ‘‘Hispanic or 

Latino’’ rather than Latinx, Nasdaq proposes to use 

the term Latinx to apply broadly to all gendered and 

gender-neutral forms that may be used by 

individuals of Latin American heritage, including 

individuals who self-identify as Latino/a/e. 

151Further, Nasdaq agrees with the United 

Kingdom Financial Reporting Council that the 

acronym LGBTQ+ ‘‘does not attempt to exclude 

other groups, nor does it imply that the experiences 

of people under its umbrella are the same.’’ See Hay 

et al., supra note 98, at 14. 

152See Cal. S.B. 826, supra note 112. 

153See Cal. A.B. 979, supra note 112. 

154See Cal. S.B. 826, supra note 112. See also N.J. 

Senate No. 3469, § 3(b)(2) (2019); Mich. S.B. 115, 

§ 505a(2)(b) (2019); Haw. H.B. 2720, § 414–1(b)(2) 

(2020). 

155See California Partners Project, Claim Your 

Seat: A Progress Report on Women’s Representation 

on California Corporate Boards 4 (2020), available 

at: https://www.calpartnersproject.org/ 

claimyourseat. 

156See Wash. Subst. S.B. 6037, supra note 112. 

At least 11 states have proposed diversity-related 

requirements. See Hatcher and Latham, supra note 

11. 

157See 12 U.S.C. 5452(g)(3) and Public Law 101– 

73 § 1204(c)(3). 

nominees, notwithstanding that such 

disclosure is not required by federal 

securities laws. In approving that 

proposed rule, the Commission noted: 

To the extent there are certain factual 

scenarios that would require disclosure not 

otherwise required under Commission rules, 

we believe that it is within the purview of 

a national securities exchange to impose 

heightened governance requirements, 

consistent with the Act, that are designed to 

improve transparency and accountability into 

corporate decision making and promote 

investor confidence in the integrity of the 

securities markets.148

Nasdaq is concerned that while 

investors have increasingly emphasized 

that they consider board diversity 

information to be material, the current 

lack of transparency and consistency 

makes it difficult for Nasdaq and 

investors to determine the state of 

diversity among listed companies as 

well as each board’s philosophy 

regarding diversity. Investors also have 

voiced dissatisfaction about having to 

independently collect board-level data 

about race, ethnicity and gender identity 

because such investigations can be time 

consuming, expensive, and fraught with 

inaccuracies.149 Moreover, in some 

instances, based on Nasdaq’s own 

investigation, such information is either 

unavailable, or, if available, not 

comparable across companies. To the 

extent investors must obtain this 

information on their own through an 

imperfect process, Nasdaq is concerned 

that it increases information 

asymmetries between larger 

stakeholders, who are able to collect this 

data directly from companies, and 

smaller investors, who must rely on 

incomplete public disclosures. For all 

investors who take on the burden of 

independently obtaining the current 

information, there is a cost and time 

burden related to the data collection. 

Nasdaq believes that additional 

disclosure regarding a board’s 

composition and philosophy related to 

board diversity will improve 

transparency and accountability into 

corporate decision making. Nasdaq 

proposes to improve transparency 

regarding board diversity by requiring 

all listed companies to publicly disclose 

unbundled, consistent data utilizing a 

uniform, transparent framework on their 

website or in their proxy statement 

under Rule 5606. Similarly, Nasdaq 

proposes to promote accountability in 

corporate decision-making by requiring 

companies who do not have at least two 

Diverse directors on their board to 

provide investors with a public 

explanation of the board’s reasons for 

not doing so under Rule 5605(f)(3). 

Nasdaq designed the proposal to avoid 

a conflict with existing disclosure 

requirements under Regulation S–K and 

to mitigate additional burdens for 

companies by providing them with 

flexibility to provide such disclosure on 

their website or in their proxy 

statement, and not requiring them to 

adopt a formal diversity policy. 

Nasdaq proposes to foster consistency 

in board diversity data disclosure by 

defining ‘‘Diverse’’ under Rule 

5605(f)(1) as ‘‘an individual who selfidentifies in one or more of the 

following categories: Female, 

Underrepresented Minority or 

LGBTQ+,’’ and by adopting the 

following definitions under Rule 

5605(f)(1): 

• ‘‘Female’’ means an individual who 

self-identifies her gender as a woman, 

without regard to the individual’s 

designated sex at birth. 

• ‘‘LGBTQ+’’ means an individual 

who self-identifies as any of the 

following: lesbian, gay, bisexual, 

transgender or a member of the queer 

community. 

• ‘‘Underrepresented Minority’’ 

means an individual who self-identifies 

as one or more of the following: Black 

or African American, Hispanic or 

Latinx, Asian, Native American or 

Alaska Native, Native Hawaiian or 

Pacific Islander, or Two or More Races 

or Ethnicities. 

The terms in the proposed definition 

of ‘‘Underrepresented Minority’’ reflect 

the EEOC’s categories and are construed 

in accordance with the EEOC’s 

definitions.150 The terms in the 

proposed definition of LGBTQ+ are 

similar to the identities defined in 

California’s A.B. 979, described below, 

but have been expanded to include the 

queer community based on Nasdaq’s 

consultation with stakeholders, 

including human rights 

organizations.151

In constructing its proposed 

definition of ‘‘Diverse,’’ Nasdaq 

considered various state and federal 

legislation, stakeholder sentiments and 

academic studies. For example, 

California requires public companies 

headquartered in the state to have at 

least one individual who self-identifies 

as a female on the board by 2019 under 

S.B. 826 152 and at least one director 

who is a member of an 

‘‘underrepresented community’’ by 2021 

under A.B. 979.153 S.B. 826 defines 

‘‘Female’’ as ‘‘an individual who selfidentifies her gender as a woman, 

without regard to the individual’s 

designated sex at birth,’’ consistent with 

legislation proposed by New Jersey, 

Michigan and Hawaii related to board 

gender diversity.154 A.B. 979 considers 

directors from underrepresented 

communities to be individuals who selfidentify as Black, African American, 

Hispanic, Latino, Asian, Pacific 

Islander, Native American, Native 

Hawaiian or Alaska Native, or as gay, 

lesbian, bisexual or transgender. Since 

S.B. 826 was passed, 669 women have 

joined public company boards in the 

state and the number of public 

companies with all male boards has 

declined from 30% in 2018 to 3% in 

2020.155

The state of Washington requires 

public companies whose boards are not 

comprised of at least 25% directors who 

self-identify as women by January 1, 

2022 to provide public disclosures 

related to the board’s consideration of 

‘‘diverse groups’’ during the director 

nomination process. The state considers 

‘‘diverse groups’’ to include ‘‘women, 

racial minorities, and historically 

underrepresented groups.’’ 156

As discussed above, Congress has 

proposed legislation relating to 

disclosure of racial, ethnic, gender and 

veteran status among the company’s 

directors. Section 342 of the Dodd-Frank 

Act defines ‘‘minority’’ as ‘‘Black 

American, Native American, Hispanic 

American, and Asian American,’’ 157

and the Diversity Assessment Report for 

Entities Regulated by the SEC requires 

the Exchange to report workforce 

composition data to the SEC based on 


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158See Securities and Exchange Commission, 

Diversity Assessment Report for Entities Regulated 

by the SEC, available at: https://www.sec.gov/files/ 

OMWI-DAR-FORM.pdf. 159All companies with 100 or more employees 

are required to complete the EEO–1 Report. See 

U.S. Equal Employment Opportunity Commission, 

EEO–1: Who Must File, https://www.eeoc.gov/ 

employers/eeo-1-survey/eeo-1-who-must-file (last 

accessed Nov. 27, 2020). 160See Bostock v. Clayton Cty., 140 S. Ct. 1731, 

1742 (2020) (‘‘But unlike any of these other traits 

or actions, homosexuality and transgender status 

are inextricably bound up with sex. Not because 

homosexuality or transgender status are related to 

sex in some vague sense or because discrimination 

on these bases has some disparate impact on one 

sex or another, but because to discriminate on these 

grounds requires an employer to intentionally treat 

individual employees differently because of their 

sex.’’). 

161Although non-binary is included as a category 

in the proposed Board Diversity Matrix, a company 

would not satisfy the diversity requirement 

proposed by Rule 5605(f)(2) if a director selfidentifies solely as non-binary. 

162See supra note 159. Additionally, the EEOC 

does not categorize LGBTQ+ or any other sexual 

orientation identifier on its EEO–1 Report. The 

definitions of the EEO–1 race and ethnicity 

categories may be found in the appendix to the 

EEO–1 Report instructional booklet, available at 

https://www.eeoc.gov/employers/eeo-1-survey/eeo1-instruction-booklet. 

the EEOC’s categories.158 Most 

companies are required by law to 

provide similar workforce data to the 

EEOC through the EEO–1 Report, which 

requires employers to report statistical 

data related to race, ethnicity and 

gender to the EEOC.159

Nasdaq has designed the proposed 

rule to require all companies to provide 

consistent, comparable data under Rule 

5606 by utilizing the existing EEO–1 

reporting categories that companies are 

already familiar with, and by requiring 

companies to have, or publicly explain 

why they do not have, at least two 

directors who are diverse in terms of 

race, ethnicity, sexual orientation or 

gender identity under Rule 5605(f)(2). 

While the EEO–1 report does not 

currently include sexual orientation or 

gender identity, Nasdaq believes it is 

reasonable and in the public interest to 

include a reporting category for 

LGBTQ+ status in recognition of the 

U.S. Supreme Court’s recent decision in 

Bostock v. Clayton County that sexual 

orientation and gender identity are 

‘‘inextricably’’ intertwined with sex.160

The proposal does not preclude 

companies from considering additional 

diverse attributes, such as nationality, 

disability, or veteran status in selecting 

board members; however, the company 

would still have to provide the required 

disclosure under Rule 5605(f)(3) if the 

company does not also have at least two 

directors who are otherwise considered 

Diverse under Rule 5605(f)(1). Nor 

would the proposal prevent companies 

from disclosing information related to 

other diverse attributes of board 

members beyond those highlighted in 

the rule if they felt such disclosure 

would benefit investors. Nasdaq 

believes such disclosure would provide 

investors with additional information 

about the company’s philosophy 

regarding broader diversity 

characteristics. 

Overall, Nasdaq believes the proposal 

will enhance investor confidence that 

all listed companies are considering 

diversity of race, ethnicity, sexual 

orientation and gender identity in the 

context of selecting directors. Investors 

will be confident that board discussions 

at listed companies with at least two 

Diverse directors include the 

perspectives of more than one 

demographic group. They will also be 

confident that boardrooms without at 

least two Diverse directors are having a 

thoughtful discussion about their 

reasons for not doing so and publicly 

explaining those reasons. On balance, 

the proposal will advance the public 

interest and enhance investor 

confidence in the integrity of the 

securities markets by ensuring investors 

that Nasdaq is monitoring all listed 

companies to verify that they have at 

least two Diverse directors or explain 

why they do not, and by requiring all 

listed companies to provide consistent, 

comparable diversity disclosures. 

b. Board Statistical Disclosure 

Given the increased interest in, and 

advocacy for, improvements in board 

transparency related to diversity 

disclosure information, the Exchange is 

proposing to adopt new Rule 5606(a), 

which would require each company to 

publicly disclose, to the extent 

permitted by applicable law, 

information on each director’s voluntary 

self-identified gender and racial 

characteristics and LGBTQ+ status. 

All Nasdaq-listed companies that are 

subject to proposed Rule 5605(f), 

whether they choose to meet the 

diversity objectives of proposed Rule 

5605(f)(2) or to explain why they do not, 

would be required to make the proposed 

Rule 5606 disclosure. This proposed 

rule also will assist the Exchange in 

assessing whether companies meet the 

diversity objectives of proposed Rule 

5605(f). Under Rule 5606(e), Nasdaq 

proposes to make proposed Rule 5606 

operative for listed companies one year 

after the SEC Approval Date of this 

proposal. 

Pursuant to proposed Rule 5606(a), 

each company would be instructed to 

annually provide its board-level 

diversity data in a format substantially 

similar to the Board Diversity Matrix in 

proposed Rule 5606(a) and attached 

[sic] as Exhibit 3. The company would 

be required to provide the total number 

of directors on its board. If a director 

voluntarily self-identifies, each 

company, other than a Foreign Issuer (as 

defined under Rule 5605(f)(1)), would 

include the following in a table titled 

‘‘Board Diversity Matrix,’’ in accordance 

with the instructions accompanying the 

proposed disclosure format: (1) the 

number of directors based on gender 

identity (male, female or non-binary 161); 

(2) the number of directors based on 

race and ethnicity (African American or 

Black, Alaskan Native or American 

Indian, Asian, Hispanic or Latinx, 

Native Hawaiian or Pacific Islander, 

White, or Two or More Races or 

Ethnicities); and (3) the number of 

directors who self-identify as LGBTQ+. 

Any director who chooses not to 

disclose a gender would be included 

under ‘‘Gender Undisclosed’’ and any 

director who chooses not to identify as 

any race or not to identify as LGBTQ+ 

would be included in the 

‘‘Undisclosed’’ category at the bottom of 

the table. The defined terms for the race 

and ethnicity categories in the 

instructions to the Board Diversity 

Matrix disclosure format are 

substantially similar to the terms and 

definitions used in the EEO–1 Report.162

LGTBQ+ is defined similarly to 

proposed Rule 5605(f)(1) as a person 

who identifies as any of the following: 

lesbian, gay, bisexual, transgender or a 

member of the queer community. 

Below is an example of a Board 

Diversity Matrix that companies may 

use, which is also attached [sic] as 

Exhibit 3: 


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163See 17 CFR 240.3b–4. 

164Although non-binary is included as a category 

in the proposed Board Diversity Matrix, a company 

would not satisfy any aspect of the diversity 

requirement proposed by Rule 5605(f)(2) if a 

director self-identifies solely as non-binary. 

165To clarify, although a Foreign Issuer may 

disclose directors that meet the requirement of 

Underrepresented Minority pursuant to new Rule 

5605(f)(1), such disclosure may not meet the 

diversity objectives of new Rule 5605(f)(2)(B)(ii). 

BOARD DIVERSITY MATRIX

[As of [DATE]] 

Board Size: 

Total Number of Directors ........................................................................ # 

Gender: Male Female Non-Binary Gender 

undisclosed 

Number of directors based on gender identity ......................................... # # # # 

Number of directors who identify in any of the categories below: 

African American or Black ........................................................................ # # # # 

Alaskan Native or American Indian .......................................................... # # # # 

Asian ......................................................................................................... # # # # 

Hispanic or Latinx ..................................................................................... # # # # 

Native Hawaiian or Pacific Islander .......................................................... # # # # 

White ......................................................................................................... # # # # 

Two or More Races or Ethnicities ............................................................ # # # # 

LGBTQ+ .................................................................................................... # 

Undisclosed ..................................................................................................... # 

Nasdaq recognizes that some Foreign 

Issuers, including Foreign Private 

Issuers as defined by the Act,163 may 

have their principal executive offices 

located outside of the United States and 

in jurisdictions that may impose laws 

limiting or prohibiting selfidentification questionnaires, 

particularly as they relate to race, 

ethnicity or LGBTQ+ status. In such 

countries, a Foreign Issuer may be 

precluded by law from requesting 

diversity data from its directors. 

Moreover, Nasdaq’s definition of 

Underrepresented Minority proposed in 

Rule 5606(f)(1) may be inapplicable to a 

Foreign Issuer, making this Board 

Matrix data less relevant for such 

companies and not useful for investors. 

As a result of these limitations, 

Nasdaq is proposing the option of a 

separate Board Diversity Matrix for 

Foreign Issuers. Similar to other 

companies, a Foreign Issuer would be 

required to provide the total number of 

directors on its board. If a director 

voluntarily self-identifies, the company 

would include the following in a table 

titled ‘‘Board Diversity Matrix’’: (1) The 

number of directors based on gender 

identity (male, female or non-binary 164); 

(2) the number of directors who are 

considered underrepresented in the 

company’s home country 

jurisdiction;165 and (3) the number of 

directors who self-identify as LGBTQ+. 

An ‘‘Underrepresented Individual in 

Home Country Jurisdiction’’ is defined 

in the instructions to the Board 

Diversity Matrix as a person who selfidentifies as an underrepresented 

individual based on national, racial, 

ethnic, indigenous, cultural, religious or 

linguistic identity in a Foreign Issuer’s 

home country jurisdiction. Rule 

5605(f)(2)(B)(i) also proposes the same 

definition for Diverse directors of 

Foreign Issuers. 

Nasdaq is also proposing new Rule 

5606(b), which would require each 

company to provide the disclosure 

required under Rule 5606(a) in either 

the company’s proxy statement or 

information statement for its annual 

meeting for shareholders, or on the 

company’s website. If the company 

elects to disclose the information on its 

website, the company must also submit 

such disclosure along with a URL link 

to the information through the Nasdaq 

Listing Center within 15 calendar days 

of the company’s annual shareholder 

meeting. The proposed time period to 

submit the information to the Nasdaq 

Listing Center is aligned with the time 

period provided in proposed Rule 

5605(f)(3) for a company to submit its 

explanation for why it does not have at 

least two Diverse directors. Disclosure 

of the statistical data is not in lieu of any 

SEC requirements for a company to 

disclose any required information 

pursuant to Regulation S–K or any other 

federal, state or foreign laws or 

regulations. As described in the 

instructions to the Board Diversity 

Matrix and Rule 5606(a), each year 

following the first year that a company 

publishes its annual Board Diversity 

Matrix, the company would be required 

to publish its data for the current and 

immediately prior years. 

Additionally, Nasdaq is proposing 

Rule 5606(c), which exempts the 

following types of companies from 

proposed Rule 5606(a): acquisition 

companies listed under IM–5101–2; 

asset-backed issuers and other passive 

issuers (as set forth in Rule 5615(a)(1)); 

cooperatives (as set forth in Rule 

5615(a)(2)); limited partnerships (as set 

forth in Rule 5615(a)(4)); management 

investment companies (as set forth in 

Rule 5615(a)(5)); issuers of non-voting 

preferred securities, debt securities and 

Derivative Securities (as set forth in 

Rule 5615(a)(6)); and issuers of 

securities listed under the Rule 5700 

Series. The exemption of these 

companies is consistent with the 

approach taken by Nasdaq in Rule 5615 

as it relates to certain Nasdaq corporate 

governance standards for board 

composition. 

