Nasdaq Diversity Rules: A Quick Guide

September 01, 2021

According to the proposed Nasdaq board diversity and disclosure rules, listed companies must disclose board-level diversity data and will be required to have two diverse directors—or explain why they don’t meet this requirement.

The US Securities and Exchange Commission (SEC) issued an order on August 6 approving NASDAQ Stock Market LLC’s (Nasdaq’s) proposed board diversity and disclosure rules (Nasdaq Diversity Rules), which were submitted to the SEC for consideration on December 1, 2020. The Nasdaq Diversity Rules have two parts. First, a Nasdaq-listed companies must disclose, in the aggregate, board-level diversity data, such as gender, ethnicity, and LGBTQ+ status, using a specific matrix developed under the rules (Diversity Disclosure Rules). Second, a Nasdaq-listed company will be required to either have at least two directors who are diverse, or explain why it does not meet such requirements (Minimum Diversity Rules).

The Nasdaq Diversity Rules will become effective as early as August 2022, subject to certain exemptions and exceptions, as discussed in more detail below. Depending on a company’s listing tiers on Nasdaq, the effective dates for complying with the Minimum Diversity Rules will vary, but may be as early as August 2023.

Diversity Disclosure Rules

The Nasdaq Diversity Rules require listed companies to disclose, annually, their board-level diversity data in a matrix format provided by the rules. Companies are required to disclose the board diversity data in the annual meeting proxy statement or information statement (or Form 10-K or Form 20-F if the company does not file a proxy statement or information statement) by the later of (1) August 8, 2022, or (2) the date the company files its proxy or information statement (or Form 10-K or Form 20-F, as applicable) for its annual meeting of shareholders during the 2022 calendar year.

Companies may publish the same information on their website but must provide Nasdaq with a link to the diversity disclosures. In addition, a company is required to disclose diversity data for the current year in the company’s first filing containing such disclosures. Thereafter, the company will be required to publish diversity data for the current year and the prior year.

Required Disclosure Matrix

Companies are required to follow this disclosure matrix to comply with the Diversity Disclosure Rules:

Board Diversity Matrix (As of [DATE])

Total Number of Directors





Part I: Gender Identity





Part II: Demographic Background

African American or Black




Alaskan Native or Native American








Hispanic or Latinx








Two or More Races or Ethnicities










Did Not Disclose Demographic Background



The rules require disclosure of only self-identified diversity data, and companies are not required to verify or confirm the information provided by directors through such self-identification process. The rules provide a definition for each category of demographic backgrounds, and Nasdaq indicates that such definitions of racial and ethnicity categories are those used under Equal Employment Opportunity Commission (EEOC) regulations.

Nasdaq-listed companies that are foreign private issuers or issuers with principal executive offices outside the United States (foreign issuers) may elect to use an alternative Nasdaq board diversity matrix. Under this matrix, the company may show the number of directors who self-identify as an “Underrepresented Individual in Home Country Jurisdiction” instead of using the race and ethnicity categories for US issuers. If a foreign issuer is prohibited by its home country rules to collect or disclose such diversity information, then it is not required to disclose the data but instead may indicate in the alternative matrix that disclosure is prohibited and will not be provided.

Minimum Diversity Rules

The Minimum Diversity Rules require Nasdaq-listed companies to, following a phase-in period described below, either have, or explain why they do not have, at least two members of the board of directors who are diverse. For purposes of complying with such rules, a diverse director means an individual who self-identifies as female, an underrepresented minority, or LGBTQ+. An underrepresented minority means any individual who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaskan Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities. LGBTQ+ means any individual who self-identifies as any of the following: lesbian, gay, bisexual, transgender, or a member of the queer community.

The rules provide for a phase-in period based on a company’s listing tier before it is first required to comply with the minimum diversity requirements or explain the reasons for not doing so, as follows:

  • Nasdaq Global Select Market and Nasdaq Global Market: Companies must have at least (1) one diverse director by the later of August 7, 2023, or the date on which the company files its annual proxy statement in 2023 (or explain why the company does not have one such director) and (2) two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+, by August 6, 2025, or the date on which the company files its annual proxy statement in 2025 (or explain why the company does not have two such directors).
  • Nasdaq Capital Market: Companies must have at least (1) one diverse director by the later of August 7, 2023, or the date on which the company files its annual proxy statement in 2023 (or explain why the company does not have one such director) and (2) two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+, by the later of August 6, 2026, and the date on which the company files its annual proxy statement in 2026 (or explain why the company does not have two such directors).

If a company does not meet the diversity standards established by the rules, electing instead to provide an explanation as to why it does not meet the applicable diversity objectives, Nasdaq will not evaluate the substance or merits of the company’s explanation. However, it is not sufficient to simply state that the company does not comply with the diversity requirements. During the rulemaking process, Nasdaq submitted a letter to the SEC that included a few examples of what may be deemed acceptable explanations, including a statement from the board that they do not believe it is feasible to achieve the diversity objectives given the company’s circumstances.

