[Federal Register Volume 86, Number 153 (Thursday, August 12, 2021)]
[Notices]
[Pages 44424-44445]
[FR Doc No: 2021-17179]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92590; File Nos. SR-NASDAQ-2020-081; SR-NASDAQ-2020-
082]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Approving Proposed Rule Changes, as Modified by Amendments No. 1, To
Adopt Listing Rules Related to Board Diversity and To Offer Certain
Listed Companies Access to a Complimentary Board Recruiting Service

August 6, 2021.

I. Introduction and Overview

    A self-regulatory organization, or ``SRO,'' may propose a change in
its rules or propose a new rule by filing the proposal with the
Securities and Exchange Commission (``Commission'') pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ This
order considers two separate proposed rule changes that The Nasdaq
Stock Market LLC (``Nasdaq'' or ``Exchange'') filed with the
Commission.
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    \1\ 15 U.S.C. 78s(b)(1).
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    On December 1, 2020, the Exchange filed with the Commission,
pursuant to Section 19(b)(1) of the Act and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt listing rules related to board diversity
(``Board Diversity Proposal''). The proposed rule change was published
for comment in the Federal Register on December 11, 2020.\3\ On
February 26, 2021, the Exchange filed Amendment No. 1 to the proposed
rule change, which replaced and superseded the proposed rule change as
originally filed.\4\
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    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 90574 (December 4,
2020), 85 FR 80472 (SR-NASDAQ-2020-081). Comments received on the
Board Diversity Proposal are available on the Commission's website
at: https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081.htm. On January 19, 2021, pursuant to Section
19(b)(2) of the Act, 15 U.S.C. 78s(b)(2), the Division of Trading
and Markets (``Division''), for the Commission pursuant to delegated
authority, designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or
institute proceedings to determine whether to disapprove the
proposed rule change. See Securities Exchange Act Release No. 90951,
86 FR 7135 (January 26, 2021). The Division, for the Commission
pursuant to delegated authority, designated March 11, 2021 as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change. See also infra note 11 and accompanying text
(providing additional procedural history for the Board Diversity
Proposal).
    \4\ The full text of Amendment No. 1 to the Board Diversity
Proposal is available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081-8425992-229601.pdf.
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    On December 1, 2020, the Exchange also filed with the Commission,
pursuant to Section 19(b)(1) of the Act \5\ and Rule 19b-4
thereunder,\6\ a proposed rule change to offer certain listed companies
access to a complimentary board recruiting service to help advance
diversity on company boards (``Board Recruiting Service Proposal''),
which was published for comment in the Federal Register on December 10,
2020.\7\ On February 26, 2021, the Exchange filed Amendment No. 1 to
the proposed rule change, which replaced and superseded the proposed
rule change as originally filed.\8\
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    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ See Securities Exchange Act Release No. 90571 (December 4,
2020), 85 FR 79556 (SR-NASDAQ-2020-082). Comments received on the
Board Recruiting Service Proposal are available on the Commission's
website at: https://www.sec.gov/comments/sr-nasdaq-2020-082/srnasdaq2020082.htm. On January 19, 2021, pursuant to Section
19(b)(2) of the Act, 15 U.S.C. 78s(b)(2), the Division, for the
Commission pursuant to delegated authority, designated a longer
period within which to approve the proposed rule change, disapprove
the proposed rule change, or institute proceedings to determine
whether to disapprove the proposed rule change. See Securities
Exchange Act Release No. 90952, 86 FR 7148 (January 26, 2021). The
Division, for the Commission pursuant to delegated authority,
designated March 10, 2021 as the date by which the Commission shall
approve or disapprove, or institute proceedings to determine whether
to disapprove, the proposed rule change. See also infra note 11 and
accompanying text (providing additional procedural history for the
Board Recruiting Service Proposal).
    \8\ The full text of Amendment No. 1 to the Board Recruiting
Service Proposal is available on the Commission's website at:
https://www.sec.gov/comments/sr-nasdaq-2020-082/srnasdaq2020082-8425987-229599.pdf.