Nasdaq is also proposing Rule 5606(d) 

to allow for a company newly listing on 

Nasdaq, including a company listing in 

connection with a business combination 

under IM–5101–2, to satisfy the 

requirement of Rule 5606 within one 

year of listing on Nasdaq. The 

disclosure required by proposed Rule 

5606(d) would be required to be 

included in the company’s annual proxy 

statement or information statement for 

its annual meeting of shareholders or on 

the company’s website. If the company 

provides such disclosure on its website, 

the company must also submit the 

disclosure and a URL link to the 

disclosure through the Nasdaq Listing 

Center no later than 15 calendar days 

after the company’s annual shareholder 

meeting. 

When a company does not timely 

provide the required disclosure, Nasdaq 

will notify the company that it is not in 

compliance with a listing requirement 


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166Pursuant to Nasdaq Rule 5810(c)(2)(A)(iii), a 

company is provided 45 days to submit a plan to 

regain compliance with Rules 5620(a) (Meetings of 

Shareholders), 5620(c) (Quorum), 5630 (Review of 

Related Party Transactions), 5635 (Shareholder 

Approval), 5250(c)(3) (Auditor Registration), 

5255(a) (Direct Registration Program), 5610 (Code of 

Conduct), 5615(a)(4)(D) (Partner Meetings of 

Limited Partnerships), 5615(a)(4)(E) (Quorum of 

Limited Partnerships), 5615(a)(4)(G) (Related Party 

Transactions of Limited Partnerships), and 5640 

(Voting Rights). Pursuant to Nasdaq Rule 

5810(c)(2)(A)(iv), a company is also provided 45 

days to submit a plan to regain compliance with 

Rule 5250(b)(3)(Disclosure of Third Party Director 

and Nominee Compensation). A company is 

generally provided 60 days to submit a plan to 

regain compliance with the requirement to timely 

file periodic reports contained in Rule 5250(c)(1). 

167 Various stakeholders have requested easier 

aggregation. See Petition for Amendment of Proxy 

Rule, supra note 80, at 1. 

168Nasdaq plans to publish an FAQ on the Listing 

Center clarifying that ‘‘two members of its board of 

directors who are Diverse’’ would exclude emeritus 

directors, retired directors and members of an 

advisory board. 

and allow the company to provide a 

plan to regain compliance. Consistent 

with deficiencies from most other rules 

that allow a company to submit a plan 

to regain compliance,166 Nasdaq 

proposes to allow companies deficient 

under proposed Rule 5606 45 calendar 

days to submit a plan in accordance 

with Rule 5810(c)(2) to regain 

compliance and, based on that plan, 

Nasdaq can provide the company with 

up to 180 days to regain compliance. If 

the company does not do so, it would 

be issued a Staff Delisting 

Determination, which the company 

could appeal to a Hearings Panel 

pursuant to Rule 5815. Although 

proposed Rule 5606 is not identical to 

the current Commission requirements, it 

is similar to, and does not deviate from, 

the Commission’s CD&I related to Items 

401(e)(1) and 407(c)(2)(vi) of Regulation 

S–K. Moreover, the proposed rule 

strengthens the Commission’s 

requirements by providing clarity to the 

definition of diversity and streamlining 

investors’ desire for clear, complete and 

consistent disclosures. Nasdaq believes 

that the format of the Board Diversity 

Matrix and the information that it will 

provide offers greater transparency into 

a company’s board composition and 

will enable the data to be easily 

aggregated across issuers.167 Nasdaq 

also believes that requiring annual 

disclosure of the data will ensure that 

the information remains current and 

easy for investors, data analysts and 

other parties to track. 

c. Diverse Board Representation or 

Explanation 

Nasdaq is proposing to adopt new 

Rule 5605(f)(2) to require each listed 

company 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 who selfidentifies as Female and one who selfidentifies as an Underrepresented 

Minority or LGBTQ+.168 A company 

does not need to provide additional 

public disclosures if the company 

discloses under Rule 5606 that it has at 

least two Diverse directors satisfying 

this requirement. The terms in the 

proposed definition of 

‘‘Underrepresented Minority’’ reflect the 

EEOC’s categories and are construed in 

accordance with the EEOC’s definitions. 

Nasdaq has provided additional 

flexibility for Smaller Reporting 

Companies and Foreign Issuers 

(including Foreign Private Issuers). 

Under proposed Rule 5605(f)(3), if a 

company satisfies the requirements of 

Rule 5605(f)(2) by explaining why it 

does not have two Diverse directors, the 

company must: (i) Specify the 

requirements of Rule 5605(f)(2) that are 

applicable (e.g., the applicable 

subparagraph, the applicable diversity 

objectives, and the timeframe applicable 

to the company’s market tier); and (ii) 

explain the reasons why it does not 

have two Diverse directors. Such 

disclosure must be provided: (i) In the 

company’s proxy statement or 

information statement for its annual 

meeting of shareholders; or (ii) on the 

company’s website. If the company 

provides such disclosure on its website, 

the company must also notify Nasdaq of 

the location where the information is 

available by submitting the URL link 

through the Nasdaq Listing Center no 

later than 15 calendar days after the 

company’s annual shareholder meeting. 

Nasdaq would not assess the 

substance of the company’s explanation, 

but would verify that the company has 

provided one. If the company has not 

provided any explanation, or has 

provided an explanation that does not 

satisfy subparagraphs (i) and (ii) of Rule 

5605(f)(3), the explanation will not 

satisfy the requirements of Rule 

5605(f)(3). For example, it would not 

satisfy Rule 5605(f)(3) merely to state 

that ‘‘the Company does not comply 

with Nasdaq’s diversity rule.’’ As 

described above, the company must 

specify the requirements of Rule 

5605(f)(2) that are applicable and 

explain the reasons why it does not 

have two Diverse directors. For 

example, a company could disclose the 

following to satisfy subparagraph (i) of 

Rule 5605(f)(3): ‘‘As a Smaller Reporting 

Company listed on the Nasdaq Capital 

Market tier, the Company is subject to 

Nasdaq Rule 5605(f)(2)(C), which 

requires the company to have, or 

explain why it does not have, at least 

two Diverse directors, including at least 

one director who self-identifies as 

Female. Under Rule 5605(f)(7), the 

Company is required to have at least one 

Diverse director by March 10, 2023, and 

a second Diverse director by March 10, 

2026. The Company has chosen to 

satisfy Rule 5605(f)(2)(C) by explaining 

its reasons for not meeting the diversity 

objectives of Rule 5605(f)(2)(C), which 

the Company has set forth below.’’ 

i. Effective Dates and Phase-in Period 

Proposed Rule 5605(f)(7) provides a 

transition period before companies must 

fully satisfy the requirement to have two 

Diverse directors or explain why they 

do not upon the initial implementation 

of the rule. Under this transition rule, 

each company must have, or explain 

why it does not have, one Diverse 

director no later than two calendar years 

after SEC approval of the proposed rule 

(the ‘‘Approval Date’’), and two Diverse 

directors no later than (i) four calendar 

years after the Approval Date for 

companies listed on the Nasdaq Global 

Select (‘‘NGS’’) or Global Market 

(‘‘NGM’’) tiers, or (ii) five calendar years 

after the Approval Date for companies 

listed on the Nasdaq Capital Market 

(‘‘NCM’’) tier. For example, if the 

Approval Date is March 10, 2021, all 

companies would be required to have, 

or explain why they do not have, one 

Diverse director by March 10, 2023 and 

two Diverse directors by March 10, 2025 

(for NGS/NGM companies) or March 10, 

2026 (for NCM companies). 

Under proposed Rule 5605(f)(5)(A), a 

newly listed company that was not 

previously subject to a substantially 

similar requirement of another national 

securities exchange will be allowed one 

year from the date of listing to satisfy 

the requirement described above. This 

‘‘phase-in’’ period applies to companies 

listing in connection with an initial 

public offering, a direct listing, a 

transfer from another exchange or the 

over-the-counter market, or through a 

business combination with an 

acquisition company listed under IM– 

5101–2, such that the company is no 

longer subject to IM–5101–2 after the 

combination. This phase-in period will 

apply after the end of the transition 

period provided in Rule 5605(f)(7). As a 

result, companies listing after the 

expiration of the phase-in periods 

provided by Rule 5605(f)(7) would be 

provided with one year from the date of 

listing to satisfy the applicable 

requirement of Rule 5605(f)(2) to have, 

or explain why they do not have, at least 

two Diverse directors. Companies listing 

after the Approval Date, but prior to the 

expiration of the phase-in periods 

provided by Rule 5605(f)(7), would be 


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169See Deloitte, Women in the Boardroom, supra 

note 86. 

170See United Nations Sustainable Stock 

Exchanges Initiative, Gender Equality, https://

www.un.org/sustainabledevelopment/genderequality/ (last accessed Nov. 24, 2020). 

171See McKinsey & Company, supra note 36, at 

17. 

172See GAO Report, supra note 44, at 9 

(estimating ‘‘it could take about 10 years from 2014 

for women to comprise 30 percent of board 

directors and more than 40 years for the 

representation of women on boards to match that 

of men’’). 

173See 17 CFR 240.3b–4(b) (‘‘The term foreign 

issuer means any issuer which is a foreign 

government, a national of any foreign country or a 

corporation or other organization incorporated or 

organized under the laws of any foreign country.’’). 

174Under Nasdaq Rule 5005(a)(19), the term 

Foreign Private Issuer has ‘‘the same meaning as 

under Rule 3b–4 under the Act.’’ 

175Under 12b–2 of the Act, a Smaller Reporting 

Company ‘‘means an issuer that is not an 

investment company, an asset-backed issuer (as 

defined in § 229.1101 of this chapter), or a majorityowned subsidiary of a parent that is not a smaller 

reporting company and that: (1) Had a public float 

of less than $250 million; or (2) Had annual 

revenues of less than $100 million and either: (i) No 

public float; or (ii) A public float of less than $700 

million.’’ See 17 CFR 240.12b–2. 

provided with the latter of the periods 

set forth in Rule5605(f)(7) or one year 

from the date of listing. 

Nasdaq believes this proposed period 

is consistent with the phase-in periods 

granted to companies for Nasdaq’s other 

board composition requirements. For 

example, Rule 5615(b)(1) provides a 

company listing in connection with its 

initial public offering one year to fully 

comply with the compensation and 

nomination committee requirements of 

Rules 5605(d) and (e), and with the 

majority independent board 

requirement of Rule 5605(b). Similarly, 

SEC Rule 10A–3(b)(1)(iv)(A) allows a 

company up to one year from the date 

its registration statement is effective to 

fully comply with the applicable audit 

committee composition requirements. 

Nasdaq Rule 5615(b)(3) provides a oneyear timeframe for compliance with the 

board composition requirements for 

companies transferring from other listed 

markets that do not have a substantially 

similar requirement. 

ii. Foreign Issuers 

Nasdaq recognizes that the EEOC 

categories of race and ethnicity may not 

extend to all countries globally because 

each country has its own unique 

demographic composition. However, 

Nasdaq observed that on average, 

women tend to be underrepresented in 

boardrooms across the globe, holding an 

estimated 16.9% of board seats in 

2018.169 As an official supporter of the 

United Nations Sustainable Stock 

Exchanges Initiative, Nasdaq recognizes 

that ensuring women have equal 

opportunities for leadership in 

economic decision making is one of the 

United Nations Sustainable 

Development Goals to be accomplished 

by 2030.170 However, studies estimate 

that at current rates, it could take 18 171

to 34 years 172 for U.S. companies to 

achieve gender parity on their boards. 

Accordingly, under proposed Rule 

5605(f)(2)(B), each Foreign Issuer must 

have, or explain why it does not have, 

at least two Diverse directors on its 

board, including at least one Female. 

Nasdaq proposes to provide Foreign 

Issuers with additional flexibility in that 

Foreign Issuers may satisfy the diversity 

requirement by having two Female 

directors. In addition, Foreign Issuers 

may also satisfy the diversity 

requirement by having one Female 

director, and an individual who self 

identifies as (i) LGBTQ+ or (ii) an 

underrepresented individual based on 

national, racial, ethnic, indigenous, 

cultural, religious or linguistic identity 

in the company’s home country 

jurisdiction. Alternatively, a company 

could satisfy Rule 5605(f)(2)(B) by 

publicly explaining the company’s 

reasons for not meeting the diversity 

objectives of the rule. 

Nasdaq proposes to define a Foreign 

Issuer under Rule 5605(f)(1) as (a) a 

Foreign Private Issuer (as defined in 

Rule 5005(a)(19)) or (b) a company that: 

(i) Is considered a ‘‘foreign issuer’’ 

under Rule 3b–4(b) under the Act; 173

and (ii) has its principal executive 

offices located outside of the United 

States. This definition will include all 

Foreign Private Issuers (as defined in 

Rule 5005(a)(19)),174 and any foreign 

issuers that are not foreign private 

issuers so long as they are also 

headquartered outside of the United 

States. This is designed to recognize that 

companies that are not Foreign Private 

Issuers but are headquartered outside of 

the United States are foreign companies 

notwithstanding the fact that they file 

domestic SEC reports. It is also designed 

to exclude companies that are domiciled 

in a foreign jurisdiction without having 

a physical presence in that country. 

Proposed Rule 5605(f)(5)(B) will allow 

any company that ceases to be a Foreign 

Issuer one year from the date that the 

company no longer qualifies as a 

Foreign Issuer to satisfy the 

requirements of Rule 5605(f). 

Nasdaq also proposes to revise Rule 

5615 and IM–5615–3, which currently 

permit a Foreign Private Issuer to follow 

home country practices in lieu of the 

requirements set forth in the Rule 5600 

Series, subject to several exclusions. 

Nasdaq proposes to revise Rule 5615 

and IM–5615–3 to add Rules 5605(f) and 

5606 to the list of excluded corporate 

governance rules. As a result, Foreign 

Private Issuers must satisfy the 

requirements of Rule 5605(f) and 5606 

and may not follow home country 

practices in lieu of such requirements. 

However, Foreign Private Issuers that 

elect to follow an alternative diversity 

objective in accordance with home 

country practices, or are located in 

jurisdictions that restrict the collection 

of personal data, may satisfy the 

requirements of Rule 5605(f) by 

explaining their reasons for doing so 

instead of meeting the diversity 

objectives of the rule. 

iii. Smaller Reporting Companies 

Nasdaq also recognizes that smaller 

companies, especially pre-revenue 

companies that depend on the capital 

markets to fund ground-breaking 

research and technological 

advancements, may not have the 

resources necessary to compensate an 

additional director or engage a search 

firm to search outside of directors’ 

networks. In recognition of the resource 

constraints faced by smaller companies, 

Nasdaq proposes to provide each 

Smaller Reporting Company with 

additional flexibility. Specifically, these 

companies could satisfy the two Diverse 

directors objective under Rule 

5605(f)(2)(C) by having two Female 

directors. 

Like other companies, Smaller 

Reporting Companies could also satisfy 

the two Diverse directors by having one 

Female director and one director who 

self-identifies as either (i) an 

Underrepresented Minority, or (ii) a 

member of the LGBTQ+ community. 

Alternatively, a company could satisfy 

Rule 5605(f)(2)(C) by publicly 

explaining the company’s reasons for 

not meeting the diversity objectives of 

the rule. Under Rule 5605(f)(1), Nasdaq 

proposes to define a Smaller Reporting 

Company as set forth in Rule 12b–2 

under the Act.175 Proposed Rule 

5605(f)(5)(B) will allow any company 

that ceases to be a Smaller Reporting 

Company one year from the date that 

the company no longer qualifies as a 

Smaller Reporting Company to satisfy 

the requirements of Rule 5605(f). 

iv. Cure Period 

Nasdaq proposes to adopt Rule 

5605(f)(6) and a new Rule 5810(c)(3)(F) 

to specify what happens if a company 

does not have at least two Diverse 

directors as set forth under Rule 

5605(f)(2) and fails to provide the 

disclosure required by Rule 


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176Nasdaq proposes that existing Rules 

5810(c)(3)(F) and (G) be renumbered as Rules 

5810(c)(3)(G) and (H) respectively. 

177For example, the Securities and Exchange 

Board of India requires public companies to have 

at least one woman on the board. See Securities and 

Exchange Board of India (Listing Obligations and 

Disclosure Requirements) Regulations, Regulation 

17(1)(a) (2015), available at: https://

www.sebi.gov.in/legal/regulations/jan-2020/ 

securities-and-exchange-board-of-india-listingobligations-and-disclosure-requirementsregulations-2015-last-amended-on-january-10-2020- 

_37269.html. Similarly, the Israeli Companies Law 

requires public companies to have at least one 

woman on the board. See Paul Hastings, Breaking 

the Glass Ceiling: Women in the Boardroom 139 

(2018), available at: https://www.paulhastings.com/ 

genderparity/. In the United States, California’s S.B. 

826 requires public companies headquartered in 

California to have at least one woman on the board. 

See Cal. S.B. 826, supra note 112, at § 301.3(b)(3). 

178For example, California’s S.B. 826 requires 

public companies headquartered in California to 

have at least two women on the board if their board 

is comprised of five directors, and at least three 

women on the board if their board is comprised of 

six or more directors. See Cal. S.B. 826, supra note 

112, at § 301.3(b)(1) and (2). Similar legislation has 

been proposed in New Jersey, Michigan and 

Hawaii. See N.J. Senate No. 3469, § 3(b)(2) (2019); 

Mich. S.B. 115, § 505a(2)(b) (2019); Haw. H.B. 2720, 

§ 414–1(b)(2) (2020). 

179For example, Norway imposes a gender quota 

ranging from 33%–50% depending on board size. 

See Paul Hastings, supra note 177, at 103. Portugal 

requires listed companies to have at least 33.3% 

women on boards by 2020. See Deloitte, Women in 

the Boardroom, supra note 86, at 143. Germany 

requires public companies with co-determined 

boards (at least 50% employee representation) to 

have at least 30% women, and all other listed 

companies to establish a company-defined target. 

