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Image: Tiffany & Co.

This year is expected to bring a wave of M&A activity in the retail sector, with luxury goods titans and other groups slated to add smaller and/or independent brands to their ever-growing rosters. With that comes the inevitable shift in key players, which LVMH recently demonstrated when it installed a couple of new executives (Anthony Ledru and Alexandre Arnault) and a new chairman (Michael Burke) to its newly-acquired Tiffany & Co. brand. Interestingly, this anticipated flurry of acquisitions will come amid a push by the Nasdaq Stock Market to address the glaring lack of diversity among many publicly-traded companies’ C-suite executives and board members, and to promote consistency and transparency in their diversity reporting.

In early December, Nasdaq submitted a proposal to the U.S. Securities and Exchange Commission  (“SEC”) that, if approved, will refashion the public disclosure requirements for Nasdaq-listed companies. The aim of the proposed changes, according to the New York-based stock exchange, is to “provide stakeholders with a better understanding of [a] company’s current board composition and enhance investor confidence that all listed companies are considering diversity in the context of selecting directors.” 

Specifically, the proposal that Nasdaq presented to the SEC will require all Nasdaq-listed companies to publicly disclose board-level diversity statistics via Nasdaq’s proposed disclosure framework within one year of the SEC’s approval of the rule. It additionally calls for most of those entities “to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female, and one who self-identifies as either an underrepresented minority” – which Nasdaq defines as “Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander or Two or More Races or Ethnicities” – or as LGBTQ+.

Nasdaq explained in December that “all companies will be expected to have one diverse director within two years of the SEC’s approval of the listing rule.” From there, the requirements will vary depending on the Nasdaq-specific tier that individual companies occupy. Companies listed on the exchange’s Global Select Market, for instance – which maintains “the highest initial listing standards of any exchange in the world” and the most stringent initial financial and liquidity requirements – and its Global Market, which “lists companies with an overall global leadership and international reach with their products or services,” will be expected to have two diverse directors within four years of the SEC’s approval of the listing rule. 

As for companies listed on the Nasdaq Capital Market, they will be expected to have two diverse directors within five years of the SEC’s approval. 

“For companies that are not in a position to meet the board composition objectives within the required timeframes,” Nasdaq stated in December that “they will not be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives.” The exchange – which maintains the title of the second largest exchange by market capitalization of shares traded behind the New York Stock Exchange – further noted that “foreign companies and smaller reporting companies will have additional flexibility in satisfying this requirement” if they have two female directors.

Nasdaq’s proposed requirements are the first of their kind, but the push for corporate diversity has found favor among lawmakers in states like California, Illinois Massachusetts, and Pennsylvania, which have enacted laws governing board diversity for  publicly traded companies.

In September, California Governor Gavin Newsom, for instance, signed into law AB 979, thereby, requiring that by the end of 2021, California-headquartered public companies have at least one director on their boards that is from an “underrepresented community.” Before that, Illinois Governor J.B. Pritzker implemented Public Act 101-0589 in August 2019, requiring that publicly-traded domestic and foreign corporations with principal executive offices in Illinois make additional reportings to the Secretary of State about the makeup of their executive directors and boards, as well as about their policies and practices for promoting diversity, equity, and inclusion, among other things. 

Meanwhile, “Some of the world’s biggest investors,” such as BlackRock Inc., Vanguard Group Inc. and State Street Global Advisors Inc. “have threatened to pull their money out of companies that do not show progress on certain environmental, social and governance issues, such as board diversity,” according to S&P Global. And at the same time, Goldman Sachs Group Inc. announced in June 2020 that it would stop underwriting IPOs for companies in the U.S. – and Europe – that do not have at least one diverse director.

Such U.S.-specific activity follows from efforts – and in some cases, legislation – in Europe. Lawmakers in France, for example, passed a quota law of 2011 to order to increase gender representation on the boards of the country’s largest firms. 

“It would be tempting for the SEC, soon to be led by a Biden appointee, to approve the proposal,” former SEC Chairman Arthur Levitt Jr. wrote in an Op-Ed for the Wall Street Journal on Wednesday. “Many of the calls for diversity requirements on board membership and recruitment are being made by large asset managers and institutional investors, [and] the SEC could conceivably approve it in the name of investor-led democracy.” 

Still yet, the Nasdaq proposal – which the exchange says is “an extension of [its] (and other securities exchanges’) use of the listing rules to improve listed companies’ corporate governance (e.g., the requirement of independent committees)” – has found favor with a number of tech titans, according to Bloomberg, which reported on January 7 that Facebook and Microsoft Corp. are among the giants urging the SEC to sign-off on it.  

The SEC has until March 11, 2021 to determine whether to approve the proposed rules, and although the new Nasdaq requirements resulting from the proposed rules will not become immediately effective assuming that the SEC approves them, Eversheds Sutherland LLP’s Cynthia M. Krus says that Nasdaq-listed companies may benefit from “starting to compile diversity statistics for their boards and reviewing Diverse candidates for director seats.”