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    On March 10, 2021, the Division, for the Commission pursuant to
delegated authority, published notice of Amendments No. 1 \9\ and
instituted proceedings pursuant to Section 19(b)(2)(B) of the Act \10\
to determine whether to approve or disapprove the proposed rule
changes, as modified by Amendments No. 1.\11\
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    \9\ Amendment No. 1 to the Board Diversity Proposal and
Amendment No. 1 to the Board Recruiting Service Proposal are
collectively referred to as ``Amendments No. 1.''
    \10\ 15 U.S.C. 78s(b)(2)(B).
    \11\ See Securities Exchange Act Release No. 91286, 86 FR 14484
(March 16, 2021). On June 7, 2021, pursuant to Section 19(b)(2) of
the Act, 15 U.S.C. 78s(b)(2), the Division, for the Commission
pursuant to delegated authority, designated a longer period within
which to issue an order approving or disapproving the proposed rule
changes, as modified by Amendments No. 1. See Securities Exchange
Act Release Nos. 92118, 86 FR 31355 (June 11, 2021) (SR-NASDAQ-2020-
081); 92119, 86 FR 31355 (June 11, 2021) (SR-NASDAQ-2020-082). The
Division, for the Commission pursuant to delegated authority,
designated August 8, 2021 as the date by which the Commission shall
approve or disapprove the Board Diversity Proposal, and August 7,
2021 as the date by which the Commission shall approve or disapprove
the Board Recruiting Service Proposal.
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    The Act governs the Commission's review of SRO-proposed rules.
Section 19(b)(2)(C)(i) provides that the Commission ``shall approve'' a
proposal if it finds that the rule is consistent with the requirements
of the Act and the rules and regulations applicable to the SRO--
including requirements in Section 6(b).\12\ The statute does not give
the Commission the ability to make any changes to the rule proposal as
submitted, or to disapprove the rule proposal on the ground that the
Commission would prefer some alternative rule on the same topic.
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    \12\ 15 U.S.C. 78s(b)(2)(C)(i).
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    Under the Board Diversity Proposal, the Exchange proposes to
require each Nasdaq-listed company, subject to certain exceptions, to
publicly disclose in an aggregated form, to the extent permitted by
applicable law, information on the voluntary self-identified gender and
racial characteristics and LGBTQ+ status (all terms defined below) of
the company's board of directors. The Exchange also proposes to require
each Nasdaq-listed company, subject to certain exceptions, to have, or
explain why it does not have, at least two members of its board of
directors who are Diverse, including at least one director who self-
identifies as female and at least one director who

self-identifies as an Underrepresented Minority or LGBTQ+.\13\ Under
the Board Recruiting Service Proposal, the Exchange proposes to provide
certain Nasdaq-listed companies with one year of complimentary access
for two users to a board recruiting service, which would provide access
to a network of board-ready diverse candidates for companies to
identify and evaluate.
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    \13\ While these Nasdaq-listed companies would have an objective
of at least two Diverse directors, including at least one director
who self-identifies as female and at least one director who self-
identifies as an Underrepresented Minority or LGBTQ+, as described
below, other Nasdaq-listed companies would have different board
diversity objectives. See infra notes 25-27.
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    This order applies the governing standard under the Act and finds
that the Board Diversity Proposal, as modified by Amendment No. 1, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
Separately, it finds that the Board Recruiting Service Proposal, as
modified by Amendment No. 1, is also consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities exchange. The proposed rule changes therefore are
required to be and are approved.\14\
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    \14\ In approving these proposed rule changes, the Commission
has considered the proposed rules' impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f). See also
infra Section II.
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    In particular, the Commission finds that the Board Diversity
Proposal and the Board Recruiting Service Proposal are consistent with
Section 6(b)(5) of the Act,\15\ which requires that the rules of a
national securities exchange be designed, among other things, to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, to protect investors and the public interest, not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers, and not be designed to regulate by virtue of any
authority conferred by the Act matters not related to the purposes of
the Act or the administration of the exchange; and Section 6(b)(8) of
the Act,\16\ which requires that the rules of a national securities
exchange not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Commission
also finds that the Board Recruiting Service Proposal, as modified by
Amendment No. 1, is consistent with Section 6(b)(4) of the Act,\17\
which requires that national securities exchange rules provide for the
equitable allocation of reasonable dues, fees, and other charges among
its members and issuers and other persons using its facilities. The
proposals and Commission findings are discussed below.