See Ulrike Binder and Guido Zeppenfeld, Mayer 

Brown, Germany Introduces Rules on Female Quota 

for Supervisory Boards and Leadership Positions 

(March 13, 2015), available at https://

www.mayerbrown.com/en/perspectives-events/ 

publications/2015/03/germany-introduces-rules-onfemale-quota-for-super. Belgium requires listed 

companies to have at least 33% women on the 

board. See Deloitte, Women in the Boardroom, 

supra note 86, at 85. Austria requires listed 

companies with more than 1,000 employees to have 

at least 30% women on the board. See id. at 81. 

Iceland requires public companies with more than 

50 employees to have at least 40% women on the 

board. See Act respecting Public Limited 

Companies No. 2/199, Article 63, available at: 

https://www.government.is/publications/ 

legislation/lex/2018/02/06/TRANSLATION-OFRECENT-AMENDMENTS-OF-ICELANDIC-PUBLICAND-PRIVATE-LIMITED-COMPANIESLEGISLATION-2008-2010-including-Acts-13-2010- 

sex-ratios-and-68-2010-minority-protectionremuneration/. France and Italy both require public 

companies to have at least 40% women on their 

boards. See Paul Hastings, supra note 177, at 91; 

White & Case, Italy increases gender quotas in 

corporate boards of listed companies (Jan. 29, 

2020), available at: https://www.whitecase.com/ 

publications/alert/italy-increases-gender-quotascorporate-boards-listed-companies). 

180See Paul Hastings, supra note 177, at 103. 

181See David A. Katz and Laura A. McIntosh, 

Wachtell, Lipton, Rosen & Katz, Gender Diversity 

and Board Quotas, New York Law Journal (July 25, 

2018), available at: https://www.wlrk.com/webdocs/ 

wlrknew/AttorneyPubs/WLRK.26150.18.pdf 

(‘‘California legislators dispute that the bill requires 

men to be displaced by women, noting that boards 

can simply increase their size. This may be easier 

said than done, however: Because the required 

quota increases with board size, a company with a 

four-man board that did not wish to force out a 

current director would need to add three women to 

accommodate the requirements of the law by 

2021.’’). 

182See Swedish Corporate Governance Board, 

The Swedish Corporate Governance Code § 4.1 17 

(eff. Jan. 1, 2020), available at: http://

www.bolagsstyrning.se/UserFiles/Koden/The_

Swedish_Corporate_Governance_Code_1_January_

2020.pdf. 

183See Swedish Corporate Governance Board, 

Annual Report 2020 22 (August 2020), available at: 

5605(f)(3).176 Under those provisions, 

the Listing Qualifications Department 

will promptly notify the company that 

it has until the latter of its next annual 

shareholders meeting, or 180 days from 

the event that caused the deficiency, to 

cure the deficiency. The company can 

cure the deficiency either by nominating 

additional directors so that it satisfies 

the Diversity requirement of Rule 

5605(f)(2) or by providing the disclosure 

required by Rule 5605(f)(3). If a 

company does not regain compliance 

within the applicable cure period, the 

Listings Qualifications Department 

would issue a Staff Delisting 

Determination Letter. A company that 

receives a Staff Delisting Determination 

can appeal the determination to the 

Hearings Panel through the process set 

forth in Rule 5815. Nasdaq also 

proposes revising Rule 5810(c)(2)(A)(iv) 

to make a non-substantive change 

clarifying that Rule 5250(b)(3) is related 

to ‘‘Disclosure of Third Party Director 

and Nominee Compensation.’’ 

v. Exempt Companies

Under proposed Rule 5605(f)(4),

Nasdaq proposes to exempt the 

following types of companies from the 

requirements of Rule 5605(f) (‘‘Exempt 

Companies’’): acquisition companies 

listed under IM–5101–2; asset-backed 

issuers and other passive issuers (as set 

forth in Rule 5615(a)(1)); cooperatives 

(as set forth in Rule 5615(a)(2)); limited 

partnerships (as set forth in Rule 

5615(a)(4)); management investment 

companies (as set forth in Rule 

5615(a)(5)); issuers of non-voting 

preferred securities, debt securities and 

Derivative Securities (as set forth in 

Rule 5615(a)(6)); and issuers of 

securities listed under the Rule 5700 

Series. Proposed Rule 5605(f)(5)(B) will 

allow any company that ceases to be an 

Exempt Company one year from the 

date that the company no longer 

qualifies as an Exempt Company to 

satisfy the requirements of Rule 5605(f). 

Nasdaq believes it is appropriate to 

exempt these types of companies from 

the proposed rule because such 

companies do not have boards, do not 

list equity securities, or are not 

operating companies. These companies 

are already exempt from certain of 

Nasdaq’s corporate governance 

standards related to board composition, 

as described in Rule 5615. 

d. Alternatives Considered

Nasdaq considered whether requiring

listed companies to have, or explain 

why they do not have, two Diverse 

directors would better promote the 

public interest than an alternative 

threshold or approach. Nasdaq’s 

reasoned decision-making process 

included considering: (i) Mandate and 

disclosure-based approaches; (ii) higher 

and lower diversity objectives; (iii) 

longer and shorter timeframes; and (iv) 

broader and narrower definitions of 

‘‘Diverse.’’ 

i. Mandate vs. Disclosure Based

Approach

Globally, gender mandates range from 

requiring at least one woman on the 

board,177 requiring two or more women 

based on board size,178 or requiring 30 

to 50% women on the board.179 Some 

mandates vary by board size—for 

example, Norway imposes different 

standards for boards of two to three 

directors, four to five directors, six to 

eight directors, nine directors and ten or 

more directors.180 California imposes a 

higher standard for gender diversity that 

boards with five directors or six or more 

directors must satisfy by the end of 2021 

under S.B. 826, and a higher standard 

for underrepresented communities that 

boards with five to eight directors and 

nine or more directors must satisfy by 

the end of 2022 under A.B. 979. Nasdaq 

did not observe a common denominator 

among the mandates applicable to 

varying board sizes. However, Nasdaq 

considered criticism that a model based 

on various board sizes could subject 

companies to a higher threshold by 

virtue of adding directors.181 Based on 

Nasdaq data, the average board size of 

its listed companies is eight directors. 

Soft targets ranging from 25% to 40% 

women on boards have been suggested 

by various corporate governance codes 

and corporate governance organizations. 

For example, Rule 4.1 of the Swedish 

Corporate Governance Code (the 

‘‘Code’’) provides that listed companies 

are to ‘‘strive for gender balance on the 

board.’’ 182 Each company’s 

nominations committee is to publish a 

statement on its website at the time it 

issues notice of its shareholders meeting 

‘‘with regard to the requirement in rule 

4.1, that the proposed composition of 

the board is appropriate according to the 

criteria set out in the Code and that the 

company is to strive for gender 

balance.’’ 183 Companies are not 


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http://www.bolagsstyrning.se/userfiles/archive/

3930/kodkoll_arsrapport-2020_eng.pdf. 

184See Swedish Corporate Governance Board, 

Gender balance on boards of listed companies: The 

Swedish Corporate Governance Board assesses the 

situation ahead of this year’s AGMs (February 3, 

2015), available at: http://www.bolagsstyrning.se/

userfiles/archive/3856/pressrelease_gender_2014- 

02-03.pdf. 

185See Swedish Corporate Governance Board, 

Annual Report 2020, supra note 183, at 22. 

186See Swedish Corporate Governance Board, 

Gender balance, supra note 184. 

187See Swedish Corporate Governance Board, 

Statistics regarding gender balance (July 15, 2020), 

available at: http://www.bolagsstyrning.se/userfiles/ 

archive/3922/200715_gender_balance_on_

boards.pdf; see also Sammanfattning, available at 

http://www.bolagsstyrning.se/userfiles/archive/ 

3922/statistik_konsfordelning_2020.pdf. 

188See Financial Conduct Authority, LR 9.8.6(6), 

available at: https://www.handbook.fca.org.uk/

handbook/LR/9/8.html; see also Financial 

Reporting Council, The UK Corporate Governance 

Code 3 (July 2018), available at https://

www.frc.org.uk/getattachment/88bd8c45-50ea4841-95b0-d2f4f48069a2/2018-UK-CorporateGovernance-Code-FINAL.PDF. In addition, ‘‘[i]n 

2016, the [UK] Government also implemented the 

relevant provision of the EU Non-Financial 

Reporting Directive with a new reporting 

requirement in the FCA’s Disclosure and 

Transparency Rules. This requires issuers 

(excluding [small and medium-sized enterprises]) 

admitted to trading on an EU regulated market to 

disclose their diversity policy in the corporate 

governance statement.’’ See Financial Reporting 

Council, Board Diversity Reporting 5 (September 

2018), available at: https://www.frc.org.uk/

getattachment/62202e7d-064c-4026-bd19- 

f9ac9591fe19/Board-Diversity-ReportingSeptember-2018.pdf. 

189See Financial Reporting Council, The UK 

Corporate Governance Code, supra note 188, at 9. 

190 Id. at 8. 

191See UK Companies Act 2006, § 414C. 

192See Financial Reporting Council, Board 

Diversity Reporting, supra note 188, at 9. 

193See Hay et al., supra note 98, at 37. 

194 Id. 

195See Women on boards, supra note 96. 

196See Hampton-Alexander Review: FTSE 

Women Leaders (November 2016), available at: 

https://assets.publishing.service.gov.uk/

government/uploads/system/uploads/attachment_

data/file/613085/ftse-women-leaders-hamptonalexander-review.pdf. 

197See Parker, supra note 97. 

198See Sir John Parker, Ethnic Diversity Enriching 

Business Leadership 19 (Feb. 5, 2020), available at: 

https://assets.ey.com/content/dam/ey-sites/ey-com/

en_uk/news/2020/02/ey-parker-review-2020-reportfinal.pdf. 

199See ASX Corporate Governance Council, 

Corporate Governance Principles and 

Recommendations 9 (4th ed. Feb. 2019), available 

at: https://www.asx.com.au/documents/asxcompliance/cgc-principles-and-recommendationsfourth-edn.pdf. 

200Workplace Gender Equality Act 2012, Part IV 

§ 13 (March 25, 2015), available at: https://

www.legislation.gov.au/Details/C2015C00088. 

201See KPMG and ASX, ASX Corporate 

Governance Council Principles and 

Recommendations on Diversity: Analysis of 

disclosures for financial years ended 1 January 

2015 and 31 December 2015 4 (2016) available at: 

https://www.asx.com.au/documents/asxcompliance/asx-corp-governance-kpmg-diversityreport.pdf. 

202See KPMG and 30% Club, Building Gender 

Diversity on ASX 300 Boards: Seven Learnings from 

the ASX 200 4 (July 2020), available at: https://

assets.kpmg/content/dam/kpmg/au/pdf/2020/

building-gender-diversity-asx-300-boards.pdf. The 

report also noted that diversity counteracts 

groupthink and that ASX 201–299 companies with 

at least 30% female directors ‘‘are more likely than 

not to [have seen] market capitalisation increases 

over the past 12 months.’’ Id. at 6. 

required to comply with the Code, ‘‘but 

are allowed the freedom to choose 

alternative solutions which they feel are 

better suited to their particular 

circumstances, as long as they openly 

report every deviation, describe the 

alternative solution they have chosen 

and explain their reasons for doing 

so.’’ 184 Signifying progress, in 2019, 7% 

of nominations committees did not 

issue a statement on board gender 

balance, compared to 58% in 2013.185

In 2015, the Swedish Corporate 

Governance Board, which is responsible 

for administering the Code, established 

a goal to achieve representation of 

women on boards of small/mid cap (and 

Swedish companies listed on NGM 

Equity) and large cap companies of 30% 

and 35%, respectively, by 2017. Further, 

the Board aimed to achieve 40% 

representation of women on boards of 

all listed Swedish companies by 

2020.186 Based on data as of June 30, 

2020, among listed companies, women 

accounted for 32.7% of board seats on 

small/mid cap companies and NGM 

Equity, 38.6% of large cap companies 

and 34.7% of all listed companies.187

In the United Kingdom, the Financial 

Conduct Authority requires companies 

with a premium listing on the London 

Stock Exchange to publicly disclose 

whether or not they comply with the 

Financial Reporting Council’s U.K. 

Corporate Governance Code (the ‘‘U.K. 

Code’’), and if not, to explain their 

reasons for non-compliance.188

Provision 23 of the U.K. Code requires 

each company to publicly describe ‘‘the 

work of the nomination committee, 

including . . . the policy on diversity 

and inclusion, its objectives and linkage 

to company strategy, how it has been 

implemented and progress on achieving 

the objectives,’’ 189 and Principle J states 

that board appointments and succession 

planning should, among other things, 

‘‘promote diversity of gender, social and 

ethnic backgrounds.’’ 190 In addition, the 

Companies Act requires companies to 

disclose gender diversity statistics 

among the board, management and 

employees.191 In 2018, the Financial 

Reporting Council reported that 83% of 

FTSE 100 and 74% of FTSE 250 

companies had established a board 

diversity policy specifying gender, with 

approximately 1⁄3 specifying 

ethnicity.192 More recently, a report 

commissioned by the Financial 

Reporting Council concluded that there 

is a lack of public disclosure regarding 

the LGBTQ+ status among directors and 

executives of public companies. While 

the report did not recommend amending 

Principle J of the U.K. Code to consider 

sexual orientation or gender identity, it 

emphasized that the U.K. Code ‘‘seeks to 

promote diversity and inclusion of all 

minority groups within business’’ 193

and suggested that the government 

‘‘update corporate reporting 

requirements to require companies to 

demonstrate how they intend to capture 

data on the sexual orientation and 

gender identity of staff.’’ 194

In 2011, the Davies Review called on 

FTSE 100 boards to achieve 25% 

women on boards by 2015.195 After that 

milestone was achieved, the Hampton 

Alexander Review encouraged FTSE 

350 boards to have 1⁄3 women by 2020, 

and it has been achieved by FTSE 100 

companies.196 In 2017, the Parker 

Review called on FTSE 100 and 250 

companies to have at least one director 

of color by 2021 and 2024, 

respectively.197 As of February 2020, 

approximately 37% of FTSE 100 

companies surveyed and 59% of FTSE 

350 companies surveyed did not have 

one director of color on their board.198

Australian Securities Exchange 

(‘‘ASX’’)-listed companies must comply 

with the ASX Corporate Governance 

Council’s Corporate Governance 

Principles and Recommendations (the 

‘‘ASX Recommendations’’) or explain 

why they do not. The ASX 

Recommendations require companies to 

have and disclose a diversity policy 

with measurable objectives and report 

on progress towards meeting those 

objectives. If the company is in the 

ASX/S&P 300, its objective for achieving 

gender diversity should be at least 

30%.199 The Australian government also 

requires companies with 100 or more 

employees to provide an annual report 

about gender equality indicators, 

including the gender composition of the 

board and the rest of the workforce.200

In 2015, the ASX and KPMG found that 

99% of S&P/ASX 200 companies and 

88% of ASX 201–500 companies 

disclosed establishing a diversity policy 

rather than explaining why they do not 

have one.201 As of July 2020, women 

account for 28.4% and 31.8% of board 

seats among ASX 300 and ASX 100 

companies, respectively.202

Nasdaq observed that women account 

for at least 30% of the boards of the 

largest companies in Australia, Sweden 

and the United Kingdom, and in three 

other countries that have implemented 

disclosure requirements or suggested 

milestones on a comply-or-explain 


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203See The Conference Board of Canada, Data 

Dashboard (Sept. 23, 2020), available at: https://

www.conferenceboard.ca/focus-areas/inclusion/ 

2020/aob-comparisons-around-the-worldtable?AspxAutoDetectCookieSupport=1; Andrew 

MacDougall et al., Osler, Diversity Disclosure 

Practices 4 (2020), available at https://

www.osler.com/osler/media/Osler/reports/

corporate-governance/Diversity-and-Leadership-inCorporate-Canada-2020.pdf. But see Heike MensiKlarbach et al., The Carrot or the Stick: SelfRegulation for Gender-Diverse Boards via Codes of 

Good Governance, J. Bus. Ethics 11 (2019), available 

at: https://doi.org/10.1007/s10551-019-04336-z 

(reviewing longitudinal data from 2006 to 2016 on 

listed and state-owned companies in Austria and 

concluding that ‘‘self-regulation of gender diversity 

on boards is ineffective if merely based on 

recommendations in codes of good governance’’). 

Mensi-Klarbach recommends setting concrete 

targets and providing public monitoring to improve 

the effectiveness of comply-or-explain frameworks. 

204See Paul Hastings, supra note 177; see also 

Deloitte, Women in the Boardroom, supra note 86. 

205See Paul Hastings, supra note 177; The 

Conference Board of Canada, supra note 203. 

206See Cal. S.B. 826, supra note 112. 

207See Cal. A.B. 979, supra note 112. 

208See Credit Suisse, supra note 30, at 16. 

209See Thomas and Starr, supra note 23, at 5. 

210See Eastman et al., supra note 31, at 3; 

Wagner, supra note 32. 

211See McKinsey, supra note 36. 

212See Abbott et al., supra note 58; Chen et al., 

supra note 64. 

213See Wahid, supra note 59; Cumming et al., 

supra note 62, at 34. 

214See Alison M. Konrad et al., Critical Mass: The 

Impact of Three or More Women on Corporate 

Boards, 37(2) Org. Dynamics 145 (April 2008); 

Miriam Schwartz-Ziv, Gender and Board 

Activeness: The Role of a Critical Mass, 52(2) J. Fin. 

& Quant. Analysis 751 (April 2017); Mariateresa 

Torchia et al., Women Directors on Corporate 

Boards: From Tokenism to Critical Mass, 102(2) J. 

