Nasdaq Proposes New Listing Rules to Boost Diversity

Picture the modern public company boardroom: sleek chairs, serious faces, and at least one person who says “synergy”
without irony. Now imagine Nasdaq walking in with a clipboard and saying, “Cool. Alsotell investors what your board
looks like, demographically, in a standardized way. And if your board isn’t diverse, explain why.”

That, in plain English, was the spirit of Nasdaq’s proposed listing standards designed to increase transparency about
board diversity and encourage broader representation at the top. The idea wasn’t “meet our quota or get kicked out.”
It was “disclose, and either meet an objective or explainpubliclywhy you didn’t.”

The proposal became one of the most talked-about corporate governance initiatives of the last few yearspraised as a
long-overdue nudge toward inclusion, criticized as social policy disguised as securities regulation, and ultimately
pulled into the legal ring. Understanding what Nasdaq proposed (and what happened next) still matters, because the
underlying forcesinvestor pressure, recruiting realities, political backlash, and litigation riskdidn’t vanish just
because a rule changed.

What Nasdaq Actually Proposed (And Why It Thought Investors Cared)

Nasdaq’s core argument was simple: investors increasingly consider board composition when evaluating governance,
risk oversight, strategy, and long-term performance. But comparing board diversity across companies was messy because
disclosures were inconsistentsome companies shared detailed statistics, others shared a sentence, and many shared
nothing measurable at all.

Nasdaq’s proposal aimed to standardize board diversity disclosure so investors could make apples-to-apples
comparisons (or at least apples-to-apples-to-very-confused-pears). It also introduced a “comply or explain” diversity
objective: companies could meet a target number of diverse directors, or publicly explain why they did not.

Importantly, Nasdaq framed the initiative as a market-driven listing standard focused on transparency and investor
informationnot a mandate to appoint specific individuals. Still, “comply or explain” can feel like a mandate if you
care about how investors, employees, customers, and the media interpret your explanation.

The Two Big Pieces: Disclosure and the “Comply or Explain” Objective

1) The Board Diversity Matrix: A Standardized Disclosure Table

The proposal introduced a standardized “Board Diversity Matrix”a table designed to summarize the number of
directors who self-identify by gender and by underrepresented categories. It relied on voluntary self-identification,
meaning companies weren’t supposed to guess; directors could choose whether to self-identify. The concept was to
present aggregated data in a consistent format so investors could quickly understand board composition.

If you’ve ever tried to compare 50 proxy statements and felt your soul leaving your body, you understand why a single
standardized table sounded appealing.

2) The Diverse Director Objective: Meet Itor Explain Why You Didn’t

The proposal also included an objective for most listed companies to have (or explain why they do not have) a minimum
number of “diverse” directors. For many U.S. issuers, that objective was structured around having at least one woman
and at least one director who self-identified as either an underrepresented minority or LGBTQ+. Depending on board
size and issuer category, there was flexibility (including smaller-board accommodations).

The “explain” option mattered. Nasdaq wasn’t saying “you must appoint.” It was saying “if you don’t meet the
objective, you need to tell the market why.” In corporate communications, an explanation can be more painful than a
rulebecause it invites follow-up questions, shareholder proposals, and awkward earnings-call side quests.

Who Was in Scope (And Who Wasn’t)

Like most listing standards, this wasn’t a one-size-fits-all situation. The framework generally applied to operating
companies listed on Nasdaq, with a set of exceptions and tailored paths for certain categories of issuers.

• Operating companies: Typically in scope for disclosure and the objective.
• Smaller boards: Could have modified expectations (for example, fewer diverse directors required).
• Foreign issuers: Had alternative ways to satisfy the objective consistent with different demographics and legal regimes.
• Special categories: Certain funds or specific issuer types often have distinct governance structures and were treated differently.

Nasdaq also built in phase-in compliance timelines, recognizing that board seats don’t open up on demand. Most boards
refresh slowlylike that office refrigerator that somehow keeps a yogurt from 2019 alive.

How the Timeline Was Supposed to Work

The intent wasn’t instant transformation. It was staged:

• Disclosure first: Companies would begin reporting board diversity in the standardized format on a set schedule.
• Objective later: The diverse director objective had later compliance dates to allow boards to recruit thoughtfully and align with election cycles.
• “Explain” always available: If the objective wasn’t met, the company could provide a public explanation instead of adding directors.

This sequencing mattered because disclosure can influence behavior even without strict mandates. Once data becomes
comparable, it becomes discussable. Once it’s discussable, it becomes voteable. And once it’s voteable, it becomes a
governance priority.