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(8).
    \17\ 15 U.S.C. 78f(b)(4).
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II. Discussion and Commission Findings

    The Board Diversity Proposal would establish a disclosure-based
framework that would make consistent and comparable statistics widely
available to investors regarding the number of Diverse directors
serving on a Nasdaq-listed company's board.\18\ Board-level diversity
statistics are currently not widely available on a consistent and
comparable basis, even though the Exchange and many commenters argue
that this type of information is important to investors.\19\ The Board
Diversity Proposal would also provide increased transparency and
require an explanation regarding why a Nasdaq-listed company does not
meet the proposed board diversity objectives, for those companies that
do not choose to meet such objectives. It would augment existing
Commission requirements that companies disclose whether, and how, their
boards or board nominating committees consider diversity in nominating
new directors.\20\ As noted by the Exchange and a number of
commenters,\21\ a better understanding of why a company does not meet
the proposed objectives would contribute to investors' investment and
voting decisions. Investors and companies have different views
regarding board diversity and whether board diversity affects company
performance and governance.\22\ As discussed below, commenters
representing a broad array of investors have indicated an interest in
board diversity information. And, regardless of their views on those
issues, the Board Diversity Proposal would provide investors with
information to facilitate their evaluation of companies in which they
might invest. The Board Diversity Proposal would therefore contribute
to the maintenance of fair and orderly markets, which has previously
been found by the Commission to support a finding that an exchange
listing standard satisfied the requirements of Section 6(b)(5).\23\
Accordingly, as discussed below, the Commission finds that the Board
Diversity Proposal is designed to promote just and equitable principles
of trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and protect investors and the
public interest. The Commission also finds that the Board Diversity
Proposal is not designed to permit unfair discrimination between
issuers or to regulate by virtue of any authority conferred by the Act
matters not related to the purposes of the Act or the administration of
the Exchange, and would not impose any burden on competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
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    \18\ Pursuant to proposed Rule 5605(f)(1), ``Diverse'' would be
defined to mean an individual who self-identifies in one or more of
the following categories: (i) Female, (ii) Underrepresented
Minority, or (iii) LGBTQ+. Also pursuant to proposed Rule
5605(f)(1), ``Female'' would be defined to mean an individual who
self-identifies her gender as a woman, without regard to the
individual's designated sex at birth; ``Underrepresented Minority''
would be defined to mean an individual who self-identifies as one or
more of the following: 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; and
``LGBTQ+'' would be defined to mean an individual who self-
identifies as any of the following: Lesbian, gay, bisexual,
transgender, or as a member of the queer community. See Amendment
No. 1 to the Board Diversity Proposal at 327; proposed Rule
5605(f)(1).
    \19\ See infra Section II.A.2. (describing the Exchange's and
commenters' arguments regarding the demand for board diversity
information, including board-level diversity statistics).
    \20\ See Regulation S-K, Item 407(c)(2)(vi).
    \21\ See infra Section II.A.2. (describing the Exchange's and
commenters' arguments regarding the demand for board diversity
information, including explanations for why a company does not meet
the proposed diversity objectives).
    \22\ See infra Section II.B. (describing commenters' differing
views regarding board diversity and whether board diversity affects
company performance and governance).
    \23\ See Securities Exchange Act Release No. 78223 (July 1,
2016), 81 FR 44400, 44403 (July 7, 2016) (order approving SR-NASDAQ-
2016-013) (``2016 Approval Order'') (finding that exchange
disclosure-related listing standards contribute to the maintenance
of fair and orderly markets). The maintenance of ``fair and orderly
markets'' is a statutory goal included throughout the Act, including
components that apply to SROs such as Nasdaq. See, e.g., Sections
6(f), 9(i), 11, 11A, 12(f), and 19(b)(3) of the Act.
