The U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s approval of Nasdaq’s board diversity rules.[1] Consequently, Nasdaq-listed companies are no longer required to satisfy Nasdaq’s “comply or explain” director diversity standards or provide a diversity matrix in the format prescribed by Nasdaq on their website or in proxy statements. Nasdaq has confirmed it does not intend to seek further review of this decision.[2] While the SEC has not indicated if it will appeal, the upcoming change in administration and SEC commissioners makes a revival of the rules unlikely.
Despite the court’s decision, Nasdaq-listed companies should remain attentive to shareholder expectations and guidelines from proxy advisors and state regulators regarding board diversity and corresponding disclosures. Companies may also continue to provide director diversity disclosures on a voluntary basis.
Reminder of Proxy Advisor Guidelines
ISS Guidelines[3]
- Gender Diversity: ISS generally votes against or withholds support from the chair of the nominating committee if there are no women on the board. An exception applies if there was at least one woman on the board at the previous annual meeting and the board commits to restoring gender diversity within a year.
- Racial and Ethnic Diversity: For companies in the Russell 3000 or S&P 1500 indices, ISS votes against or withholds support from the chair of the nominating committee if the board lacks racial or ethnic diversity. An exception is made if the board previously had such diversity and commits to appointing a diverse member within a year. Aggregate diversity statistics are considered only if specific to racial and ethnic diversity.
Glass Lewis Guidelines[4]
- Board Gender Diversity: Glass Lewis generally recommends voting against the chair of the nominating committee if the board is not at least 30% gender diverse, or all members of the nominating committee of a board with no gender diverse directors, for companies in the Russell 3000 index. For companies outside this index, at least one gender-diverse director is required. They may refrain from recommending against directors if the board provides a rationale or plan to increase diversity.
- Board Underrepresented Community Diversity: Glass Lewis generally recommends voting against the chair of the nominating committee if the board lacks at least one director from an underrepresented community for companies in the Russell 1000 index. This includes individuals who self-identify as Black, African American, North African, Middle Eastern, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaskan Native, or who self-identifies as a member of the LGBTQIA+ community. They may refrain from recommending against directors if a plan to address diversity is provided.
- Disclosure of Director Diversity and Skills: Glass Lewis evaluates the quality of diversity disclosures in proxy statements. They assess the board’s racial/ethnic diversity percentage, diversity definitions, whether there are policies requiring women and minorities to be included in the initial pool of candidates when selecting new director nominees, and board skills disclosure. Lack of disclosure for companies in the Russell 1000 index may lead to recommendations against the chair of the nominating and/or governance committee.
Recommendations for Nasdaq-Listed Companies
Nasdaq-listed companies should reassess their board diversity disclosure practices and consider whether to keep, change, or remove diversity questions from their D&O questionnaires. Companies must also stay informed about state board diversity laws or resolutions, which may require or encourage disclosures about board diversity either publicly or in state filings. Although Nasdaq’s rule is gone, board diversity remains a key governance issue for proxy advisors and many investors. Engaging with shareholders to understand their views on diversity can help align disclosure practices with expectations.
While the Fifth Circuit’s decision eliminates specific board diversity disclosure requirements for Nasdaq-listed companies, the expectation for board diversity and corresponding disclosure will likely continue from various stakeholders. Companies should remain proactive in understanding shareholder expectations, state regulations, and proxy advisor guidelines to help maintain strong governance and shareholder trust.
[1] See Alliance for Fair Board Recruitment v. SEC, 5th Cir. en banc, No. 21-60626, opinion issued 12/11/24.
[2] See Nasdaq Listing FAQ Identification Number 1873.
[3] Based on ISS 2024 Proxy Voting Guidelines. The ISS 2025 Proxy Voting Guidelines have not been released as of this publication.
[4] Based on Glass Lewis 2025 Benchmark Policy Guidelines, which apply beginning January 2025.