Why Many Investors Supported the Concept

A major driver behind board diversity disclosure is investor demand for clearer governance signals. Institutional
investors often evaluate boards for independence, skills, oversight quality, and risk management. Diversity is
frequently argued to correlate with better debate, reduced groupthink, and broader perspectivesespecially in areas
like workforce strategy, customer markets, and reputational risk.

Supporters also argued that standardized disclosure helps investors do their jobs. If you believe board composition
is material to governance quality, then inconsistent reporting is a problem. Nasdaq’s proposal aimed to make the
information more consistent, less narrative, and more comparable.

Another practical point: disclosure frameworks can reduce “virtue-signaling fog.” Instead of vague statements about
valuing diversity, the market would see actual numbers (or an explanation for why numbers weren’t there).

Why Critics Objected (And Not Always for the Same Reason)

Opposition came in multiple flavors:

• Authority concerns: Some critics argued that an exchange should not pressure companies toward
  demographic outcomes through listing standards, especially if the securities laws are focused on fraud and market
  integrity rather than social policy.
• Compelled disclosure worries: Others argued it effectively pressured companies to collect and
  disclose sensitive demographic information, raising privacy and political concerns.
• One-size-fits-all skepticism: Smaller companies and specialized issuers argued recruitment pools
  differ by industry and geography, and that directors are chosen for skills and experience, not demographic boxes.
• Litigation risk: Some companies feared that formalizing diversity objectives could create new
  legal exposure or backlashespecially as the national environment around DEI became more contentious.

In other words, even if two critics both said “no,” one might have meant “no, because it’s illegal,” while another
meant “no, because it’s complicated,” and a third meant “no, because I dislike spreadsheets.”

The SEC’s Role and Why It Mattered

Nasdaq can propose listing standards, but because it’s a self-regulatory organization, its rule changes typically go
through the SEC review process. The SEC’s approval (and the detailed discussion around statutory authority, investor
protection, and market considerations) became central to the debate.

The regulatory framing was important: Nasdaq positioned its approach as disclosure-based and market-oriented. Supporters
highlighted investor interest; opponents emphasized limits on the SEC’s authority to approve rules that look like
social policy. This tension set the stage for years of litigation and uncertainty.

Then the Courts Stepped In: The Rule’s Legal Whiplash

After the framework moved forward, it faced legal challenges that questioned whether the SEC had authority to approve
exchange rules that require diversity-related disclosure and a “comply or explain” objective.

In December 2024, the U.S. Court of Appeals for the Fifth Circuit (sitting en banc) vacated the SEC’s approval of the
Nasdaq board diversity rules. As a practical result, Nasdaq-listed companies were no longer required to comply with
the diversity objectives or the associated prescribed diversity disclosures under that framework.

If you’re a governance officer, this is the part where you quietly close the “Board Diversity Matrix Implementation”
folder… but keep it, because you have a feeling it might come back in some form later.

What This Means in Practice for Companies Today

Even with the rules no longer in effect, the topic didn’t disappear. Many companies still pursue board diversity for
strategic, cultural, and investor-relations reasons. Here’s what tends to matter now:

1) Voluntary Disclosure and Market Expectations

Some companies continue to disclose board diversity data voluntarily, especially if they believe it helps tell a
credible governance story. Others may reduce detail to avoid controversy. The “right” approach depends on investor
base, brand risk tolerance, workforce values, and regulatory environment.

2) Board Composition as a Talent and Strategy Issue

Board diversity is often less about optics and more about decision quality. A board overseeing cybersecurity risk,
AI transformation, labor dynamics, and global supply chains benefits from varied experiences and viewpoints. Diversity
can be part of thatbut it should be integrated with skills matrices, succession planning, and committee needs.

3) Recruiting Realities: The Pipeline Isn’t a Myth, But It Isn’t an Excuse Either

Many boards historically relied on tight networksCEOs recruiting other CEOs, directors recruiting directors. That
model tends to reproduce itself. Expanding the pool means considering executives with P&L experience outside the
usual circles, functional leaders with deep expertise, and first-time directors with high-impact backgrounds.

The best boards treat recruiting like product development: define the need, widen the search, and stop pretending the
only qualified candidates are the ones you already know.

4) The “Explain” Lesson Still AppliesEven Without a Rule

Nasdaq’s “comply or explain” concept taught a lasting lesson: if you don’t have diversity, stakeholders will ask why.
Even without formal requirements, a company might face questions from institutional investors, proxy advisors,
employees, and customers. Being prepared with a thoughtful, factual, and non-defensive answer is still a governance
best practice.

