On December 11, 2024, the United States Court of Appeals for the Fifth Circuit vacated the Securities and Exchange Commission’s order related to the rule that required companies listed on Nasdaq to include a board diversity matrix in their proxy filing or on their website. Despite the Nasdaq board diversity matrix no longer being required disclosure, many companies still included questions related to diversity in their director and officer questionnaires that were distributed ahead of reporting season.
Following President Trump’s executive orders, which terminated diversity, equity and inclusion preferences and policies in government agencies, several institutional shareholders revised their voting policies on board diversity and some registrants removed diversity related disclosures from their Form 10-K filings. Now, companies are currently contemplating whether to include board diversity statistics in their upcoming proxy statement.
Although we are early into the proxy reporting season, we have seen registrants that have filed take one of three approaches.
First, a few companies have maintained the Nasdaq board diversity matrix disclosures as they reported in the previous year. Companies that adopt this approach should review the disclosure to confirm that any language suggesting that the matrix is required under Nasdaq rules is modified or removed.
Second, some companies are removing the Nasdaq board diversity matrix, but replacing the information with a couple lines of narrative disclosure related to board diversity or including diversity as part of a board skills matrix. In the past, some companies have viewed the diversity categories of the Nasdaq board diversity matrix as too prescriptive and are revising diversity related disclosure to better fit their circumstances. See i3 Verticals, Inc.’s recent proxy filing which removed the Nasdaq board diversity matrix, but included a line on the diversity of its board. See Texas Instruments Incorporated’s and F5’s recent proxy filings for examples of reformatting diversity indicators into the board skills matrix.
Third, some companies are removing the Nasdaq board diversity matrix entirely without additional disclosure on board diversity. See recent proxy filings by Adobe, Inc., Farmers & Merchants Bancorp and Broadcom Inc.
If a company prefers to not only remove the Nasdaq board diversity matrix, but also all disclosures related to diversity in its proxy statement, the company should be aware that some disclosure related to diversity may be required under Regulation S-K. The proxy statement requires disclosure under Item 407 of Regulation S-K regarding “whether, and if so, how the nominating committee considers diversity in identifying nominees for director. If the nominating committee has a policy with regard to the consideration of diversity in identifying director nominees, describe how this policy is implemented and how the nominating committee assesses the policy’s effectiveness.” Additionally, Item 401(e) of Regulation S-K requires companies to describe briefly the specific experience, qualifications, attributes, or skills that led to the conclusion that a person should serve as a director. Question 116.11 of the SEC’s Regulation S-K Compliance and Disclosure Interpretations states that “any description of diversity policies followed by the company under Item 407 would include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics.”
The decision whether to continue to include the Nasdaq board diversity matrix or disclose board diversity related statistics will be client specific. A company should consider its shareholder base and consult with its internal Investor Relations team to assess whether investors value this disclosure and whether any shareholder would be concerned if the disclosure was removed. Companies should pay careful attention to the proxy voting guidelines of their shareholders and proxy advisory firms to determine the range of perspectives on DEI-related disclosures. In addition, similar to disclosures in the Form 10-K, a company should consider its exposure to the U.S. federal government since the government has taken a policy stance against diversity, equity and inclusion related preferences.
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