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    The Board Recruiting Service Proposal would provide Eligible
Companies,\24\ which by definition do

not have a specified number of Diverse directors, with access to a
network of board-ready diverse candidates, allowing these companies to
identify and evaluate such candidates if they choose to use the service
to increase diverse representation on their boards. The Board
Recruiting Service Proposal would also help Eligible Companies to meet
(or exceed, in the case of a Company with a Smaller Board \25\) the
diversity objectives under the separately approved Board Diversity
Proposal, if they elect to meet those objectives rather than disclose
why they have not met the objectives. Further, the Board Recruiting
Service Proposal could help the Exchange compete to attract and retain
listings, particularly in light of the diversity objectives in the
Board Diversity Proposal, which is also approved by this order and that
will apply to Nasdaq-listed companies. Accordingly, and as discussed
below in Section II.I., the Commission finds that the Board Recruiting
Service Proposal is designed to provide for the equitable allocation of
reasonable dues, fees, and other charges among issuers, is not designed
to permit unfair discrimination between issuers, and does not impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. The Commission further believes that the
Board Recruiting Service Proposal would provide for the equitable
allocation of complimentary services and reflects the current
competitive environment for listings among national securities
exchanges.
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    \24\ The Board Recruiting Service Proposal in general defines
``Eligible Company'' as a listed company that represents to the
Exchange that it does not have: (i) At least one director who self-
identifies as Female; and (ii) at least one director who self-
identifies as one or more of the following: An Underrepresented
Minority or LGBTQ+. See proposed IM-5900-9(a); Amendment No. 1 to
the Board Recruiting Service Proposal at 11 n.20 (describing the
treatment of a Company with a Smaller Board). A Foreign Issuer would
be an Eligible Company if it represents to the Exchange that it does
not have: (i) At least one director who self-identifies as Female;
and (ii) at least one director who self-identifies as one or more of
the following: Female, an Underrepresented Individual, or LGBTQ+.
See proposed IM-5900-9(b). A Smaller Reporting Company would be an
Eligible Company if it represents to the Exchange that it does not
have: (i) At least one director who self-identifies as Female, and
(ii) at least one director who self-identifies as one or more of the
following: Female, an Underrepresented Minority, or LGBTQ+. See
proposed IM-5900-9(c).
    \25\ Proposed Rule 5605(f)(2)(D) would require each company with
a board of directors of five or fewer members (``Company with a
Smaller Board'') to have, or explain why it does not have, at least
one member of its board of directors who is Diverse.
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A. Disclosures Under the Board Diversity Proposal

1. Disclosure-Based Framework
    The Board Diversity Proposal's disclosure-based framework would be
established by proposed Rules 5605(f) and 5606. The Exchange proposes
to adopt new Rule 5605(f)(2), which would require each Nasdaq-listed
company (other than a Foreign Issuer,\26\ Smaller Reporting
Company,\27\ or Company with a Smaller Board) to have, or explain why
it does not have, at least two members of its board of directors who
are Diverse,\28\ including at least one Diverse director who self-
identifies as Female and at least one Diverse director who self-
identifies as an Underrepresented Minority or LGBTQ+.\29\ If a company
elects to satisfy the requirements of proposed Rule 5605(f)(2) by
disclosing why it does not meet the applicable diversity objectives,
the company would be required to: (i) Specify the requirements of
proposed Rule 5605(f)(2) that are applicable; and (ii) explain the
reasons why it does not have two Diverse directors (or one Diverse
director for a Company with a Smaller Board).\30\ The Exchange would
not evaluate the substance or merits of a company's explanation.\31\
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    \26\ The Exchange proposes to define a Foreign Issuer as: (a) A
Foreign Private Issuer (as defined in Rule 5005(a)(19)); or (b) a
company that (i) is considered a ``foreign issuer'' under Rule 3b-
4(b) under the Act, 17 CFR 240.3b-4(b), and (ii) has its principal
executive offices located outside of the United States. See proposed
Rule 5605(f)(1). For Foreign Issuers, the Exchange proposes to
define ``Diverse'' to mean an individual who self-identifies as one
or more of the following: Female, LGBTQ+, or an underrepresented
individual based on national, racial, ethnic, indigenous, cultural,
religious, or linguistic identity in the country of the company's
principal executive offices as reported on the company's Form F-1,
10-K, 20-F, or 40-F (``Underrepresented Individual''). See proposed
Rule 5605(f)(2)(B)(i). Proposed Rule 5605(f)(2)(B) would require
each Foreign Issuer (other than a Company with a Smaller Board) to
have, or explain why it does not have, at least two members of its
board of directors who are Diverse, including at least one Diverse
director who self-identifies as Female. The second Diverse director
may include an individual who self-identifies as one or more of the
following: Female, LGBTQ+, or an Underrepresented Individual.
