Further to last week's report: "Nasdaq Proposes Board Diversity Listing Requirements," Dorsey wisely counsels companies to read Nasdaq's FAQs, which address a number of potential practical compliance concerns.
Among the noteworthy Qs and As:
Q: What happens if a company can't find Diverse directors by the applicable deadline set forth in the proposed board diversity rule?
A: If a company has not been able to add two Diverse directors by the applicable deadlines, the company can comply with the proposed board diversity rule by explaining why it does not have two Diverse directors, following the specific disclosure instructions set forth in proposed Rule 5605(f)(3).
Q: What if we have Diverse board members who don't want to be counted as Diverse (e.g., an LGBTQ+ community member who is not "out")? Would we have to add additional Diverse board members to comply with the proposed board diversity and disclosure rules?
A: Directors may choose to opt out rather than reveal their Diversity characteristics to the company. In that case, the company would identify these directors in the “undisclosed” category in the board diversity disclosure matrix. If a company has directors who do not wish to be identified or counted as Diverse, the company could explain that in order to satisfy the diversity requirement in the proposed board diversity and disclosure rules, or the company could add additional Diverse directors who consent to the disclosure of their Diversity characteristics.
Q: What reasons does Nasdaq deem acceptable when explaining why a company does not have the minimum number of Diverse board members under the proposed board diversity and disclosure rules?
A: Nasdaq will not assess the substance of the company’s explanation, but will verify that the company has provided one. Nasdaq believes these disclosures will provide stakeholders with a better understanding of the company’s current board composition and its philosophy regarding diversity.
Examples of disclosures provided in response to this question include:
- 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 meeting and have engaged a search firm to identify qualified Diverse candidates. However, due to unforeseen circumstances, we may not achieve this goal.”
- 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.
Dorsey notes that the timing for SEC approval could be as soon as the first half of 2021; however, a lot depends on the SEC approval period. As noted above, comments will be due 21 days after publication of the proposal in the Federal Register.
See our related post in this week's Alert on D&O questionnaire diversity questions, and additional information & resources on our Board Diversity page. This post first appeared in the weekly Society Alert!