Bus. Ethics. 299 (Feb. 25, 2011), available at https:// 

ssrn.com/abstract=1858347. 

basis: Finland, New Zealand, and 

Canada.203 Nasdaq considered that 

countries that have implemented 

mandates have also seen progress in 

women’s representation on boards, 

including, for example, Austria, Iceland, 

Belgium, France, Germany, Italy and 

Portugal.204 On average, women account 

for 31% of board seats in countries with 

gender mandates.205

Nasdaq discussed the benefits and 

challenges of mandate and comply-orexplain models with over a dozen 

stakeholders, and while the majority of 

organizations were in agreement that 

companies would benefit from a 

regulatory impetus to drive meaningful 

and systemic change in board diversity, 

the majority also stated that a 

disclosure-based approach would be 

more palatable to the U.S. business 

community than a mandate. Most 

organizations Nasdaq spoke with 

expressed general discomfort with 

mandates, although they acknowledged 

that opposition is lessening in the wake 

of California’s S.B. 826 206 and A.B. 

979.207 While many recognized that 

mandates can force boards to act more 

quickly and accelerate the rate of 

change, they believe that a disclosurebased approach is less controversial and 

would spur companies to take action 

and achieve the same results. Some 

stakeholders also highlighted additional 

challenges that smaller companies and 

companies in certain industries may 

face finding diverse board members. In 

contrast, a disclosure-based framework 

that provides companies with flexibility 

would empower companies to maintain 

decision-making authority over their 

board’s composition while providing 

stakeholders with a better 

understanding of the company’s current 

board composition and its philosophy 

regarding diversity. This approach 

would better inform the investment 

community and enable more informed 

analysis of, and conversations with, 

companies. Nasdaq believes that these 

goals will be achieved through the 

disclosure of consistent, comparable 

data across companies, as would be 

required by the Exchange’s proposed 

definition of Diverse. 

For example, if, under Israeli law 

regarding board diversity, an Israeli 

company is required only to have a 

minimum of one woman on the board 

and such Israeli company chooses to 

comply with Israeli home country law 

in lieu of meeting the diversity 

objectives of Rule 5605(f)(2)(B), it may 

choose to disclose that ‘‘the Company is 

incorporated in Israel and required by 

Israeli law to have a minimum of one 

woman on the board, and satisfies home 

country requirements in lieu of Nasdaq 

Rule 5605(f)(2)(B), which requires each 

Foreign Issuer to have at least two 

Diverse directors.’’ If a U.S. company 

had two Diverse directors but one 

resigned due to unforeseen 

circumstances, it could disclose, for 

example: ‘‘Due to the unexpected 

resignation of Ms. Smith this year, the 

Company does not have at least one 

director who self-identifies as Female 

and one director who self-identifies as 

an Underrepresented Minority or 

LGBTQ+. We intend to undertake 

reasonable efforts to meet the diversity 

objectives of Rule 5605(f)(2)(A) prior to 

our next annual shareholder meeting 

and have engaged a search firm to 

identify qualified Diverse candidates. 

However, due to unforeseen 

circumstances, we may not achieve this 

goal.’’ Or a U.S. company may disclose 

that it chooses to define diversity more 

broadly than Nasdaq’s definition by 

considering national origin, veteran 

status or individuals with disabilities 

when identifying nominees for director 

because it believes such diversity brings 

a wide range of perspectives and 

experiences to the board. In each case, 

investors will have a better 

understanding of the company’s reasons 

for not having at least two Diverse 

directors and can use that information 

to make an informed investment or 

voting decision. 

ii. Higher vs. Lower Diversity Objectives 

Nasdaq observed that existing 

empirical research spanned companies 

across several countries, including the 

United States, Spain, China, Canada, 

France and Norway. Nasdaq considered 

that the studies related to company 

performance and board diversity found 

positive associations at various levels 

and measures of board diversity, 

including having at least one woman on 

the board,208 two or more diverse 

directors (with diverse considered 

female, Black, Hispanic or Asian),209 at 

least three women on the board 210 and 

being in the top quartile for gender and 

ethnic diversity.211

Nasdaq considered that the academic 

studies related to investor protection 

and board diversity found positive 

associations at various levels and 

measures of board diversity, including 

having at least one woman on the 

board 212 or up to 50% women on the 

board, and the assertions of certain 

academics that their findings may 

extend to other forms of diversity, 

including racial and ethnic diversity.213

Nasdaq also reviewed academic 

research suggesting that ‘‘critical mass’’ 

is achieved by having three or more 

women on the board, and that having 

only one diverse director on the board 

risks ‘‘tokenism.’’ 214 Nasdaq considered 

that although the legislation enacted by 

Norway and California, and proposed by 

several other states, varies based on 

board size, the academic research 

considered companies across a 

spectrum of sizes and board sizes, 

including Fortune 100, S&P 500, 

Fortune 1000 and smaller (non-Fortune 

1000) companies. 

Nasdaq concluded that there is no 

‘‘one-size fits all’’ approach to 

promoting board diversity and that the 

academic literature regarding the 

relationship between board diversity, 

company performance and investor 

protections is continuing to evolve. 

However, in Nasdaq’s survey of 

academic studies described above—and 

of the targets or mandates promulgated 

by regulatory bodies and organizations 

worldwide—Nasdaq observed a 

common denominator of having at least 

one woman on the board. Similarly, 

Nasdaq observed a common 

denominator of having at least one 

director who is diverse in terms of race, 

ethnicity or sexual orientation among 


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215See Matteo Tonello, Corporate Board Practices 

in the Russell 3000 and S&P 500, Harv. L. Sch. 

Forum on Corp. Governance (Oct. 18, 2020), https:// 

corpgov.law.harvard.edu/2020/10/18/corporateboard-practices-in-the-russell-3000-and-sp-500/ 

(last accessed Nov. 24, 2020). 

216See Paul Hastings, supra note 177, at 79 and 

90; see also supra note 179. 

217See Deloitte, Women in the Boardroom, supra 

note 86, at 115 and 143; see also supra note 179. 

218 KPMG (2020) states that veterans are 

underrepresented in boardrooms, with retired 

General and Flag Officers (‘‘GFOs’’) occupying less 

than 1% of Fortune 500 board seats. See KPMG, 

The value of veterans in the boardroom 1 (2020), 

available at: https://boardleadership.kpmg.us/

content/dam/boardleadership/en/pdf/2020/thevalue-of-veterans-in-the-boardroom.pdf (noting that 

Continued 

the requirements related to, and 

academic research considering, board 

diversity beyond gender identity. 

Nasdaq therefore believes that a 

diversity objective of at least two 

Diverse directors provides a reasonable 

baseline for comparison across 

companies. Companies are not 

precluded from meeting a higher or 

lower alternative measurable objective. 

For example, a company may choose to 

disclose that it does not meet the 

diversity objectives under Rule 

5605(f)(2) because it is subject to an 

alternative standard under state or 

foreign laws and has chosen to satisfy 

that diversity objective instead. On the 

other hand, many firms may strive to 

achieve even greater diversity than the 

objectives set forth in Nasdaq’s 

proposed rule. Nasdaq believes that 

providing flexibility and clear 

disclosure when the company 

determines to follow a different path 

will improve the quality of information 

available to investors who rely on this 

information to make informed 

investment and voting decisions. 

iii. Longer vs. Shorter Timeframes 

Nasdaq considered whether an 

alternative timeframe for satisfying the 

diversity objectives of Rule 5605(f)(2) 

would better promote the public interest 

than the timeframe Nasdaq has 

proposed under Rule 5605(f)(7). While 

companies are not precluded from 

adding additional directors to their 

boards to satisfy Rule 5605(f)(2) by 

having two Diverse directors sooner 

than contemplated by the proposed rule, 

Nasdaq understands that some 

companies may need to obtain 

shareholder approval to amend their 

governing documents to allow for board 

expansion. Other companies may 

choose to replace an existing director on 

the board with a Diverse director, and 

board turnover may be low.215 Nasdaq 

recognizes that it also takes substantial 

lead time to identify, interview and 

select board nominees. To provide 

companies with sufficient time to satisfy 

Rule 5605(f) by having two Diverse 

directors, while recognizing that 

investors are calling for expedient 

change, Nasdaq has structured its 

proposal similarly to the approach taken 

by California, where companies must 

achieve one target by an earlier date and 

satisfy the entire diversity objective at a 

later date. Nasdaq also considered the 

approaches taken by foreign 

jurisdictions to implement diversity 

objectives. For example, Belgium and 

France implemented diversity objectives 

under a phased approach that provided 

companies with at least five years to 

fully satisfy the objectives,216 whereas 

Iceland and Portugal provided 

companies with three years or less.217

While companies may choose to 

satisfy Rule 5605(f)(2) on an alternative 

timeframe, a company that chooses a 

timeframe that is longer than the 

timeframes set forth in Rule 5605(f)(7) 

also must publicly explain its reasons 

for doing so. For example, an NGMlisted company that, while not 

technically a Smaller Reporting 

Company, views itself as similarly 

situated to a NCM-listed Smaller 

Reporting Company may disclose the 

following: ‘‘While the Company is listed 

on NGM and technically qualifies as a 

Smaller Reporting Company, it does not 

file its SEC reports utilizing the Smaller 

Reporting Company designation. 

However, the Company believes that it 

is similarly situated to other Smaller 

Reporting Companies listed on NCM in 

terms of its annual revenues and public 

float, and therefore has chosen to satisfy 

Rule 5605(f)(2)(C) in lieu of Rule 

5605(f)(2)(A) and has satisfied this 

requirement by having at least two 

Diverse directors on the board who selfidentify as Female within the timeframe 

provided under Rule 5605(f)(7) 

applicable to NCM-listed companies.’’ 

iv. Broader vs. Narrower Definition of 

Diverse 

Nasdaq considered whether the 

definition of Diverse should include 

broader characteristics than those 

reported on the EEO–1 report, such as 

the examples provided by the 

Commission’s CD&I, including 

LGBTQ+, nationality, veteran status, 

and individuals with disabilities. 

During its stakeholder outreach, Nasdaq 

inquired whether a broad definition of 

Diversity would promote the public 

interest. While recognizing the diverse 

perspectives that different backgrounds 

can provide, most stakeholders 

supported a narrower definition of 

Diversity focused on gender, race and 

ethnicity, with several supporting 

broadening the definition to include the 

LGBTQ+ community. 

As discussed above, companies 

currently are permitted to define 

diversity ‘‘in ways they consider 

appropriate’’ under federal securities 

laws. One of the challenges of this 

principles-based approach has been the 

disclosure of inconsistent and 

noncomparable data across companies. 

However, most companies are required 

by law to report data on race, ethnicity 

and gender to the EEOC through the 

EEO–1 Report. Nasdaq believes that 

adopting a broad definition of Diverse 

would maintain the status quo of 

inconsistent, noncomparable 

disclosures, whereas a narrower 

definition of Diverse focused on race, 

ethnicity, sexual orientation and gender 

identity will promote the public interest 

by improving transparency and 

comparability. Nasdaq also is concerned 

that the broader definitions of diversity 

utilized by some companies may result 

in Diverse candidates being overlooked, 

and may be hindering meaningful 

progress on improving diversity related 

to race, ethnicity, sexual orientation and 

gender identity. For example, a 

company may consider diversity to 

include age, education and board 

tenure. While such characteristics may 

provide laudable cognitive diversity, 

this focus may result in a homogenous 

board with respect to race, ethnicity, 

sexual orientation and gender identity 

that, by extension, does not reflect the 

diversity of a company’s communities, 

employees, investors or other 

stakeholders. 

Nasdaq also believes that a 

transparent, consistent definition of 

Diverse would provide stakeholders 

with a better understanding of the 

company’s current board composition 

and its philosophy regarding diversity if 

it does not have two Diverse directors. 

This would enable the investment 

community to conduct more informed 

analysis of, and have more informed 

conversations with, companies. To the 

extent a company chooses to satisfy the 

requirement of Rule 5605(f)(2) by having 

at least two Diverse directors on its 

board, it will have the ancillary benefit 

of making meaningful progress in 

improving board diversity related to 

race, ethnicity, sexual orientation and 

gender identity. 

Nasdaq’s review of academic research 

on board diversity revealed a dearth of 

empirical analysis on the relationship 

between investor protection or company 

performance and broader diversity 

characteristics such as veteran status or 

individuals with disabilities.218 Nasdaq 


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‘‘[r]etired GFOs who have honed their leadership 

and critical decision-making skills in a high-threat 

environment can bring extensive risk oversight 

experience to the board, which may be especially 

valuable in the context of today’s risk landscape’’). 

Accenture (2018) observed that companies that 

offered inclusive working environments for 

employees with disabilities achieved an average of 

28% higher revenue, 30% higher economic profit 

margins, and 2x net income than their industry 

peers. See Accenture, Getting to Equal: The 

Disability Inclusion Advantage (2018), available at: 

https://www.accenture.com/_acnmedia/PDF-89/ 

Accenture-Disability-Inclusion-ResearchReport.pdf. 

219See Credit Suisse ESG Research, supra note 

33, at 1; see also Out Leadership, supra note 35. 

220See Out Leadership, supra note 35, at 3. 

221See Bostock v. Clayton Cnty., supra note 160. 

222See 15 U.S.C. 78f(b). 

223 Id. § 78f(b)(5). 

224See Petition for Amendment of Proxy Rule, 

supra note 80, at 2. 225See Proxy Disclosure Enhancements, 74 FR at 

68,343–44 (amending Item 407(c)(2)(vi) of 

Regulation S–K, codified at 17 CFR 

229.407(c)(2)(vi)). 226See Petition for Rulemaking, supra note 123. 227See Proxy Disclosure Enhancements, 74 FR at 

68,355 (‘‘To the extent that boards branch out from 

the set of candidates they would ordinarily 

consider, they may nominate directors who have 

fewer existing ties to the board or management and 

are, consequently, more independent.’’); Hazen and 

Broome, supra note 114, at 57–58. 

228See Petition for Amendment of Proxy Rule, 

supra note 80, at 2; Petition for Rulemaking, supra 

note 123, at 7. 

acknowledges that there also is a lack of 

published research on the issue of 

LGBTQ+ representation on boards.219

This may be due to a lack of consistent, 

transparent data on broader diverse 

attributes, or because there is no 

voluntary self-disclosure workforce 

reporting requirements for LGBTQ+ 

status, such as the EEO–1 reporting 

framework for race, ethnicity, and 

gender. In any event, it is evident that 

while ‘‘[b]oardroom diversity is a topic 

that has gained significant traction . . . 

LGBT+ diversity, however, has largely 

been left out of the conversation.’’ 220

Nonetheless, Nasdaq believes it is 

reasonable and in the public interest to 

include a reporting category for 

LGBTQ+ in recognition of the U.S. 

Supreme Court’s recent affirmation that 

sexual orientation and gender identity 

are ‘‘inextricably’’ intertwined with 

sex,221 and based on studies 

demonstrating a positive association 

between board diversity and decision 

making, company performance and 

investor protections. Nasdaq also 

believes that the proposed rule would 

foster the development of data to 

conduct meaningful assessments of the 

association between LGBTQ+ board 

diversity, company performance and 

investor protections. 

As noted above, the proposal does not 

preclude companies from considering 

additional diverse attributes, such as 

nationality, disability, or veteran status 

in selecting board members; however, 

company would still have to provide the 

required disclosure under Rule 

5605(f)(3) if the company does not also 

have at least two directors who are 

Diverse. Nor would the proposal 

prevent companies from disclosing 

information related to other diverse 

attributes of board members beyond 

those highlighted in the rule if they felt 

such disclosure would benefit investors. 

Nasdaq believes such disclosure would 

help inform the evolving body of 

research on the relationship between 

broader diverse attributes, company 

performance and investor protection 

and provide investors with additional 

information about the company’s 

philosophy regarding broader diversity 

characteristics. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,222 in general, and furthers 

the objectives of Section 6(b)(5) of the 

Act,223 in that it is designed to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, to prevent 

fraudulent and manipulative acts and 

practices, and, in general, to protect 

investors and the public interest, for the 

reasons set forth below. Further, Nasdaq 

believes the proposal is not designed to 

permit unfair discrimination between 

issuers or to regulate by virtue of any 

authority conferred by the Act matters 

not related to the purposes of the Act or 

the administration of the Exchange, for 

the reasons set forth below. 

I. Board Statistical Disclosure 

Nasdaq has proposed what it believes 

to be a straightforward and clear 

approach for companies to publish their 

statistical data pursuant to proposed 

Rule 5606. The disclosure will assist 

investors in making more informed 

decisions by making meaningful, 

consistent, and reliable data readily 

available and in a clear and 

comprehensive format prescribed by the 

proposed rule. Nasdaq also believes that 

the disclosure format required by 

proposed Rule 5606 protects investors 

by eliminating data collection 

inaccuracies and decreasing costs, while 

enhancing investors’ ability to utilize 

the information. 

As a threshold matter, as discussed 

above, diversity has become an 

increasingly important subject and, in 

recent years, investors increasingly have 

been advocating for greater board 

diversity and for the disclosure of board 

diversity statistics. The current board 

diversity disclosure regime is lacking in 

several respects, and Nasdaq believes 

that its proposed Rule 5606 addresses 

many of the current concerns and 

responds to investors’ demands for 

greater transparency into the diversity 

characteristics of a company’s board 

composition by mandating disclosure 

and curing certain deficiencies that exist 

within the current SEC disclosure 

requirements. 

Investors have expressed their 

dissatisfaction with having to 

independently collect board-level data 

about race, ethnicity and gender identity 

because such investigations can be time 

consuming, expensive, and fraught with 

inaccuracies.224 The lack of consistency 

and specificity in Regulation S–K has 

been a major impediment for many 

investors and data collectors. As a 

general matter, the Commission’s 

requirements have not addressed the 

concerns expressed by commenters that 

‘‘disclosure about board diversity was 

important information to investors.’’ 225

Nasdaq believes that its proposed Rule 

5606 addresses many of the concerns 

that have been raised. 

Nasdaq believes that requiring the 

annual disclosure of a company’s board 

diversity, as proposed in Rule 5606(a), 

will provide consistent information to 

the public and will enable investors to 

continually review the board 

composition of a company to track 

trends and simplify or eliminate the 

need for a company to respond to 

multiple investor requests for 

information about the diverse 

characteristics of the company’s board. 

Requiring annual disclosures also 

would make information available to 

investors who otherwise would not be 

able to obtain individualized 

disclosures.226 Moreover, consistent 

disclosures may encourage boards to 

consider a wider range of board 

candidates in the nomination process, 

including candidates with fewer ties to 

the current board.227

The Commission’s 2009 amendments 

to Regulation S–K provide no definition 

for diversity and do not explicitly 

require disclosures specifically related 

to details about the board’s gender, 

racial, ethnic and LGBTQ+ composition. 