    \27\ The Exchange proposes to define a Smaller Reporting Company
as set forth in Rule 12b-2 under the Act. See proposed Rule
5605(f)(1). Proposed Rule 5605(f)(2)(C) would require each Smaller
Reporting Company (other than a Company with a Smaller Board, as
discussed below) to have, or explain why it does not have, at least
two members of its board of directors who are Diverse, including at
least one Diverse director who self-identifies as Female. The second
Diverse director may include an individual who self-identifies as
one or more of the following: Female, LGBTQ+, or an Underrepresented
Minority.
    \28\ As proposed, ``two members of its board of directors who
are Diverse'' would exclude emeritus directors, retired directors,
and members of an advisory board. See Amendment No. 1 to the Board
Diversity Proposal at 73 n.187.
    \29\ See proposed Rule 5605(f)(2)(A).
    \30\ See proposed Rule 5605(f)(3). The disclosure must be
provided in advance of the company's next annual meeting of
shareholders: (a) In any proxy statement or any information
statement (or, if a company does not file a proxy, in its Form 10-K
or 20-F); or (b) on the company's website. See id. If the company
provides the disclosure on its website, the company must submit such
disclosure concurrently with the filing made pursuant to (a) above
and submit a URL link to the disclosure through the Nasdaq Listing
Center, within one business day after such posting. See id.
    \31\ See Amendment No. 1 to the Board Diversity Proposal at 74-
75 (emphasizing that an explanation must ``satisfy subparagraphs (i)
and (ii) of proposed Rule 5605(f)(3)''--the company must ``explain
the reasons why it does not have the applicable number of Diverse
directors,'' it is not enough ``merely to state that `the Company
does not comply with Nasdaq's diversity rule'''). See also letter
from John A. Zecca, Executive Vice President, Chief Legal Officer,
and Chief Regulatory Officer, Nasdaq, to Vanessa A. Countryman,
Secretary, Commission, dated February 26, 2021 (``Nasdaq Response
Letter II''), at 8 (``The company can choose to disclose as much, or
as little, insight into the company's circumstances or diversity
philosophy as the company determines, and shareholders may request
additional information directly from the company if they need
additional information to make an informed voting or investment
decision.''). See id., for examples of specific disclosures the
Exchange would consider sufficient to satisfy the requirements of
proposed Rule 5605(f)(3).
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    As proposed, if a company fails to adhere to proposed Rule 5605(f),
the Exchange's Listing Qualifications Department would promptly notify
the company and inform it that it has until the later of its next
annual shareholders meeting or 180 days from the event that caused the
deficiency to cure the deficiency.\32\ If a company does not regain
compliance within the applicable cure period, the Listings
Qualifications Department would issue a Staff Delisting Determination
Letter.\33\
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    \32\ See proposed Rule 5605(f)(6)(A). Proposed Rule
5605(f)(6)(B) would provide a grace period for a company that has
satisfied the diversity objectives within the applicable timeframes,
but later ceases to meet the diversity objectives due to a vacancy
on its board of directors.
    \33\ See Rule 5810(c)(3). A company that receives a Staff
Delisting Determination can appeal the determination to the Hearings
Panel through the process set forth in Rule 5815. See Amendment No.