Specific Examples of How Companies Approached the Framework

When the rules were active, companies generally landed in a few patterns:

• The proactive refresh: Boards accelerated planned retirements and added directors with both
  needed skills (cyber, audit, digital, workforce) and diverse backgrounds.
• The explain-first approach: Some companies used the explanation pathway while building a longer-term pipeline,
  citing timing, board size constraints, or ongoing searches.
• The governance narrative upgrade: Companies improved proxy disclosures by pairing demographic reporting with a
  board skills matrix, showing how composition ties to oversight of strategy.
• The minimal disclosure stance: A subset focused on the minimum required disclosure and avoided expansive commentary
  to reduce political exposure.

The interesting part: these patterns didn’t only reflect ideology. They reflected industry pressure, geographic culture,
investor composition, litigation risk tolerance, and whether the board was already mid-refresh.

Looking Ahead: Diversity Efforts After the Nasdaq Rule

The broader governance world is still wrestling with two competing trends:

• Continued investor interest in transparency: Many large investors still evaluate boards for composition,
  oversight strength, and representationthough the language and enforcement mechanisms may evolve.
• Rising legal and political scrutiny of DEI: Companies face increasing pressure to ensure their policies and
  disclosures don’t create unintended legal exposure or brand backlash.

The likely future is not “nothing happens.” It’s “the approach changes.” You may see more emphasis on skills-based
disclosure, board evaluation processes, and voluntary reportingplus continued debate about where the line sits between
investor-relevant disclosure and social-policy mandates.

Meanwhile, companies that treat board composition as a strategic assetrather than a compliance chorewill still
compete better for talent, credibility, and long-term trust.

of Real-World Experiences Companies Often Have With Board Diversity Rules

When a listing standard like Nasdaq’s board diversity framework enters the conversation, the first “experience” most
companies have is not philosophicalit’s operational. Somebody (often in legal, HR, or corporate secretary’s office)
has to answer a deceptively simple question: “What exactly do we disclose, and where do we get it?”

In practice, that turns into a mini project plan. Step one is building a data-collection process that respects privacy
and is defensible. Many companies learn quickly that you can’t treat demographic identity like a spreadsheet you fill
in yourself. Directors must self-identify voluntarily, and some may prefer not to. That creates a delicate dynamic:
you want accurate, standardized reporting, but you also have to maintain trust with directors who may worry about
politicization, misinterpretation, or unwanted attention.

Step two is governance choreography. Boards often discover that even directors who support diversity goals don’t want
the board reduced to “labels.” The most effective teams weave the conversation into a broader board-skills strategy:
What expertise do we need for the next five years? Where are our gaps? How do we recruit in a way that expands both
skills and representation? When it’s framed as “better oversight through better composition,” the discussion becomes
more practical and less performative.

Another common experience is timing frustration. Boards refresh on election cycles, retirement ages, committee needs,
and unplanned events (a director resigns, a CEO changes, a merger happens). Companies frequently find themselves
saying, “We’re committed, we’re searching, but the seat doesn’t open until next annual meeting.” That’s where the
“comply or explain” concept taught a valuable communications lesson: a credible explanation needs specificsprocess,
timeline, and seriousnesswithout sounding defensive or dismissive.

Companies also report a subtle investor-relations effect: once you publish a clear, comparable disclosure, people
ask follow-ups. That can be positivemore engagement, more trustor uncomfortable if your numbers are out of step
with peers. Either way, the disclosure becomes part of your governance brand. It’s not just data; it’s messaging.

Finally, many organizations realize the work doesn’t start and end with the board. Strong board diversity efforts
often accelerate broader succession planning: developing executives, strengthening mentorship programs, and building
a credible leadership pipeline. Even after legal shifts and rule changes, that internal work tends to outlast the
headlinesbecause it improves resilience, decision-making, and the bench of future leaders. In that sense, Nasdaq’s
proposal created an experience many companies keep: a reason to treat governance as something you build, not something
you merely survive.

Conclusion

Nasdaq’s proposed listing rules to boost diversity were a landmark attempt to standardize board diversity disclosure
and encourage broader representation through a “comply or explain” framework. The initiative reflected growing
investor interest in comparable governance dataand it also exposed how contested the legal and political terrain has
become around DEI.

Even though the framework ultimately faced a major legal reversal, the central questions remain relevant: What do
investors need to evaluate governance? How should companies disclose sensitive information responsibly? And how do
boards refresh in a way that strengthens oversight, strategy, and legitimacy in a fast-changing economy?

The practical takeaway is simple: rules may change, but expectations and scrutiny rarely disappear. Companies that
build thoughtful, skills-driven, inclusive board processesand communicate them clearlyare better positioned no
matter what the next proposal looks like.