Additionally, the Commission’s CD&I 

does not address the definition of 

diversity, and it requires a registrant to 

disclose diversity information only in 

certain limited circumstances. Investors 

have expressed that current regulations 

and accompanying interpretations 

impair their ability to obtain clear and 

consistent data.228 As a result, Nasdaq 

believes that proposed Rule 5606(a) 

protects investors and the public 


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229The EEO–1 Form does not require a company 

to disclose data for outside directors because such 

directors are not company employees. 

230See SEC Form 8–K, available at: https://

www.sec.gov/files/form8-k.pdf. 

interest by making clear that a 

company’s annual diversity data 

disclosure must include information 

related to gender identity, race, 

ethnicity and LGBTQ+ status, thereby 

leaving less discretion for companies to 

selectively disclose certain diversity 

information and enhancing the 

comparability of such data across 

companies. Moreover, it is in the public 

interest to provide clear requirements 

for diversity disclosure, and Nasdaq’s 

proposed Board Diversity Matrix format 

provides such clarity. 

Nasdaq does not intend to obligate 

directors to self-identify in any of the 

categories related to gender identity, 

race, ethnicity and LGBTQ+. Nasdaq 

believes that a director should have 

autonomy to decide whether to provide 

such information to their company. 

Therefore, Nasdaq believes that it is 

reasonable and in the public interest to 

allow directors to opt out of disclosing 

the information required by proposed 

Rule 5606(a) by permitting a company 

to identify such directors in the 

‘‘Undisclosed’’ category. 

Nasdaq believes that it is in the public 

interest to utilize the Board Diversity 

Matrix format for all companies as 

proposed in Rule 5606(a). Additionally, 

Nasdaq believes that the format removes 

any impediments to aggregating and 

analyzing data across all companies by 

requiring each company to disclose 

separately the number of male, female, 

and non-binary directors, the number of 

male, female, and non-binary directors 

that fall into certain racial and ethnic 

categories, and the number of directors 

that identify as LGBTQ+. The format 

allows investors to easily disaggregate 

the data and track directors with 

multiple diversity characteristics. 

As discussed above, most listed 

companies are required by law to 

complete an EEOC Employer 

Information Report EEO–1 Form. 

Although outside directors generally are 

not employees and therefore are not 

covered in the EEO–1,229 Nasdaq 

believes that collecting the information 

required by proposed Rule 5606(a) is 

familiar to most companies, and that it 

is reasonable to require disclosure of the 

additional board information. 

Nasdaq also believes that requiring 

currently listed companies to comply 

with proposed Rule 5606 within one 

year from the date of Commission 

approval is a reasonable amount of time, 

given that most companies already 

collect similar information for certain 

employees. Moreover, most companies 

are required to prepare an annual proxy 

statement and update the Commission 

within four business days when a new 

director is appointed to the board.230

Further, Nasdaq believes that the 

disclosure required by proposed Rule 

5606(a) will remove impediments to 

shareholders by making available 

information related to board-level 

diversity in a standardized manner, 

thereby enhancing the consistency and 

comparability of the information and 

helping to better protect investors. The 

proposed disclosure will also help 

protect investors and the public interest 

by enabling investors to determine the 

total number of diverse directors, which 

is information that is not consistently 

available in existing proxy disclosures 

in cases where a single director has 

multiple diverse characteristics. While 

companies can elect to make this 

information available either in a proxy 

statement or on the company’s website, 

Nasdaq believes it is in the public 

interest to allow companies the option 

to provide the disclosure in a way they 

believe will be most meaningful to their 

shareholders. 

Nasdaq recognizes that the proposed 

definition of Underrepresented Minority 

in Rule 5605(f)(1) may not apply to 

companies outside of the United States 

because each country has its own 

unique demographic composition. 

Moreover, Nasdaq’s definition of 

Underrepresented Minority proposed in 

Rule 5606(f)(1) may be inapplicable to a 

Foreign Issuer, making this Board 

Matrix data less relevant for such 

companies and not useful for investors. 

Therefore, Nasdaq believes that offering 

Foreign Issuers the option of a separate 

template that requires different 

disclosure categories will provide 

investors with more accurate 

disclosures related to the diversity of 

directors among the board of a Foreign 

Issuer. Additionally, Nasdaq believes 

that providing an ‘‘Underrepresented 

Individual in Home Country 

Jurisdiction’’ category provides Foreign 

Issuers with more flexibility to identify 

and disclose diverse directors within 

their home countries. 

The annual requirement in the 

proposed rule will guarantee that the 

information is available to the public on 

a continuous and consistent basis. As 

described in the instructions to the 

Board Diversity Matrix disclosure form 

and Rule 5606(a), each year following 

the first year that a company publishes 

the Board Diversity Matrix, the 

company will be required to publish its 

data for the current and immediately 

prior years. Nasdaq believes that 

disclosing at least two years of data 

allows the public to view any changes 

and track a board’s diversity progress. 

In addition to providing a means for 

shareholders to assess a company’s 

board-level diversity and measure its 

progress in improving that diversity 

over time, Nasdaq believes that 

proposed Rule 5606 will provide a 

means for Nasdaq to assess whether 

companies meet the diversity objectives 

of proposed Rule 5605(f). The ability to 

determine satisfaction of the proposed 

listing rule’s diversity objectives will 

protect investors and the public interest. 

Moreover, the proposed rule provides 

transparency into diversity based not 

only on race, ethnicity, and gender 

identity, but also on a director’s selfidentified sexual orientation. Nasdaq 

believes that expanding the diversity 

characteristics beyond those which are 

commonly reported by companies 

currently will broaden the way boards 

view diversity, and ensure that board 

diversity is occurring across all 

protected groups. 

Finally, Nasdaq believes that the 

proposal is not unfairly discriminatory 

because proposed Rule 5606 will apply 

to all Nasdaq-listed companies, except 

for the following companies: 

Acquisition companies listed under IM– 

5101–2; asset-backed issuers and other 

passive issuers (as set forth in Rule 

5615(a)(1)); cooperatives (as set forth in 

Rule 5615(a)(2)); limited partnerships 

(as set forth in Rule 5615(a)(4)); 

management investment companies (as 

set forth in Rule 5615(a)(5)); issuers of 

non-voting preferred securities, debt 

securities and Derivative Securities (as 

set forth in Rule 5615(a)(6)); and issuers 

of securities listed under the Rule 5700 

Series—which meet the definition of 

Exempt Companies as defined under 

proposed Rule 5605(f)(4). Nasdaq 

believes it is reasonable and not unfairly 

discriminatory to exempt these 

companies from the proposed rule 

because the exemption of these 

companies is consistent with the 

approach taken by Nasdaq in Rule 5615 

as it relates to certain Nasdaq corporate 

governance standards for board 

composition. 

Nasdaq further believes it is 

reasonable to provide companies with a 

one-year phase-in period to comply 

with proposed Rule 5606. Nasdaq 

believes there is only a de minimis 

burden placed on companies to collect 

the board data and prepare the Board 

Diversity Matrix. Moreover, as 

discussed above, companies already are 

required to gather similar information 

for certain employees. Therefore, 

Nasdaq believes that one year is 


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231See GAO Report, supra note 44; Vell, supra 

note 100; Rhode & Packel, supra note 104, at 39; 

Deloitte, Women in the Boardroom, supra note 86; 

see also Parker, supra note 97, at 38 (acknowledging 

that, ‘‘as is the case with gender, people of colour 

within the UK have historically not had the same 

opportunities as many mainstream candidates to 

develop the skills, networks and senior leadership 

experience desired in a FTSE Boardroom’’). 

232See Dhir, supra note 78, at 52. 

233 Id. at 51. See also Albertine d’Hoop-Azar et 

al., Gender Parity on Boards Around the World, 

Harv. L. Sch. Forum on Corp. Governance (January 

5, 2017), available at: https://corpgov.law.

harvard.edu/2017/01/05/gender-parity-on-boardsaround-the-world/ (comparing gender diversity on 

boards in countries with varying requirements and 

enforcement measures and concluding that external 

pressures—‘‘progressive societal norms’’ and 

regulations—are needed to increase board 

diversity). 

234See Dhir, supra note 78, at 101. 

235See Marianne Bertrand et al., Breaking the 

Glass Ceiling? The Effect of Board Quotas on 

Female Labor Market Outcomes in Norway, Nat’l 

Bureau of Econ. Rsch. Working Paper 20256 (June 

2017), available at https://www.nber.org/papers/ 

w20256; Statistics Norway, Board and management 

in limited companies (Mar. 6, 2020), https://

www.ssb.no/en/styre (last accessed Nov. 27, 2020). 

236See Dhir, supra note 78, at 116. 

237See Paul Hastings, supra note 177; Deloitte, 

Women in the Boardroom, supra note 86. 

238See Conference Board of Canada, supra note 

201; Osler, supra note 203, at 4. 

239See Lee, supra note 22. 

240See, e.g., Hillman et al., supra note 105 

(finding that African-American and white women 

directors were more likely to have specialized 

expertise in law, finance, banking, public relations 

or marketing, or community influence from 

positions in politics, academia or clergy). 

241See Bernile et al., supra note 28. 

242See Gul et al., supra note 66; Bravo and 

Alcaide-Ruiz, supra note 56. 

243See Abad et al., supra note 67. 

sufficient time for companies to 

incorporate their directors into their 

data collection. Furthermore, newly 

listed companies have many obligations 

to meet under Nasdaq listing rules. 

Therefore, Nasdaq believes that it is 

reasonable under proposed Rule 5606(d) 

to provide newly listed Nasdaq 

companies, including companies listing 

in connection with a business 

combination under IM–5101–2, with 

one year from the time of listing to 

comply with the proposed rule. 

II. Diverse Board Representation or 

Explanation 

a. Removes Impediments to and Perfects 

the Mechanism of a Free and Open 

Market and a National Market System 

As discussed above, studies suggest 

that the traditional director candidate 

selection process may create barriers to 

considering qualified diverse candidates 

for board positions by limiting the 

search for director nominees to existing 

directors’ social networks and 

candidates with C-suite experience.231

In analyzing Norway’s experience in 

implementing a gender mandate, Dhir 

(2015) observed that ‘‘[b]oard seats tend 

to be filled by directors engaging their 

networks, and the resulting appointees 

tend to be of the same sociodemographic background.’’ 232 Dhir 

concluded that broadening the search 

for directors outside of traditional 

networks ‘‘is unlikely to occur without 

some form of regulatory intervention, 

given the prevalence of homogenous 

social networks and in-group 

favoritism.’’ 233 Regulatory action was 

effective in increasing the 

representation of women on boards in 

Norway by ‘‘democratiz[ing] access to a 

space previously unavailable to 

women.’’ 234 The number of public 

company board seats held by women in 

Norway increased from 6% in 2002 to 

42% in 2020.235 One Norwegian 

director ‘‘grudgingly accept[ed] that the 

free market principles she held so 

dearly had disappointed her—and that 

the [mandate] was a necessary 

correction of market failure.’’ 236

In contrast, Nasdaq observed that 

other countries have made comparable 

progress using a disclosure-based 

model. Women account for at least 30% 

of the largest boards of companies in six 

countries using comply-or-explain 

models:237 Australia, Finland, Sweden, 

New Zealand, Canada and the United 

Kingdom.238 Nasdaq discussed the 

benefits and challenges of mandate and 

disclosure-based models with over a 

dozen stakeholders, and the majority of 

organizations were in agreement that 

companies would benefit from a 

regulatory impetus to drive meaningful 

and systemic change in board diversity, 

and that a disclosure-based approach 

would be more palatable to the U.S. 

business community than a mandate. 

While many organizations recognized 

that mandates can force boards to act 

more quickly and accelerate the rate of 

change, they believe that a disclosurebased approach is less controversial and 

would spur companies to take action 

and achieve the same results. Some 

stakeholders also highlighted additional 

challenges that smaller companies and 

companies in certain industries may 

face finding diverse board members. 

However, leaders from across the 

spectrum of stakeholders with whom 

Nasdaq spoke reinforced the notion that 

if companies recruit by skill set and 

expertise rather than title, then they will 

find there is more than enough diverse 

talent to satisfy demand. 

Nasdaq also considered 

Commissioner Lee’s observation that 

disclosure ‘‘gets investors the 

information they need to make 

investment decisions based on their 

own judgment of what indicators matter 

for long-term value. Importantly, it can 

also drive corporate behavior.’’ 

Specifically, she observed that: 

For one thing, when companies have to 

formulate disclosure on topics it can 

influence their treatment of them, something 

known as the ‘‘what gets measured, gets 

managed’’ phenomenon. Moreover, when 

companies have to be transparent, it creates 

external pressure from investors and others 

who can draw comparisons company to 

company. The Commission has longrecognized that influencing corporate 

behavior is an appropriate aim of our 

regulations, noting that ‘‘disclosure may, 

depending on determinations made by a 

company’s management, directors and 

shareholders, influence corporate conduct’’ 

and that ‘‘[t]his sort of impact is clearly 

consistent with the basic philosophy of the 

disclosure provisions of the federal securities 

laws.239

Nasdaq believes that a disclosurebased framework may influence 

corporate conduct if a company chooses 

to meet the diversity objective of Rule 

5605(f)(2) by having two Diverse 

directors on the board. A company may 

satisfy that objective by broadening the 

search for qualified candidates and 

considering candidates from other 

professional pathways that bring a 

wider range of skills and perspectives 

beyond traditional C-suite 

experience.240 Nasdaq believes that this 

will help increase opportunities for 

Diverse candidates that otherwise may 

be overlooked due to the impediments 

of the traditional director recruitment 

process, which will thereby remove 

impediments to a free and open market 

and a national market system. Further, 

boards that choose to have at least two 

Diverse directors may experience other 

benefits from diversity that perfect the 

mechanism of a free and open market 

and national market system. As 

discussed above in Section II.A.1.II.b 

(Diversity and Investor Protection), and 

further discussed below in Section 

II.A.2.II.b (Prevent Fraudulent and 

Manipulative Acts and Practices), 

studies suggest that diversity is 

positively associated with reduced stock 

volatility,241 more transparent public 

disclosures,242 and less information 

asymmetry,243 leading to stock prices 

that better reflect public information, 

and further removing impediments to 

and perfecting a free and open market 

and a national market system. 

Importantly, Nasdaq believes that the 

disclosure-based framework proposed 

under Rule 5605(f) will not create 

additional impediments to a free and 

open market and a national market 

system because it will empower 


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244See Forbes and Milliken, supra note 74, at 

496. 

245See Dhir, supra note 78, at 124. 

246See Petition for Amendment of Proxy Rule, 

supra note 80, at 4. 

247See Dhir, supra note 78, at 150. 

248 Id. at xiv. 

249 Id. at 120. 

250 Id. at 35. 

251See Pucheta-Martı ́nez et al., supra note 52, at 

368. 

252 Id. at 364. 

253 Id. at 363. 

254 Id. at 368. 

255See Cumming et al., supra note 62, at 34. 

256 Id. at 12–14. 

257 Id. at 33. 

258See Wahid, supra note 59, at 6. 

259 Id. at 1. 

260 Id. at 23. 

companies to maintain decision-making 

authority over the composition of their 

boards. 

To the extent a company chooses not 

to meet the diversity objectives of Rule 

5605(f)(2) to have at least two Diverse 

directors, Nasdaq believes that proposed 

Rule 5605(f)(3) will provide analysts 

and investors with a better 

understanding about the company’s 

reasons for not doing so and its 

philosophy regarding diversity. Rule 

5605(f) will thus remove impediments 

to a free and open market and a national 

market system by enabling the 

investment community to conduct more 

informed analyses of, and have more 

informed conversations with, 

companies. Nasdaq believes that such 

analyses and conversations will be 

better informed by consistent, 

comparable data across companies, 

which Nasdaq proposes to achieve by 

adopting a consistent definition of 

‘‘Diverse’’ under Rule 5605(f)(1). Nasdaq 

further believes that providing such 

disclosure will improve the quality of 

information available to investors who 

rely on this information to make 

informed investment and voting 

decisions, thereby promoting capital 

formation and efficiency and perfecting 

the mechanism of a free and open 

market and a national market system. 

b. Prevent Fraudulent and Manipulative 

Acts and Practices 

Nasdaq’s analysis discussed above in 

Section II.A.1.II raises the concern that 

the failure of homogenous boards to 

consider a broad range of viewpoints 

can result in suboptimal decisions that 

have adverse effects on company 

performance, board performance and 

stakeholders. Nasdaq believes that 

including diverse directors with a 

broader range of skills, perspectives and 

experiences may help detect and 

prevent fraudulent and manipulative 

acts and practices by mitigating 

‘‘groupthink.’’ Increased board diversity 

also may reduce the likelihood of 

insider trading and other fraudulent and 

manipulative acts and practices. 