1 to the Board Diversity Proposal at 88.
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    Pursuant to proposed Rule 5606(a), each Nasdaq-listed company would
be required to annually disclose its board-level diversity data in a
substantially similar format as the ``Board Diversity Matrix.'' In the
proposed Board Diversity Matrix, a company would be required to provide
the total number of directors on its board, and the company (other than
a Foreign Issuer) would be required to provide the following: (1) The
number of directors based on gender identity (female, male, or non-
binary\34\) and the number of directors who did not disclose gender;
(2) the number of directors based on race and ethnicity (African
American or Black, Alaskan Native or Native American, Asian, Hispanic
or Latinx, Native Hawaiian or Pacific Islander, White, or Two or More
Races or Ethnicities \35\),

disaggregated by gender identity (or did not disclose gender); (3) the
number of directors who self-identify as LGBTQ+; and (4) the number of
directors who did not disclose a demographic background under item (2)
or (3) above.\36\
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    \34\ See Amendment No. 1 to the Board Diversity Proposal at 327
(defining ``non-binary''). Although non-binary is included as a
category in the Board Diversity Matrix, a company would not satisfy
the diversity objectives in proposed Rule 5605(f)(2) if a director
self-identifies solely as non-binary. See id. at 66 n.173.
    \35\ If a director self-identifies in the ``Two or More Races or
Ethnicities'' category, the director must also self-identify in each
individual category, as appropriate. See id. at 66 n.174.
    \36\ See proposed Rule 5606(a).
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    A company that qualifies as a Foreign Issuer may elect to use an
alternative Board Diversity Matrix format.\37\ A Foreign Issuer would
be required to provide the total number of directors on its board, and
would also be required to provide the following: (1) Its country of
principal executive offices; (2) whether it is a Foreign Private
Issuer; (3) whether disclosure is prohibited under its home country
law; (4) the number of directors based on gender identity (female,
male, or non-binary) and the number of directors who did not disclose
gender; (5) the number of directors who self-identify as
Underrepresented Individuals in its home country jurisdiction; (6) the
number of directors who self-identify as LGBTQ+; and (7) the number of
directors who did not disclose the demographic background under item
(5) or (6) above.\38\
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    \37\ See id.
    \38\ See id. Proposed Rule 5606 would become operative one year
after Commission approval of the proposal. See proposed Rule
5606(e). A company would be required to be in compliance with
proposed Rule 5606 by the later of: (i) One calendar year from the
approval date (``Effective Date''); or (ii) the date the company
files its proxy statement or its information statement for its
annual meeting of shareholders (or, if the company does not file a
proxy or information statement, the date it files its Form 10-K or
20-F) during the calendar year of the Effective Date.
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    As proposed, if a company fails to adhere to proposed Rule 5606,
the Exchange would notify the company that it is not in compliance with
a listing standard and allow the company 45 calendar days to submit a
plan to regain compliance and, upon review of such plan, the Exchange
may provide the company with up to 180 days to regain compliance.\39\
If the company does not submit a plan or regain compliance within the
applicable time periods, it would be issued a Staff Delisting
Determination, which the company could appeal to a Hearings Panel.\40\
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    \39\ See Rule 5810(c)(2).
    \40\ See id.
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    The Exchange states that, with these provisions, it is proposing a
disclosure-based framework and not a mandate.\41\ The Exchange also
states that while some companies have made progress in diversifying
their boardrooms, the national market system and the public interest
would be well-served by a ``disclosure-based, business driven''
framework for companies to embrace meaningful and multi-dimensional
diversification of their boards.\42\
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    \41\ See Amendment No. 1 to the Board Diversity Proposal at 19.
See also id. at Section 3.a.VII.D (discussing the alternatives that
the Exchange has considered, including a mandate versus a
disclosure-based approach).
    \42\ See id. at 8-9, 12, 41. The Exchange states that, although
gender diversity has improved among U.S. company boards in recent
years, the pace of change has been gradual and the U.S. still lags
behind jurisdictions that have focused on board diversity, and
progress toward bringing underrepresented racial and ethnic groups
into the boardroom has been slower. See id. at 12, Section 3.a.IV.