Foreign Issuers

Foreign issuers may satisfy the Minimum Diversity Rules by having at least two directors who self-identify as female, or by including at least one director who self-identifies as female and one who self-identifies as LGBTQ+ or as an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious, or linguistic identity in the home country jurisdictions.

Small Reporting Companies and Companies with Smaller Boards

Smaller reporting companies and companies with small boards of directors are provided with more flexibility to comply with the Minimum Diversity Rules. A smaller reporting company may satisfy such rules by having at least two directors who self-identify as female instead of having one director who self-identifies as female and one who self-identifies as LGBTQ+ or an underrepresented minority. Companies with a board of directors of five or fewer members may satisfy the rules by having least one diverse director who self-identifies as female, LGBTQ+, or an underrepresented minority.

Cure Period

If a Nasdaq-listed company fails to meet the objectives of the Minimum Diversity Rules within the required timeframe, or fails to provide an explanation as to why it does not meet the diversity objectives, then the Nasdaq Exchange Listing Qualifications Department will notify the company and inform it that it has until the later of (1) its next annual shareholders meeting or (2) 180 days from the event that caused the deficiency to cure the deficiency and either have a diverse board of directors or explain why it does not meet the diversity objectives. If not cured within the applicable time period, a Staff Delisting Determination Letter will be issued.

Grace Period

Where a company has initially satisfied the diversity objectives but ceases to meet the diversity objectives due to a vacancy on its board of directors, the company shall have the later of (1) one year from the date of vacancy or (2) the date the company files its proxy statement or its information statement in the calendar year following the year of the date of vacancy to satisfy the Nasdaq Minimum Diversity Rules.

Nasdaq Board Recruiting Service

Nasdaq is offering eligible companies complimentary access to a board recruiting solution, which will assist companies to identify and evaluate diverse board candidates. Until December 1, 2022, any eligible company that requests access to this service through the Nasdaq Listing Center will receive complementary access for one year from the initiation of the service. A company is eligible where it does not have at least one director who is female and at least one director who is a member of an underrepresented minority or identifies as LGBTQ+.

Eligible Nasdaq-listed companies can access more information on the free services through Equilar’s BoardEdge Platform and Equilar Diversity Network, Athena Alliance’s community of women leaders, and the Boardlist’s premium talent marketplace.

Implications and Practical Considerations

The Nasdaq Diversity Rules reflect a recent trend of regulatory agencies using the power of rulemaking to achieve diversity objectives at the highest echelon of corporate America. Certain states, such as California, have already enacted diversity legislation that requires a minimum number of female and minority directors on public company boards. Unlike state laws, however, the Nasdaq Diversity Rules are disclosure-based regulations that do not mandate a minimum number of diverse directors. Instead, the rules provide stakeholders with consistent, comparable disclosures concerning a company’s current board composition and encourage a minimum board diversity objective for companies. As this trend continues, we are expecting more regulatory authorities to consider and adopt similar rules, including the New York Stock Exchange, which often follows Nasdaq in various rulemaking proposals.

For the short term, most Nasdaq-listed companies will focus on compliance with the new board diversity matrix disclosures in proxy statements and Forms 10-K in time for the August 2022 deadline. Companies should start developing a disclosure control procedure to collect such personal information, which will likely coincide with the annual director and officer questionnaire process. Due to privacy concerns and the potential sensitivity in handling such information, companies should consider whether such data should be subjected to more stringent confidentiality requirements.

For those companies that need to recompose their boards of directors in order to comply with the Minimum Diversity Rules, they should establish a process and timeline by which new and qualified directors can be recruited and nominated for election. Typically, a company’s nominating and corporate governance committee should lead this effort pursuant to its charter provisions. Given the amount of time required to search for, identify, evaluate, and appoint new directors, the board should commence the process now in anticipation of the compliance deadline. The committee should also consider whether to retain a professional search firm to assist in identifying director candidates who meet the diversity criteria, or whether to take advantage of the Nasdaq Board Recruiting Service being offered if the company is eligible to do so.

Finally, companies should consider the following actions in connection with the appointment of a new director:

  • Review governing documents to determine the permissibility of increasing the size of the board to add more diverse directors or recomposing the board.
  • Determine what board or stockholder approval may be required and what public disclosures and filings, including Forms 8-K and proxy statements, should be prepared.
  • Analyze and assess the independence of new directors and ensure continuing compliance with applicable Nasdaq corporate governance requirements following the appointment.
  • Review and determine whether specific criteria should be developed to facilitate the director search process.
  • Develop director orientation and education programs to assist the onboarding process, particularly for new director candidates who may not have significant experience with services on public company boards.

Associate Christina Wlodarczyk contributed to this LawFlash.


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