Nasdaq reached this conclusion by 

reviewing public statements by 

investors and organizations regarding 

the impact of groupthink on decision 

making processes, as well as academic 

studies on the relationship between 

diversity, groupthink and fraud. Nasdaq 

observed that groupthink can result in 

‘‘self-censorship’’ 244 and failure to voice 

dissenting viewpoints in pursuit of 

‘‘consensus without critical evaluation 

and without considering different 

possibilities.’’ 245 In contrast, ‘‘board 

members who possess a variety of 

viewpoints may raise different ideas and 

encourage a full airing of dissenting 

views. Such a broad pool of talent can 

be assembled when potential board 

candidates are not limited by gender, 

race, or ethnicity.’’ 246

Dhir (2015) concluded that gender 

diversity may ‘‘promote cognitive 

diversity and constructive conflict in 

the boardroom’’ and may be more 

effective at overseeing management.247

One respondent in Dhir’s survey of 

Norwegian directors observed that: 

I’ve seen situations where the women were 

more willing to dig into the difficult 

questions and really go to the bottom even if 

it was extremely painful for the rest of the 

board, but mostly for the CEO . . . when it 

comes to the really difficult situations, 

[where] you think that the CEO has . . . done 

something criminal . . . [o]r you think that 

he has done something negligent, something 

that makes it such that you . . . are unsure 

whether he’s the suitable person to be in the 

driving seat.248

Another director observed that ‘‘[i]f 

you have different experiences and a 

more diversified board, you will have 

different questions asked.’’ 249 Dhir 

concluded that ‘‘women directors may 

be particularly adept at critically 

questioning, guiding and advising 

management without disrupting the 

overall working relationship between 

the board and management.’’ 250

Pucheta-Martı ́nez et al. (2016) 

reasoned that questioning management 

is a critical part of the audit committee’s 

oversight role, along with ensuring that 

management does not pressure the 

external auditor to issue a clean audit 

opinion notwithstanding the 

identification of any uncertainties or 

scope limitations.251 Otherwise, 

‘‘[a]uditors may accept the demands of 

management for a clean audit report 

when the firm deserves a scope 

limitation and an uncertainty 

qualification.’’ 252 The authors found 

that ‘‘the percentage of female 

[directors] on [audit committees] 

reduces the probability of [audit] 

qualifications due to errors, noncompliance or the omission of 

information,’’ 253 and further found a 

positive association between genderdiverse audit committees and disclosing 

audit reports with uncertainties and 

scope limitations. This suggests that 

gender-diverse audit committees better 

‘‘ensure that managers do not seek to 

pressure auditors into issuing a clean 

opinion instead of a qualified opinion’’ 

when any uncertainties or scope 

limitations are identified.254

Nasdaq also reviewed other studies 

that found a positive association 

between board gender diversity and 

important investor protections 

regardless of whether women are on the 

audit committee, and considered the 

assessment of some academics that their 

findings may extend to other forms of 

diversity, including racial and ethnic 

diversity. Nasdaq therefore believes that 

such findings with respect to audit 

committees would be expected to be 

more broadly applicable to the quality 

of the broader board’s decision-making 

process, and to other forms of diversity, 

including diversity of race, ethnicity 

and sexual orientation. 

In examining the association between 

broader board gender diversity and 

fraud, Cumming, et al. observed that 

‘‘[g]ender diversity in particular 

facilitates more effective monitoring by 

the board and protection of shareholder 

interests by broadening the board’s 

expertise, experience, interests, 

perspectives and creativity.’’ 255 They 

observed that the presence of women on 

boards is associated with a lower 

likelihood of securities fraud; indeed, 

they found ‘‘strong evidence of a 

negative and diminishing effect of 

women on boards and the probability of 

being in our fraud sample.’’ 256 The 

authors suggested that ‘‘other forms of 

board diversity, including but not 

limited to gender diversity, may 

likewise reduce fraud.’’ 257

Similarly, Wahid (2017) noted that 

board gender diversity may ‘‘lead to less 

biased and superior decision-making’’ 

because it ‘‘has a potential to alter group 

dynamics by affecting cognitive conflict 

and cohesion.’’ 258 Wahid (2017) 

concluded that ‘‘gender-diverse boards 

commit fewer financial reporting 

mistakes and engage in less fraud,’’ 259

finding that companies with female 

directors have ‘‘fewer irregularity-type 

[financial] restatements, which tend to 

be indicative of financial 

manipulation.’’ 260 Wahid also suggested 

that other forms of diversity, including 


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261 Id. at 24–25; see also Shecter, supra note 61 

(quoting Wahid as saying that ‘‘[i]f you’re going to 

introduce perspectives, those perspectives might be 

coming not just from male versus female. They 

could be coming from people of different ages, from 

different racial backgrounds. . .. If we just focus on 

one, we could be essentially taking away from other 

dimensions of diversity and decreasing 

perspective.’’). 

262See Abbott et al., supra note 58, at 607. 

263 Id. at 610. 

264 Id. at 613 (‘‘The previously discussed lines of 

research lead us to form our hypothesis. In 

summary, restatements may stem from error or 

fraud. In either instance, the internal control system 

(to which the board of directors contributes by 

setting the overall tone at the top) has failed to 

detect or prevent a misstatement. Ineffective 

internal controls may stem from insufficient 

questioning of assumptions underlying financial 

reporting, inadequate attention to the internal 

control systems, or insufficient support for the audit 

committee’s activities.’’). 

265See Dallas, supra note 76, at 1391. 

266See Proxy Disclosure Enhancements, supra 

note 73, 74 FR at 68,355. 

267See Order Approving Proposed Rule Changes, 

68 FR at 64,161. 

268 Id. at 64, 175. 

269See In re Nasdaq Stock Market, 71 FR 3550, 

3565 (Jan. 23, 2006). See also 68 FR 18,788, 18,815 

(April 16, 2003) (in adopting Rule 10A–3, setting 

standards for the independence of audit committee 

members, the Commission concluded that such 

standards would ‘‘enhance the quality and 

accountability of the financial reporting process and 

may help increase investor confidence, which 

implies increased efficiency and competitiveness of 

the U.S. capital markets’’). 270 Id. 

racial diversity, could introduce 

additional perspectives to the 

boardroom,261 which Nasdaq believes 

could further mitigate groupthink. 

Abbott, Parker and Persley (2012) 

posited that ‘‘a female board presence 

contribut[es] to the board’s ability to 

maintain an attitude of mental 

independence, diminish[es] the extent 

of groupthink and enhance[es] the 

ability of the board to monitor financial 

reporting.’’ 262 They noted that ‘‘poorer 

[internal] controls and the lack of an 

independent and questioning boardlevel attitude toward accounting 

judgments can create an opportunity for 

fraud.’’ 263 They observed a lower 

likelihood of a material financial 

restatements stemming from fraud or 

error in companies with at least one 

woman on the board.264

Nasdaq believes that these studies 

provide substantial evidence suggesting 

an association between gender diverse 

boards or audit committees and a lower 

likelihood of fraud; a lower likelihood 

of receiving audit qualifications due to 

errors, non-compliance or omission of 

information; and a greater likelihood of 

disclosing audit reports with 

uncertainties and scope limitations. 

Moreover, academics have suggested 

that other forms of diversity, including 

racial and ethnic diversity, may reduce 

fraud and mitigate groupthink. Further, 

while homogenous boards may 

unwittingly fall into the trap of 

groupthink due to a lack of diverse 

perspectives, ‘‘heterogeneous groups 

share conflicting opinions, knowledge, 

and perspectives that result in a more 

thorough consideration of a wide range 

of interpretations, alternatives, and 

consequences.’’ 265 Nasdaq therefore 

believes that the proposed rule is 

designed to reduce groupthink, and 

otherwise to enhance the functioning of 

boards, and thereby to prevent 

fraudulent and manipulative acts and 

practices. 

Further, the Commission has 

suggested that in seeking board 

diversity, ‘‘[t]o the extent that boards 

branch out from the set of candidates 

they would ordinarily consider, they 

may nominate directors who have fewer 

existing ties to the board or management 

and are, consequently, more 

independent.’’ 266 Nasdaq believes that 

the benefits of the proposed rule are 

analogous to the benefits of Nasdaq’s 

rules governing and requiring director 

independence. In 2003, Nasdaq adopted 

listing rules requiring, among other 

things, that independent directors 

comprise a majority of listed companies’ 

boards, which were ‘‘intended to 

enhance investor confidence in the 

companies that list on Nasdaq.’’ 267 The 

Commission observed that selfregulatory organizations ‘‘play an 

important role in assuring that their 

listed issuers establish good governance 

practices,’’ and concluded that the 

proposed rule changes would secure an 

‘‘objective oversight role’’ for issuers’ 

boards of directors, and ‘‘foster greater 

transparency, accountability, and 

objectivity’’ in that role.’’ 268 Along the 

same lines, in approving Nasdaq’s 

application for registration as a national 

securities exchange, the Commission 

found Nasdaq’s rules governing the 

independence of members of boards and 

certain committees to be consistent with 

Section 6(b)(5) of the Act because they 

advanced the ‘‘interests of 

shareholders’’ in ‘‘greater transparency, 

accountability, and objectivity’’ in 

oversight and decision-making by 

corporate boards.269 Nasdaq proposes to 

promote accountability in corporate 

decision-making by requiring 

companies who do not have at least two 

Diverse directors on their board to 

provide investors with a public 

explanation of the board’s reasons for 

not doing so under Rule 5605(f)(3). 

Nasdaq believes it is critical to the 

detection and prevention of fraudulent 

and manipulative acts and practices to 

have directors on the board who are 

willing to critically question 

management and air dissenting views. 

Nasdaq believes that boards comprised 

of directors from Diverse backgrounds 

enhance investor confidence by 

ensuring that board deliberations 

consider the perspectives of more than 

one demographic group, leading to 

robust dialogue and better decision 

making. However, Nasdaq recognizes 

that directors may bring diverse 

perspectives, skills and experiences to 

the board, notwithstanding that they 

have similar attributes. Nasdaq therefore 

believes it is in the public interest to 

permit a company that chooses not to 

meet the diversity objectives of Rule 

5605(f)(2) to explain why it does not, in 

accordance with Rule 5605(f)(3)—for 

example, if it believes that defining 

diversity more broadly than Nasdaq, for 

example by considering national origin, 

veteran status and disabilities, brings a 

wide range of perspectives and 

experiences to the board. Nasdaq 

believes such disclosure will provide 

investors with a better understanding of 

the company’s philosophy regarding 

diversity. This would better inform the 

investment community and enable more 

informed analyses of, and conversations 

with, companies. Therefore, Nasdaq 

believes satisfying Rule 5605(f)(2) 

through disclosure pursuant to Rule 

5605(f)(3) is consistent with Section 

6(b)(5) of the Act because it advances 

the ‘‘interests of shareholders’’ in 

‘‘greater transparency, accountability, 

and objectivity’’ of boards and their 

decision-making processes.270 In 

addition, as discussed further in Section 

II.A.2.II.c (Promotes Investor Protection 

and the Public Interest) below, Nasdaq 

believes that the proposed diversity 

requirement could help to reduce 

information asymmetry, and thereby 

reduce the risk of insider trading or 

other opportunistic insider behavior. 

c. Promotes Investor Protection and the 

Public Interest 

Nasdaq has found substantial 

evidence that board diversity is 

positively associated with more 

transparent public disclosures and 

higher quality financial reporting, 

thereby promoting investor protection. 

Specifically, studies have concluded 

that companies with gender-diverse 

boards are associated with more 

transparent public disclosures and less 

information asymmetry, leading to stock 

prices that better reflect public 

information. Gul, Srinidhi & Ng (2011) 

found that ‘‘gender diversity improves 

stock price informativeness by 

increasing voluntary public disclosures 

in large firms and increasing the 


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271See Gul et al., supra note 66, at 2. 

272See Bravo and Alcaide-Ruiz, supra note 56, at 

151. 

273See Abad et al., supra note 67, at 202. 

274See Lucas-Perez et al., supra note 69. 

275 Id. 

276See Vernon J. Richardson, Information 

Asymmetry and Earnings Management: Some 

Evidence, 15 Rev. Quantitative Fin. and Acct. 325 

(2000). 

277See Gull et al., supra note 55, at 2. 

278 Id. 

279See generally id. 

280 Id. at 6 (citations omitted). 

281See Srinidhi et al., supra note 50, at 1638. 

282 Id. at 1612. 

283 Id. 

284See Chen et al., supra note 64, at 18. 

285See Public Company Accounting Oversight 

Board, Auditing Standard No. 5: Appendix A, A5 

available at: https://pcaobus.org/oversight/ 

standards/archived-standards/details/Auditing_

Standard_5_Appendix_A. 

286See Chen et al., supra note 64, at 12. 

287See Public Company Accounting Oversight 

Board, supra note 285, at A7. 

288See Abbott et al., supra note 58, at 609–10. 

289See Chen et al., supra note 64, at 18. 

290See Abbott et al., supra note 58, at 607. 

291 Id. at 609. 

incentives for private information 

collection in small firms.’’ 271 Bravo and 

Alcaide-Ruiz (2019) found a positive 

association between women on the 

audit committee with financial or 

accounting expertise and the voluntary 

disclosure of forward-looking 

information.272 Abad et al. (2017) 

concluded that companies with genderdiverse boards are associated with lower 

levels of information asymmetry, 

suggesting that ‘‘the policies recently 

implemented in several European 

countries to increase the presence of 

female directors in company boards 

could have beneficial effects on stock 

markets by reducing the risk of 

informed trading and enhancing stock 

liquidity.’’ 273

Nasdaq believes that one consequence 

of information asymmetry is that 

insiders may engage in opportunistic 

behavior prior to a public 

announcement of financial results and 

before the market incorporates the new 

information into the company’s stock 

price. This can result in unfair gains or 

an avoidance of losses at the expense of 

shareholders who did not have access to 

the same information. This may 

exacerbate the principal-agent problem, 

in which the interests of a company’s 

board and shareholders are not aligned. 

Lucas-Perez et al. (2014) found that 

board gender diversity is positively 

associated with linking executive 

compensation plans to company 

performance,274 which may be an 

effective mechanism to deter 

opportunistic behavior by management 

and better align their interests with 

those of their company’s 

shareholders.275

Another concern is that ‘‘[w]hen 

information asymmetry is high, 

stakeholders do not have sufficient 

resources, incentives, or access to 

relevant information to monitor 

managers’ actions, which gives rise to 

the practice of earnings 

management.’’ 276 Earnings management 

‘‘is generally defined as the practice of 

using discretionary accounting methods 

to attain desired levels of reported 

earnings.’’ 277 Manipulating earnings is 

particularly concerning to investors 

because ‘‘[i]f users of financial data are 

‘misled’ by the level of reported income, 

then investors’ allocation of resources 

may be inappropriate when based on 

the financial statements provided by 

management,’’ 278 thereby undermining 

the efficacy of the capital formation 

process for investors who rely on such 

information to make informed 

investment and voting decisions. 

Gull et al. (2018) 279 observe that 

overseeing management is a crucial 

component of investor protection, 

particularly with regard to earnings 

management: 

The role of the board of directors and board 

characteristics (i.e. board independence and 

gender diversity) is usually associated with 

the protection of shareholder interests. . .. 

This role is particularly crucial with regard 

to the issue of earnings management, in that 

one of the responsibilities of boards is to 

monitor management.280

The authors of that study found that 

the presence of female audit committee 

members with business expertise is 

associated with a lower magnitude of 

earnings management. Srinidhi, Gul and 

Tsui (2011) observed that better 

oversight of management combined 

with lower information asymmetry 

leads to better earnings quality. They 

noted that ‘‘[e]arnings quality is an 

important outcome of good governance 

demanded by investors and therefore its 

improvement constitutes an important 

objective of the board.’’ 281 They found 

that companies with women on the 

board, specifically on the audit 

committee, exhibit ‘‘higher earnings 

quality’’ and ‘‘better reporting discipline 

by managers.’’ 282 They concluded that 

‘‘including female directors on the 

board and the audit committee are 

plausible ways of improving the firm’s 

reporting discipline and increasing 

investor confidence in financial 

statements.’’ 283

Chen, Eshleman and Soileau (2016) 

suggested that the relationship between 

gender diversity and higher earnings 

quality observed by Srinidhi, Gul and 

Tsui (2011) is ultimately driven by 

reduced internal control weaknesses, 

noting that ‘‘prior literature has 

established a negative relationship 

between internal control weaknesses 

and earnings quality.’’ 284 Internal 

control over financial reporting are 

procedures designed ‘‘to provide 

reasonable assurance regarding the 

reliability of financial reporting and the 

preparation of financial statements for 

external purposes in accordance with 

GAAP.’’ 285 Weaknesses in internal 

controls can ‘‘lead to poor financial 

reporting quality’’ and ‘‘more severe 

insider trading’’ 286 or failure to detect a 

material misstatement. According to the 

PCAOB: 

A material weakness is a deficiency, or a 

combination of deficiencies, in internal 

control over financial reporting, such that 

there is a reasonable possibility that a 

material misstatement of the company’s 

annual or interim financial statements will 

not be prevented or detected on a timely 

basis.287

A material misstatement can occur 

‘‘as a result of some type of inherent 

risk, whether fraud or error (e.g., 

management’s aggressive accounting 

practices, erroneous application of 

GAAP).’’ 288 The failure to prevent or 

detect a material misstatement before 

financial statements are issued can 

require the company to reissue its 

financial statements and potentially face 

costly shareholder litigation. Chen et al. 

found that having at least one woman 

on the board (regardless of whether or 

not she is on the audit committee) ‘‘may 

lead [a] to reduced likelihood of 

material weaknesses [in internal control 

over financial reporting],’’ 289 and 

Abbott, Parker and Persley (2012) found 

‘‘a significant association between the 

presence of at least one woman on the 

board and a lower likelihood of [a 

material financial] restatement.’’ 290

Notably, while the Sarbanes-Oxley Act 

(‘‘SOX’’) implemented additional 

measures to ensure that a company has 

robust internal controls, the findings of 

Abbott et al. were consistent among a 

sample of pre- and post-SOX 

restatements, suggesting that ‘‘an 

additional, beneficial layer of 

independence in group decision-making 

is associated with gender diversity.’’ 291

Nasdaq believes that the proposal to 

require listed companies to have at least 

two Diverse directors under Rule 5605(f) 

could help to lower information 

asymmetry and reduce the risk of 

insider trading or other opportunistic 

insider behavior, which would help to 

increase stock price informativeness and 

enhance stock liquidity, thereby 

protecting investors and promoting 

capital formation and efficiency. Nasdaq 


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292See Alexandre Di Miceli and Angela Donaggio, 

Women in Business Leadership Boost ESG 

Performance: Existing Body of Evidence Makes 

Compelling Case, 42 International Finance 

Corporation World Bank Group, Private Sector 

Opinion at 11 n.15 (2018), available at: https://

www.ifc.org/wps/wcm/connect/topics_ext_content/ 

ifc_external_corporate_site/ifc+cg/resources/ 

private+sector+opinion/women+in+business+

leadership+boost+esg+performance (‘‘The 

overwhelming majority of empirical studies 

conclude that a higher ratio of women in business 

leadership does not impair corporate performance 

(virtually all studies find positive or nonstatistically significant results)’’). See also Wahid, 

supra note 59, at 6 (suggesting that ‘‘at a minimum, 

gender diversity on corporate boards has a neutral 

effect on governance quality, and at best, it has 

positive consequences for boards’ ability to monitor 

firm management’’). 

