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As this Goodwin alert notes, Nasdaq-listed companies, which are once again in the same boat as NYSE-listed companies with respect to board diversity & related disclosures, will need to deal with some immediate practical implications of the Fifth Circuit’s decision. For example:

Proxy Statement Board Diversity Disclosure. Because the Nasdaq diversity rules no longer apply to proxy and information statements filed by Nasdaq-listed companies, these companies will not need to include the board diversity matrix specified by Nasdaq Rule 5606. Further, Nasdaq Rule 5605(f) will no longer require companies to have the specified numbers of diverse directors or explain why they do not.

Nominating Committee Disclosure. Disclosure about board diversity will therefore need to be tailored to the specific facts and priorities relevant to each company. At a minimum, proxy and information statements must be revised to eliminate any statements that Nasdaq rules require any board diversity disclosure or diverse board membership.

If there have been any changes to how the nominating committee considers diversity in identifying nominees for director or in its policies regarding the consideration of diversity, companies should review the disclosure required by Item 407(c) of Regulation S-K about the nominating committee of the board of directors and its director nomination process. In addition, any disclosure that relates to the Nasdaq diversity rules should be revised as necessary to reflect the Fifth Circuit order. . . .

Director and Officer Questionnaires. Director and officer questionnaires used by Nasdaq-listed companies for the 2024 proxy season are likely to require revisions to reflect the Fifth Circuit order, even if a company chooses to continue to disclose board diversity information in a format similar to the format that had been required by Rule 5606. At a minimum, director and officer questionnaires used by Nasdaq-listed companies should be revised to eliminate any statements that any questions related to director diversity are necessary to support the diversity disclosure and director diversity requirements of former Nasdaq rules.

That said, there’s no “one-size-fits-all” approach to board diversity disclosures. Despite the legal fate of Nasdaq’s Board Diversity Matrix listing standards and California’s board diversity statute, board diversity disclosures will continue to be an important focus area for many public companies for a whole host of reasons — even beyond the numerous reports about the benefits of board diversity:

– Many institutional investors have bright-line rules about expected diversity in boards of portfolio companies and may vote against the chair of the nominating and corporate governance committee if their diversity standards are not met. In many cases, investors have heightened their diversity standards by increasing the number of diverse directors they expect over time and/or moving away from static gender diversity targets but referencing a percentage of the total board. (See this Covington memo for a roundup of proxy voting guidelines on board diversity and related disclosure.)

– The proxy advisors have policies on board diversity, and these – together with institutional investor policies – impact director support levels.

– Activist shareholders have also taken up the mantle. Companies have been recipients of board diversity shareholder proposals and letter writing campaigns for many years.

– Item 407(c)(2)(vi) of Regulation S-K still requires proxy disclosure of whether, and — if so, how — a nominating committee considers diversity in identifying director nominees, and, if the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, disclosure about how the policy is implemented — as well as how the nominating committee (or the board) assesses the effectiveness of the policy.

– For companies looking to go public, Goldman Sachs will only take a company public in the US or Western Europe if it has at least two diverse board members (increased from one in 2021).

On the other hand, some companies have been on the receiving end of shareholder proposals and lawsuits from groups that oppose DEI initiatives. That means, before making any moves to strip content from their proxy statements and D&O questionnaires, Nasdaq-listed companies really need to consider all “individually relevant” factors and thoughtfully decide how to handle board diversity disclosures going forward.

To help you in this process, Goodwin’s Year-End Toolkit reflects related updates!  Plus, you can check out our “Checklist: Board Diversity Policies” for more on this topic.

– Meredith Ervine