In August 2021, the U.S. Securities and Exchange Commission (SEC) approved new board diversity listing standards for companies listed on The Nasdaq Stock Market LLC (Nasdaq). As part of these new listing standards, Nasdaq Rule 5606 now requires listed companies to annually disclose aggregated statistical information about the board’s self-identified gender and racial characteristics and LGBTQ+ status in a standardized board diversity matrix (Board Diversity Matrix).
Under the first phase of these new listing standards, companies were required to include the Board Diversity Matrix in their proxy statement or on their website for the first time in 2022. Under Nasdaq Rule 5606(a), after the first year of disclosure, “all companies must disclose the current year and immediately prior year diversity statistics using the Board Diversity Matrix.”
Nasdaq later published FAQ 1753 clarifying that “if the immediately prior year data is publicly disclosed elsewhere (i.e., a proxy statement, information statement or company website), then the company can choose to disclose the current year data only.” Accordingly, so long as the prior year statistics are still publicly available, a company can continue disclosing only the current year statistics in its Board Diversity Matrix.
However, it’s important to note that if a company complied with Rule 5606 by posting its Board Diversity Matrix on its website (instead of in a proxy statement or information statement), it must maintain the prior year statistics on its website, or otherwise publish it alongside the current year statistics in its next proxy statement.
Companies should consider whether there are any advantages to disclosing two years of board diversity statistics. For example, companies may want to show an improvement in board diversity year to year, or companies may have investors who prefer seeing the two years of diversity statistics in the same location. However, absent a company-specific reason, there is no requirement to show the current and prior year statistics together so long as the company complies with FAQ 1753.
Early filers opting to disclose or otherwise reference their prior year diversity statistics in their proxy statements filed in 2023 have been utilizing a few approaches, including disclosing the prior year and the current year Board Diversity Matrix, disclosing the prior year and the current year board diversity statistics in a single Board Diversity Matrix, or disclosing textual references to the prior year’s Board Diversity Matrix (see, e.g., here at p. 28, here at p. 20, and here at p. 8).
In addition to board diversity, some investors have also begun to focus on diversity statistics for executive officers. Companies may want to consider disclosing executive officer diversity statistics in their proxy statements as well. However, companies should consult with their legal counsel regarding inquiries and disclosures about employee diversity, including executive officers.
As diversity disclosure rules and guidance continue to evolve, companies should monitor any updates from the SEC, stock exchanges, states, institutional investors, and proxy advisors, such as Institutional Shareholder Services (ISS) and Glass Lewis & Co. (Glass Lewis). For further information on diversity updates, please refer to our previous client alert on the 2023 proxy season. In particular, for Glass Lewis and ISS updates, please refer to our previous client alert on proxy advisor voting guidelines.