293See, e.g., Pletzer et al., supra note 38; Post and 

Byron, supra note 39; Adams and Ferreira, supra 

note 42. 

294See GAO Report, supra note 44, at 5 (‘‘Some 

research has found that gender diverse boards may 

have a positive impact on a company’s financial 

performance, but other research has not. These 

mixed results depend, in part, on differences in 

how financial performance was defined and what 

methodologies were used’’); Carter (2010), supra 

note 40, at 400 (observing that the different 

‘‘statistical methods, data, and time periods 

investigated vary greatly so that the results are not 

easily comparable.’’). 

295See supra note 45. 

296See Order Approving Proposed Rule Changes, 

68 FR at 64,161. 

297 Id. at 64,176. 

298See supra notes 4 and 8. 

299See supra note 112. 

300See Nasdaq Rulebook, Rule 5101. 

believes that information asymmetry 

could also be reduced by permitting 

companies to satisfy Rule 5605(f)(2) by 

publicly disclosing their reasons for not 

meeting its diversity objectives in 

accordance with Rule 5605(f)(3), 

because the requirement will improve 

the quality of information available to 

investors who rely on this information 

to make informed investment and voting 

decisions, which will further protect 

investors and promote capital formation 

and efficiency. 

Moreover, Nasdaq believes that 

proposed Rule 5605(f) could foster more 

transparent public disclosures, higher 

quality financial reporting, and stronger 

internal control over financial reporting 

and mechanisms to monitor 

management. This could be particularly 

beneficial for Smaller Reporting 

Companies that are not subject to the 

SOX 404(b) requirement to obtain an 

independent auditor’s attestation of 

management’s assessment of the 

effectiveness of internal control over 

financial reporting, thereby promoting 

investor protection. 

Nasdaq believes that the body of 

research on the relationship between 

economic performance and board 

diversity summarized under Section 

II.A.1.II.a above provides substantial 

evidence supporting the conclusion that 

board diversity does not have adverse 

effects on company financial 

performance, and therefore Nasdaq 

believes the proposal will not negatively 

impact capital formation, competition or 

efficiency among its public 

companies.292 Nasdaq considered that 

some studies on gender diversity alone 

have had mixed results,293 and that the 

U.S. GAO (2015) and Carter et al. (2010) 

concluded that the mixed results are 

due to differences in methodologies, 

data samples and time periods.294 This 

is not the first time Nasdaq has 

considered whether, on balance, various 

studies finding mixed results related to 

board composition and company 

performance are sufficient rationale to 

propose a listing rule. For example, in 

2003, notwithstanding the mixed results 

of studies regarding the relationship 

between company performance and 

board independence,295 Nasdaq adopted 

listing rules requiring a majority 

independent board that were ‘‘intended 

to enhance investor confidence in the 

companies that list on Nasdaq.’’ 296 In 

its Approval Order, the SEC noted that 

‘‘[t]he Commission has long encouraged 

exchanges to adopt and strengthen their 

corporate governance listing standards 

in order to, among other things, enhance 

investor confidence in the securities 

markets;’’ the Commission concluded 

that the independence rules would 

secure an ‘‘objective oversight role’’ for 

issuers’ boards, and ‘‘foster greater 

transparency, accountability, and 

objectivity’’ in that role.297 Nasdaq 

believes this reasoning applies to the 

current proposed rule as well. Even 

without clear consensus among studies 

related to board diversity and company 

performance, the heightened focus on 

corporate board diversity by investors 

demonstrates that investor confidence is 

undermined when data on board 

diversity is not readily available and 

when companies do not explain the 

reasons for the apparent absence of 

diversity on their boards.298 Legislators 

are increasingly taking action to 

encourage corporations to diversify their 

boards and improve diversity 

disclosures.299 Moreover, during its 

discussions with stakeholders, Nasdaq 

found consensus across every 

constituency that there is inherent value 

in board diversity. Lastly, it has been a 

longstanding principle that ‘‘Nasdaq 

stands for integrity and ethical business 

practices in order to enhance investor 

confidence, thereby contributing to the 

financial health of the economy and 

supporting the capital formation 

process.’’ 300

For all the foregoing reasons, Nasdaq 

believes that proposed Rule 5605(f) will 

promote investor protection and the 

public interest by enhancing investor 

confidence that all listed companies are 

considering diversity in the context of 

selecting directors, either by including 

at least two Diverse directors on their 

boards or by explaining their rationale 

for not meeting that objective. To the 

extent a company chooses not to meet 

the diversity objectives of Rule 

5605(f)(2), Nasdaq believes that the 

proposal will provide investors with 

additional disclosure about the 

company’s reasons for doing so under 

Rule 5605(f)(3). For example, the 

company may choose to disclose that it 

does not meet the diversity objectives of 

Rule 5605(f)(2) because it is subject to 

an alternative standard under state or 

foreign laws and has chosen to satisfy 

that diversity objective instead. On the 

other hand, many firms may strive to 

achieve even greater diversity than the 

objectives set forth in our proposed rule. 

Nasdaq believes that providing such 

flexibility and clear disclosure where 

the company determines to follow a 

different path will improve the quality 

of information available to investors 

who rely on this information to make 

informed investment and voting 

decisions, thereby promoting capital 

formation and efficiency, and further 

promoting the public interest. 

d. Not Designed to Permit Unfair 

Discrimination Between Customers, 

Issuers, Brokers, or Dealers 

Nasdaq believes that proposed Rule 

5605(f) is not designed to permit unfair 

discrimination among companies 

because it requires all companies 

subject to the rule to have at least two 

Diverse directors or explain why they 

do not. Further, the proposal requires at 

least one of the two Diverse directors to 

be an individual who self-identifies as 

Female. While the proposal provides 

different requirements for the second 

Diverse director among Smaller 

Reporting Companies, Foreign Issuers 

and other companies, Nasdaq believes 

that the rule is not designed to permit 

unfair discrimination among companies. 

In all cases, a company can choose to 

meet the diversity objectives of the 

entire rule or to satisfy only certain 

elements of the rule. Further, the 

proposed rule does not limit board 

sizes—if a board chooses to nominate a 

Diverse individual to the board to meet 

the diversity objectives of the proposed 

rule, it is not precluded from also 

nominating a non-Diverse director for 

an additional board seat. 


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301See United Nations, Minority Rights: 

International Standards and Guidance for 

Implementation 2 (2010), available at: https://

www.ohchr.org/Documents/Publications/ 

MinorityRights_en.pdf. See also G.A. Res. 47/135. 

art. 1.1 (Dec. 18, 1992) (‘‘States shall protect the 

existence and the national or ethnic, cultural, 

religious and linguistic identity of minorities within 

their respective territories and shall encourage 

conditions for the promotion of that identity.’’). The 

preamble to the Declaration also ‘‘[r]eaffirm[s] that 

one of the basic aims of the United Nations, as 

proclaimed in the Charter, is to promote and 

encourage respect for human rights and for 

fundamental freedoms for all, without distinction as 

to race, sex, language or religion.’’ 

302See United Nations, Minority Rights, supra 

note 301, at 3. 

303See G.A. Res. 61/295 (Sept. 13, 2007). 

304See Nasdaq Rulebook, Rule 5605(d)(3). 

305See Order Granting Accelerated Approval of 

Proposed Rule Change, 78 FR 4,554, 4,567 (Jan. 22, 

2013). 

306See 17 CFR 229.402(l). 

i. Rule 5605(f)(2)(B): Foreign Issuers 

Similar to all other companies subject 

to Rule 5605(f), the proposal requires all 

Foreign Issuers to have, or explain why 

they do not have, at least two Diverse 

directors, including one director who 

self-identifies as Female. However, 

Nasdaq proposes to provide Foreign 

Issuers with additional flexibility with 

regard to the second Diverse director. 

Foreign Issuers could satisfy the second 

director objective by including another 

Female director, or an individual who 

self-identifies as LGBTQ+ or as an 

underrepresented individual based on 

national, racial, ethnic, indigenous, 

cultural, religious or linguistic identity 

in the company’s home country 

jurisdiction. While the proposal 

provides a different requirement for the 

second Diverse director for Foreign 

Issuers, Nasdaq believes it is not 

designed to permit unfair 

discrimination between Foreign Issuers 

and other companies because it 

recognizes that the unique demographic 

composition of the United States, and 

its historical marginalization of 

Underrepresented Minorities and the 

LGBTQ+ community, may not extend to 

all countries outside of the United 

States. Further, Nasdaq believes that it 

is challenging to apply a consistent 

definition of minorities to all countries 

globally because ‘‘[t]here is no 

internationally agreed definition as to 

which groups constitute minorities.’’ 301

Similarly, ‘‘there is no universally 

accepted international definition of 

indigenous peoples.’’ 302 Rather, the 

United Nations Declaration on the 

Rights of Indigenous Peoples recognizes 

‘‘that the situation of indigenous 

peoples varies from region to region and 

from country to country and that the 

significance of national and regional 

particularities and various historical 

and cultural backgrounds should be 

taken into consideration.’’ 303

Accordingly, Nasdaq believes that it is 

not unfairly discriminatory to allow an 

alternative mechanism for Foreign 

Issuers to satisfy Rule 5605(f)(2) in 

recognition that the U.S.-based EEOC 

definition of Underrepresented 

Minorities is not appropriate for every 

Foreign Issuer. In addition, Foreign 

Issuers have the ability to satisfy Rule 

5605(f)(2)(B) by explaining that they do 

not satisfy this alternative definition. 

Similarly, any company that is not a 

Foreign Issuer, but that prefers the 

alternative definition available for 

Foreign Issuers, could follow Rule 

5605(f)(2)(B) and disclose its reasons for 

doing so. 

Under the proposal, Foreign Issuer 

means (a) a Foreign Private Issuer (as 

defined in Rule 5005(a)(19)) or (b) a 

company that (i) is considered a 

‘‘foreign issuer’’ under Rule 3b–4(b) 

under the Act, and (ii) has its principal 

executive offices located outside of the 

United States. For example, a company 

that is considered a ‘‘foreign issuer’’ 

under Rule 3b–4(b) under the Act and 

has its principal executive offices 

located in Ireland would qualify as a 

Foreign Issuer for purposes of Rule 

5605(f)(2), even if it is not considered a 

Foreign Private Issuer under Nasdaq or 

SEC rules. 

Nasdaq recognizes that Foreign 

Issuers may be located in jurisdictions 

that impose privacy laws limiting or 

prohibiting self-identification 

questionnaires, particularly as they 

relate to race or ethnicity. In such 

countries, a company may not be able to 

determine each director’s self-identified 

Diverse attributes due to restrictions on 

the collection of personal information. 

The company may instead publicly 

disclose pursuant to Rule 5605(f)(3) that 

‘‘Due to privacy laws in the company’s 

home country jurisdiction limiting its 

ability to collect information regarding a 

director’s self-identified Diverse 

attributes, the company is not able to 

determine that it has two Diverse 

directors as set forth under Rule 

5605(f)(2)(B)(ii).’’ 

ii. Rule 5605(f)(2)(C): Smaller Reporting 

Companies 

While the proposal provides a 

different requirement for the second 

Diverse director for Smaller Reporting 

Companies, Nasdaq believes that this 

distinction is not designed to permit 

unfair discrimination among companies. 

Nasdaq has designed the proposed rule 

to ensure it does not have a 

disproportionate economic impact on 

Smaller Reporting Companies by 

imposing undue costs or burdens. 

Nasdaq recognizes that Smaller 

Reporting Companies, especially prerevenue companies that depend on the 

capital markets to fund ground-breaking 

research and technological 

advancements, may not have the 

resources to compensate an additional 

director or engage a search firm to find 

director candidates outside of the 

directors’ traditional networks. Nasdaq 

believes that this is a reasonable basis to 

distinguish Smaller Reporting 

Companies from other companies 

subject to the rule. 

Smaller Reporting Companies already 

are provided certain exemptions from 

Nasdaq’s listing rules. For example, 

under Rule 5605(d)(3), Smaller 

Reporting Companies must have a 

compensation committee comprised of 

at least two independent directors and 

a formal written compensation 

committee charter or board resolution 

that specifies the committee’s 

responsibilities and authority, but such 

companies are not required to grant 

authority to the committee to retain or 

compensate consultants or advisors or 

consider certain independence factors 

before selecting such advisors, 

consistent with Rule 10C–1 of the 

Act.304 In its approval order, the SEC 

concluded as follows: 

The Commission believes that these 

provisions are consistent with the Act and do 

not unfairly discriminate between issuers. 

The Commission believes that, for similar 

reasons to those for which Smaller Reporting 

Companies are exempted from the Rule 10C– 

1 requirements, it makes sense for Nasdaq to 

provide some flexibility to Smaller Reporting 

Companies regarding whether the 

compensation committee’s responsibilities 

should be set forth in a formal charter or 

through board resolution. Further . . . in 

view of the potential additional costs of an 

annual review, it is reasonable not to require 

a Smaller Reporting Company to conduct an 

annual assessment of its charter or board 

resolution.305

The Commission also makes 

accommodations for Smaller Reporting 

Companies based on their more limited 

resources, allowing them to comply 

with scaled disclosure requirements in 

certain SEC reports rather than the more 

rigorous disclosure requirements for 

larger companies. For example, Smaller 

Reporting Companies are not required to 

include a compensation discussion and 

analysis in their proxy or Form 10–K 

describing the material elements of the 

compensation of its named executive 

officers.306 Eligible Smaller Reporting 

Companies also are relieved from the 

SOX 404(b) requirement to obtain an 

independent auditor’s attestation of 

management’s assessment of the 

effectiveness of internal control over 


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307See Accelerated Filer and Large Accelerated 

Filer Definitions, 85 FR 17,178 (March 26, 2020). 

308See 17 CFR 229.407(d)(5). 

309 Id. § 229.406(a). 

310 Id. § 229.402. 

311See Nasdaq Rulebook, Rule 5250(b)(3)(A). 

312 Id., Rule 5615(a)(3)(B) and IM–5615–3. 

313 Id., Rules 5605(d)(2)(B) (non-independent 

compensation committee member under 

exceptional and limited circumstances) and 

5605(e)(3) (non-independent nominations 

committee member under exceptional and limited 

circumstances). 

314See Commission Guidance on the Use of 

Company websites, 73 FR 45,862, 45,864 (Aug. 7, 

2008). 

315 Id. at 45,867. 

financial reporting.307 In each case, 

companies may choose to comply with 

the more rigorous requirements in lieu 

of relying on the exemptions. 

Any company that is not a Smaller 

Reporting Company, but prefers the 

alternative rule available for Smaller 

Reporting Companies, could follow Rule 

5605(f)(2)(C) and disclose their reasons 

for doing so. As such, Nasdaq believes 

that the proposed alternative rule for 

Smaller Reporting Companies is not 

designed to, and does not, unfairly 

discriminate among companies. Lastly, 

Nasdaq believes that Rule 5605(f)(2)(C) 

is not designed to permit unfair 

discrimination among companies 

because it requires Smaller Reporting 

Companies to have at least one director 

who self-identifies as Female, similar to 

other companies subject to Rule 5065(f). 

iii. Rule 5605(f)(3): Public Disclosure of 

Non-Diverse Board 

Under proposed Rule 5605(f)(3), if a 

company determines not to meet the 

diversity objectives of Rule 5605(f) in its 

entirety, it must specify the applicable 

requirements of the Rule and explain its 

reasons for not having at least two 

Diverse directors. Nasdaq designed the 

proposal to avoid unduly burdening 

competition or efficiency, or conflicting 

with existing securities laws, by 

providing all companies subject to Rule 

5605(f) with the option to make the 

public disclosure required under Rule 

5605(f)(3) in the company’s proxy 

statement or information statement for 

its annual meeting of shareholders or, 

alternatively on the company’s website, 

provided that the company submits a 

URL link to such disclosure to Nasdaq 

through the Listing Center no later than 

15 calendar days after the company’s 

annual shareholder meeting. Nasdaq 

believes Rule 5605(f)(3) is not designed 

to permit unfair discrimination among 

companies because the proposed rule 

provides all companies subject to Rule 

5605(f) the option to disclose an 

explanation rather than meet the 

diversity objectives of Rule 5605(f)(2). 

Certain federal securities laws 

similarly permit companies to satisfy 

corporate governance requirements 

through disclosure of reasons for not 

meeting the applicable requirement. For 

example, under Regulation S–K, Item 

407 requires a company to disclose 

whether or not its board of directors has 

determined that the company has at 

least one audit committee financial 

expert. If a company does not have a 

financial expert on the audit committee, 

it must provide an explanation.308 Item 

406 requires a company to disclose 

whether it has adopted a written code 

of ethics that applies to the chief 

executive officer and senior financial or 

accounting officers. If a company has 

not adopted such a code of ethics, it 

must disclose the reasons why not.309

Item 402 regarding pay ratio disclosure 

defines how total compensation for 

employees should be calculated, but 

permits companies to use a different 

measure as long as they explain their 

approach.310

Furthermore, Nasdaq rules and SEC 

guidance already recognize that website 

disclosure can be a method of 

disseminating information to the public. 