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    Some commenters express support for a ``flexible'' ``comply-or-
disclose'' approach.\43\ Some commenters state that the proposal would
not impose a quota for board diversity,\44\ and emphasize that the
Exchange does not plan to judge the merits of a company's explanation
relating to board diversity.\45\ Other commenters express the concern
that the Board Diversity Proposal would establish a quota for a minimum
number of Diverse directors.\46\ Some commenters also argue that the
proposal would substitute a regulator's judgment for that of
shareholders' and companies' boards and management in choosing
directors,\47\ and that directors should be selected for their
experience, competence, and skills.\48\
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    \43\ See, e.g., letter from Kristi Mitchem, Chief Executive
Officer, BMO Global Asset Management, to Vanessa Countryman,
Secretary, Commission, dated January 11, 2021 (``BMO Letter''), at
2; letter from Brian V. Breheny, Skadden, Arps, Slate, Meagher &
Flom LLP, to Vanessa Countryman, Secretary, Commission, dated
January 4, 2021 (``Skadden Letter''), at 2; letter from Lisa M.
Fairfax, Alexander Hamilton Professor of Business Law, George
Washington University Law School, to Vanessa Countryman, Secretary,
Commission, dated January 4, 2021 (``Fairfax Letter''), at 10;
letter from Molly Gochman, Founder & President, Stardust, to Vanessa
Countryman, Secretary, Commission, dated January 4, 2021 (``Stardust
Letter''), at 2; letter from Brenda Chia and Sanjiv Shah, Co-Chairs,
Association of Asian American Investment Managers, dated December
28, 2020 (``AAAIM Letter''), at 2; letter from Betty T. Yee,
California State Controller, to Vanessa Countryman, Secretary,
Commission, dated December 21, 2020, at 1-2; letter from Hershel
Harper, Chief Investment Officer, UAW Retiree Medical Benefits
Trust, to Vanessa Countryman, Secretary, Commission, dated December
22, 2020 (``UAW Letter''), at 2-3; letter from Jay Huish, Executive
Director, and William J. Coaker Jr., Chief Investment Officer, San
Francisco Employees' Retirement System, to Vanessa Countryman,
Secretary, Commission, dated December 17, 2020, at 2.
    \44\ See, e.g., letter from Kurt Schacht, Head of Advocacy, CFA
Institute Advocacy and Karina Karakulova Sr. Manager, Capital
Markets Policy--Americas, CFA institute, to Vanessa Countryman,
Secretary, Commission, dated January 4, 2021 (``CFA Letter'') at 6;
letter from Scott M. Stringer, New York City Comptroller, to Vanessa
Countryman, Secretary, Commission, dated January 4, 2021 (``New York
City Comptroller Letter''), at 1 and 3; letter from William J.
Stromberg, President and CEO, and David Oestreicher, General Counsel
and Corporate Secretary, T. Rowe Price Group, Inc., to Vanessa
Countryman, Secretary, Commission, dated December 29, 2020 (``T.
Rowe Letter''), at 2; letter from Joseph M. Torsella, Pennsylvania
State Treasurer, to Vanessa Countryman, Secretary, Commission, dated
January 4, 2021, at 1-2; AAAIM Letter at 2; letter from Douglas K.
Chia, Soundboard Governance LLC, to Vanessa Countryman, Secretary,
Commission, dated December 29, 2020 (``Soundboard Letter''), at 2;
letter from Amy L. Goodman and John F. Olson to Vanessa A.
Countryman, Secretary, Commission, dated December 24, 2010
(``Goodman and Olson Letter''), at 2; letter from Patricia Gazda,
Corporate Governance Officer, Ohio Public Employees Retirement
System, to Vanessa Countryman, Secretary, Commission, dated December
23, 2020 (``OPERS Letter''), at 2; UAW Letter at 2-3; letter from
Barb Smoot, President and CEO, Women for Economic and Leadership
Development, to Vanessa Countryman, Secretary, Commission, dated
December 21, 2020.
