Nasdaq Revises Rules Regarding Board Diversity

On December 1, 2020, Nasdaq decided to change its rules regarding the diversity of the boards of directors for Nasdaq-listed companies. In accordance with this rule change, companies listed on Nasdaq are now required to appoint at least two diverse directors or, if they cannot meet the requirement, explain the reason for not doing so in their proxy statement, website, or other public disclosures.

An individual recognized as “diverse” is defined as someone who identifies as female, an underrepresented minority, or LGBTQ+. Companies are required to appoint at least one director who identifies as female and at least one additional director who identifies as an underrepresented minority or LGBTQ+.

Although Foreign Private Issuers (FPIs) listed on Nasdaq are permitted to design their governance structures (such as the board of directors) based on their home country laws (e.g., the Companies Act in Japan), this new rule requires them, similar to U.S. companies and regardless of home country requirements, to either appoint diverse directors or disclose the reasons for not doing so.

However, acknowledging that social backgrounds and racial compositions vary by country, the rule provides an accommodation for FPIs. While the requirement to appoint at least one female director remains unchanged, the second diverse director requirement can be satisfied by appointing a second female director in lieu of an underrepresented minority or LGBTQ+ individual. Furthermore, “underrepresented minority” is defined based on the home country’s specific context, referring to individuals recognized as minorities in that location based on nationality, race, ethnicity, indigenous status, culture, religion, language, or other similar factors.

Additionally, the following disclosure format for board diversity has been provided.