For example, Nasdaq listing rules 

permit companies to provide website 

disclosures related to third party 

director compensation,311 foreign 

private issuer home country 

practices,312 and reliance on the 

exception relating to independent 

compensation committee members.313

The SEC has recognized that ‘‘[a] 

company’s website is an obvious place 

for investors to find information about 

the company’’ 314 and permits 

companies to make public disclosure of 

material information through website 

disclosures if, among other things, the 

company’s website is ‘‘a recognized 

channel of distribution of 

information.’’ 315

iv. Rule 5605(f)(4): Exempt Companies 

Under proposed Rule 5605(f)(4), 

Nasdaq proposes to exempt the 

following types of companies from the 

requirements of Rule 5605(f) (defined as 

‘‘Exempt Companies’’): acquisition 

companies listed under IM–5101–2; 

asset-backed issuers and other passive 

issuers (as set forth in Rule 5615(a)(1)); 

cooperatives (as set forth in Rule 

5615(a)(2)); limited partnerships (as set 

forth in Rule 5615(a)(4)); management 

investment companies (as set forth in 

Rule 5615(a)(5)); issuers of non-voting 

preferred securities, debt securities and 

Derivative Securities (as set forth in 

Rule 5615(a)(6)); and issuers of 

securities listed under the Rule 5700 

Series. Each of the types of Exempt 

Companies either has no board of 

directors, lists only securities with no 

voting rights towards the election of 

directors, or is not an operating 

company, and the holders of the 

securities they issue do not expect to 

have a say in the composition of their 

boards. As such, Nasdaq believes the 

proposal is not designed to permit 

unfair discrimination by excluding 

Exempt Companies from the application 

of proposed Rule 5605(f). These 

companies already are exempt from 

certain of Nasdaq’s corporate 

governance standards related to board 

composition, as described in Rule 5615. 

v. Rule 5605(f)(5): Phase-in Period 

Proposed Rule 5605(f)(5)(A) will 

allow any newly listing company that 

was not previously subject to a 

substantially similar requirement of 

another national securities exchange 

one year from the date of listing to 

satisfy the requirements of Rule 5605(f). 

Proposed Rule 5605(f)(5)(B) also will 

allow any company that ceases to be a 

Foreign Issuer, a Smaller Reporting 

Company or an Exempt Company one 

year from the date that the company no 

longer qualifies as a Foreign Issuer, a 

Smaller Reporting Company or an 

Exempt Company, respectively, to 

satisfy the requirements of Rule 5605(f). 

This phase-in period will apply after the 

end of the transition period provided in 

Rule 5605(f)(7). 

Nasdaq believes this approach is not 

designed to permit unfair 

discrimination because it provides all 

companies that become newly subject to 

the rule the same time period within 

which to comply. In addition, this 

approach is similar to other phase-in 

periods granted to companies listing on 

or transferring to Nasdaq. For example, 

Rule 5615(b)(1) provides a company 

listing in connection with its initial 

public offering one year to fully comply 

with the compensation and nomination 

committee requirements of Rules 

5605(d) and (e), and the majority 

independent board requirement of Rule 

5605(b). Similarly, SEC Rule 10A– 

3(b)(1)(iv)(A) allows a company up to 

one year from the date its registration 

statement is effective to fully comply 

with the applicable audit committee 

composition requirements. Nasdaq Rule 

5615(b)(3) provides a one-year 

timeframe for compliance with the 

board composition requirements for 

companies transferring from other listed 

markets that do not have a substantially 

similar requirement. 


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316The ‘‘Approval Date’’ is the date that the SEC 

approves the proposed rule. 

317See 15 U.S.C. 78f(b)(5). 

318See Order Approving Proposed Rule Changes, 

68 FR at 64,161. 

319See Heath v. SEC, 586 F.3d 122, 132 (2d Cir. 

2009) (citing Avery v. Moffat, 55 N.Y.S.2d 215, 228 

(Sup. Ct. 1945)). 

320See, e.g., 8 Del. Code § 216 (providing that a 

quorum at a shareholder’s meeting shall consist of 

no less than 1⁄3 of the shares entitled to vote at such 

meeting). 

321See, e.g., id. §§ 251, 271 (providing that 

shareholder approval by a majority of the 

outstanding voting shares entitled to vote is 

required for mergers and the sale of all or 

substantially all of a corporation’s assets). 

322See, e.g., Nasdaq Rulebook, Rules 5620(c) and 

5635(a). 

323 Id., Rule 5101. 

324Final Interagency Policy Statement 

Establishing Joint Standards for Assessing the 

Diversity Policies and Practices of Entities 

Regulated by the Agencies, 80 FR 33,016 (June 10, 

2015). 

325See Long-Term Stock Exchange Rule Book, 

Rule 14.425. 

vi. Rule 5605(f)(7): Effective Dates/ 

Transition 

Under proposed Rule 5605(f)(7), each 

company must have, or explain why it 

does not have, one Diverse director no 

later than two calendar years after the 

Approval Date,316 and two Diverse 

directors no later than (i) four calendar 

years after the Approval Date for 

companies listed on the NGS or NGM 

tiers, or (ii) five calendar years after the 

Approval Date for companies listed on 

the NCM tier. 

Nasdaq believes this approach is not 

designed to permit unfair 

discrimination because it recognizes 

that companies listed on the Nasdaq 

Capital Market may not have the 

resources necessary to compensate an 

additional director or engage a search 

firm to search for director candidates 

outside of the directors’ traditional 

networks. Therefore, Nasdaq believes it 

is in the public interest to provide such 

companies with one additional year to 

meet the diversity objectives of Rule 

5605(f), should they choose to do so. 

Nasdaq notes that all companies may 

choose to follow a timeframe applicable 

to a different market tier, provided they 

publicly describe their explanation for 

doing so. They also may construct their 

own timeframe for meeting the diversity 

objectives of Rule 5605(f), provided they 

publicly disclose their reasons for not 

abiding by Nasdaq’s timeframe. 

e. Not Designed to Regulate by Virtue of 

any Authority Conferred by the Act 

Matters Not Related to the Purposes of 

the Act or the Administration of the 

Exchange 

Nasdaq believes that the proposal is 

not designed to regulate by virtue of any 

authority conferred by the Act matters 

not related to the purposes of the Act or 

the administration of the Exchange.317

The proposal relates to the Exchange’s 

corporate governance standards for 

listed companies. As discussed above, 

‘‘[t]he Commission has long encouraged 

exchanges to adopt and strengthen their 

corporate governance listing standards 

in order to, among other things, enhance 

investor confidence in the securities 

markets.’’ 318 And because ‘‘it is not 

always feasible to define . . . every 

practice which is inconsistent with the 

public interest or with the protection of 

investors,’’ the Act leaves to SROs ‘‘the 

necessary work’’ of rulemaking pursuant 

to Section 6(b)(5).319

Nasdaq recognizes that U.S. states are 

increasingly proposing and adopting 

board diversity requirements, and 

because corporations are creatures of 

state law, some market participants may 

believe that such regulation is best left 

to states. However, Nasdaq considered 

that certain of its listing rules related to 

corporate governance currently relate to 

areas that are also regulated by states. 

For example, states impose standards 

related to quorums 320 and shareholder 

approval of certain transactions,321

which also are regulated under Nasdaq’s 

listing rules.322 Nasdaq has adopted 

rules relating to such matters to ensure 

uniformity of such rules among its listed 

companies. Similarly, Nasdaq believes 

that the proposed rule will create 

uniformity among listed companies by 

helping to assure investors that all nonexempt companies have at least two 

Diverse directors on their board or 

publicly describe why they do not. 

Further, Nasdaq believes the proposal 

will enhance investor confidence that 

listed companies that have two Diverse 

directors are considering the 

perspectives of more than one 

demographic group, leading to robust 

dialogue and better decision making, as 

well as the other corporate governance 

benefits of diverse boards discussed 

above in Section II.A.1.II. To the extent 

companies choose to disclose their 

reasons for not meeting the diversity 

objectives of Rule 5605(f)(2) pursuant to 

Rule 5605(f)(3), Nasdaq believes that 

such disclosure will improve the quality 

of information available to investors 

who rely on this information to make an 

informed voting decision, thereby 

promoting capital formation and 

efficiency. It has been the Exchange’s 

longstanding principle that ‘‘Nasdaq 

stands for integrity and ethical business 

practices in order to enhance investor 

confidence, thereby contributing to the 

financial health of the economy and 

supporting the capital formation 

process.’’ 323

In addition, as discussed in Section 

II.A.1.I, in passing Section 342 of the 

Dodd-Frank Act, Congress recognized 

the need to respond to the lack of 

diversity in the financial services 

industry, and the Standards designed by 

the Commission and other financial 

regulators provide a framework for 

addressing that industry challenge. The 

Standards themselves identify several 

focus areas, including the importance of 

‘‘Organizational Commitment,’’ which 

speaks to the critical role of senior 

leadership—including boards of 

directors—in promoting diversity and 

inclusion across an organization. In 

addition, like the proposed rule, the 

Standards also consider ‘‘Practice to 

Promote Transparency,’’ and recognize 

that transparency is a key component of 

any diversity initiative. Specifically, the 

Standards provide that the 

‘‘transparency of an entity’s diversity 

and inclusion program promotes the 

objectives of Section 342,’’ and also is 

important because it provides the public 

with necessary information to assess an 

entity’s diversity policies and 

practices.324

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. Nasdaq reviewed 

requirements related to board diversity 

in two dozen foreign jurisdictions, and 

almost every jurisdiction imposes 

diversity-focused requirements on listed 

companies, either through a securities 

exchange, financial regulator or the 

government. Nasdaq competes for 

listings globally, including in countries 

that have implemented a more robust 

regulatory reporting framework for 

diversity and ESG disclosures. Currently 

in the U.S., the Long Term Stock 

Exchange (‘‘LTSE’’), which includes a 

number of sponsors which have 

investment businesses, has 

communicated to institutional investors 

that it that it seeks to distinguish itself 

by focusing on corporate governance, 

including, for example, diversity and 

inclusion. Under Rule 14.425, 

companies listed on LTSE must adopt 

and publish a long-term stakeholder 

policy that explains, among other 

things, ‘‘the Company’s approach to 

diversity and inclusion.’’ 325


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326See Hunt et al., supra note 26. 

327See Petition for Rulemaking, supra note 123, 

at 2. 

328Total annual director compensation varies by 

compensation elements and structure as well as 

amount, which is generally based on the size, 

sector, maturity of the company, and company 

specific situation. See Mark Emanuel et al., Semler 

Brossy and the Conference Board, Director 

Compensation Practices in the Russell 3000 and 

S&P 500 (2020 ed.), available at https://

conferenceboard.esgauge.org/ 

directorcompensation/report. 

I. Board Statistical Disclosure 

The Exchange does not believe that 

proposed Rule 5606 will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. Specifically, the 

Exchange believes that the adoption of 

Rule 5606 will not impose any undue 

burden on competition among listed 

companies for the reasons set forth 

below. 

With a few exceptions, all companies 

would be required to make the same 

disclosure of their board-level statistical 

information. The average board size of 

a company that is currently listed on the 

Exchange is eight directors. Although a 

company would be required to disclose 

its board-level statistical data, directors 

may choose to opt out rather than reveal 

their diversity characteristics to their 

company. A company would identify 

such directors in the ‘‘Undisclosed’’ 

category. For directors who voluntarily 

disclose their diversity characteristics, 

the company would collect their 

responses and disclose the information 

in either the company’s proxy 

statement, information statement of 

shareholder meeting or on the 

company’s website, using Nasdaq’s 

required format. While the time and 

economic burden may vary based on a 

company’s board size, Nasdaq does not 

believe there is any significant burden 

associated with gathering, preparing and 

reporting this data. Therefore, Nasdaq 

believes that there will be a de minimis 

time and economic burden on listed 

companies to collect and disclose the 

diversity statistical data. 

Some investors value demographic 

diversity, and list it as an important 

factor influencing their director voting 

decisions.326 Investors have stated that 

consistent data would make its 

collection and analysis easier and more 

equitable for investors that are not large 

enough to demand or otherwise access 

individualized disclosures.327

Therefore, Nasdaq believes that any 

burden placed on companies to gather 

and disclose their board-level diversity 

statistics is counterbalanced by the 

benefits that the information will 

provide to a company’s investors. 

Moreover, as discussed above, most 

listed companies are required to submit 

an annual EEO–1 Report, which 

provides statistical data related to race 

and gender data among employees 

similar to the data required under 

proposed Rule 5606(a). Because most 

companies are already collecting similar 

information annually to satisfy their 

EEOC requirement, Nasdaq does not 

believe that adding directors to the 

collection will place a significant 

burden on these companies. 

Additionally, the information requested 

from Foreign Issuers is limited in scope 

and therefore does not impose a 

significant burden on them. 

Nasdaq faces competition in the 

market for listing services. Proposed 

Rule 5606 reflects that competition, but 

it does not impose any burden on 

competition with other exchanges. As 

discussed above, investors have made 

clear their desire for greater 

transparency into public companies’ 

board-level diversity as it relates to 

gender identity, race, and ethnicity. 

Nasdaq believes that the proposed rule 

will enhance the competition for 

listings. Other exchanges can set similar 

requirements for their listed companies, 

thereby increasing competition to the 

benefit of those companies and their 

shareholders. Accordingly, Nasdaq does 

not believe the proposed rule change 

will impose any burden on competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act. 

II. Diverse Board Representation or 

Explanation 

Nasdaq believes that proposed Rule 

5605(f) will not impose burdens on 

competition among listed companies 

because the Exchange has constructed a 

framework for similarly-situated 

companies to satisfy similar 

requirements (i.e., Foreign Issuers, 

Smaller Reporting Companies and other 

companies), and has provided all 

companies with the choice of satisfying 

the requirements of Rule 5605(f)(2) by 

having at least two Diverse directors, or 

by explaining why they do not. Nasdaq 

believes that this will avoid imposing 

undue costs or burdens on companies 

that, for example, cannot afford to 

compensate an additional director or 

believe it is not appropriate, feasible or 

desirable to meet the diversity 

objectives of Rule 5605(f) based on the 

company’s particular circumstances (for 

example, the company’s size, operations 

or current board composition). Rather 

than requiring a company to divert 

resources to compensate an additional 

director, and place the company at a 

competitive disadvantage with its peers, 

the rule provides the flexibility for such 

company to explain why it does not 

meet the diversity objective. 

The cost of identifying director 

candidates can range from nothing or a 

nominal fee (via personal, work or 

school-related networks, or board 

affinity organizations, as well as internal 

research by the corporate secretary’s 

team) to amounts that can vary widely 

depending on the specific search firm 

and the size of the company. Some 

industry observers estimate board 

searches for independent directors cost 

about one-third of a director’s annual 

compensation, while others estimate it 

costs between $75,000 and $150,000. 

The underlying figures vary; for 

example, one search firm generally 

charges $25,000 to $50,000. Nasdaq 

observes that total annual director 

compensation can range widely; median 

director pay is estimated at $134,000 for 

Russell 3000 companies and $232,000 

for S&P 500 companies. Moreover, there 

is a wider range of underlying 

compensation amounts. For example, 

Russell 3000 directors may receive 

approximately $32,600 (10th 

percentile), or up to $250,000 (90th 

percentile) or more. S&P 500 directors 

may receive approximately $100,000 

(10th percentile) or up to $310,000 (90th 

percentile) or more.328 Most, if not all, 

of these costs would be borne in any 

event in the search for new directors 

regardless of the proposed rule. While 

the proposed rule might lead some 

companies to search for director 

candidates outside of already 

established networks, the incremental 

costs of doing so would be tied directly 

to the benefit of a broader search. 

To reduce costs for companies that do 

not currently meet the diversity 

objectives of Rule 5605(f)(2), Nasdaq is 

proposing to provide listed companies 

that have not yet met their diversity 

objectives with free access to a network 

of board-ready diverse candidates and a 

tool to support board evaluation, 

benchmarking and refreshment. This 

offering is designed to ease the search 

for diverse nominees and reduce the 

costs on companies that choose to meet 

the diversity objectives of Rule 

5605(f)(2). Nasdaq is 

contemporaneously submitting a rule 

filing to the Commission regarding the 

provision of such services. Nasdaq also 

plans to publish FAQs on its Listing 

Center to provide guidance to 

companies on the application of the 

proposed rules, and to establish a 

dedicated mailbox for companies and 

their counsel to email additional 

questions to Nasdaq regarding the 

application of the proposed rule. 

Nasdaq believes that these services will 


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329See Long-Term Stock Exchange Rule Book, 

Rule 14.425. 330 17 CFR 200.30–3(a)(12). 

help to ease the compliance burden on 

companies whether they choose to meet 

the listing rule’s diversity objectives or 

provide an explanation for not doing so. 

Nasdaq also has structured the 

proposed rule to provide companies 

with at least four years from the 

Approval Date to satisfy Rule 5605(f)(2) 

so that companies do not incur 

immediate costs striving to meet the 

diversity objectives of Rule 5605(f)(2). 

Nasdaq also has reduced the compliance 

burden on Smaller Reporting 

Companies and Foreign Issuers by 

providing them with additional 

flexibility when satisfying the 

requirement related to the second 

Diverse director. Smaller Reporting 

Companies could satisfy the proposed 

diversity objective to have two Diverse 

directors under Rule 5605(f)(2)(C) with 

two Female directors. Like other 

companies, Smaller Reporting 

Companies also could satisfy the second 

director objective by including an 

individual who self-identifies as an 

Underrepresented Minority or a member 

of the LGBTQ+ community. Foreign 

Issuers could satisfy the second director 

objective by including another Female 

director, or an individual who selfidentifies as LGBTQ+ or an 

underrepresented individual based on 

national, racial, ethnic, indigenous, 

cultural, religious or linguistic identity 

in the company’s home country 

jurisdiction. Nasdaq has further reduced 

the compliance burdens on companies 

listed on the Nasdaq Capital Market tier 

by providing them with five years from 

the Approval Date to satisfy Rule 

5605(f)(2), recognizing that such 

companies may face additional 

challenges and resource constraints 

when identifying additional director 

nominees who self-identify as Diverse. 

For the foregoing reasons, Nasdaq 

does not believe that proposed Rule 

5605(f) will impose any burden on 

competition among issuers that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. Further, 

Nasdaq does not believe the proposed 

rule will impose any burden on 

competition among listing exchanges. 

As described above, Nasdaq competes 

with other exchanges globally for 

listings, including exchanges based in 

jurisdictions that have implemented 

disclosure requirements related to 

diversity. Within the United States, 

LTSE requires listed companies to adopt 

and publish a long-term stakeholder 

policy that explains, among other 

things, ‘‘the Company’s approach to 

diversity and inclusion.’’ 329 Other 

listing venues within the United States 

may propose to adopt rules similar to 

LTSE’s requirements or the Exchange’s 

proposal if they believe companies 

would prefer to list on an exchange with 

diversity-related listing standards. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2020–081 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2020–081. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2020–081, and 

should be submitted on or before 

January 4, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.330

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–27091 Filed 12–10–20; 8:45 am] 

BILLING CODE 8011–01–P 


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