    \45\ See, e.g., letter from John W. Rogers, Jr., Chairman and
Co-CEO, and Mellody Hobson, President and Co-CEO, Ariel Investments,
LLC, to Vanessa Countryman, Secretary, Commission, dated December
29, 2020 (``Ariel Letter''), at 1; letter from Aeisha Mastagni,
Portfolio Manager, Sustainable Investment and Stewardship
Strategies, California State Teachers' Retirement System, to Vanessa
A. Countryman, Secretary, Commission, dated December 23, 2020, at 2.
    \46\ See, e.g., letter from Publius Oeconomicis to Vanessa
Countryman, Secretary, Commission, dated May 3, 2021 (``Publius
Letter II''), at 1-2; letter from Peter Flaherty, Chair, and Paul D.
Kamenar, Counsel, National Legal and Policy Center, to Vanessa
Countryman, Secretary, Commission, dated January 14, 2021 (``NLPC
Letter''); letter from Henry D. Wolfe, Chairman, De la Vega
Occidental & Oriental Holdings L.L.C., to Vanessa Countryman,
Secretary, Commission, dated January 4, 2021 (``De La Vega
Letter''), at 2; letter from Dennis E. Nixon, President,
International Bancshares Corporation, to Vanessa A. Countryman,
Secretary, Commission, dated December 31, 2020 (``IBC Letter''), at
5; anonymous letter with pseudonym ``Publius Oeconomicis'' to
Vanessa Countryman, Secretary, Commission, dated December 28, 2020
(``Publius Letter''), at 8-10; letter from Walter Donnellan dated
December 14, 2020 (``Donnellan Letter''), at 3. One commenter argues
that the Exchange downplays the consequences of non-compliance, and
that the proposed framework would require companies to either
discriminate based on sex, race, or sexual orientation or assume a
serious risk of reputational and litigation harm. See letter from C.
Boyden Gray and Jonathan Berry, Boyden Gray & Associates, submitted
on behalf of the Alliance for Fair Board Recruitment, dated April 6,
2021 (``Alliance for Fair Board Recruitment Letter''), at 31-33.
Some commenters also argue that men and women do not choose or
desire all professions equally. See letter from Richard Morrison,
Research Fellow, Competitive Enterprise Institute, dated March 11,
2021 (``CEI Letter''), at 3-4; letter from Independent Women's
Forum, dated December 24, 2020 (``Independent Women's Forum
Letter''), at 2.
    \47\ See, e.g., letter from David R. Burton, Senior Fellow in
Economic Policy, The Heritage Foundation, to J. Matthew
DeLesDernier, Assistant Secretary, Commission, dated January 4, 2021
(``Heritage Foundation Letter''), at 6-7; IBC Letter at 2; Donnellan
Letter at 2-3; Type A Letter.
    \48\ See, e.g., De La Vega Letter at 2-3; Heritage Foundation
Letter at 16.
---------------------------------------------------------------------------

    In response to comments, the Exchange notes that the Board
Diversity Proposal would establish a disclosure-based framework and not
a mandate or quota.\49\ According to the Exchange,

proposed Rule 5605(f) would set forth ``aspirational diversity
objectives'' and not quotas, mandates, or set-asides, and companies
that do not meet the objectives need only explain why they do not.\50\
The Exchange also provides examples of what might be contained in such
an explanation and reiterates that it would not assess the substance of
the explanation, but would merely verify that the company has provided
one.\51\ The Exchange further states that the proposal would not
require any particular board composition or require a company to select
directors based on any criteria other than an individual's
qualifications for the position.\52\ The Exchange believes that its
proposal would balance the calls of investors for companies to increase
diverse representation on their boards with the need for companies to
maintain flexibility and decision-making authority over their board
composition.\53\
---------------------------------------------------------------------------

    \49\ See Nasdaq Response Letter II at 6-7. The Exchange also
rejects the comments that claim that the proposal is a de facto
quota, and states that the proposal is intended to provide
shareholders with sufficient information to make an informed voting
or investment decision, or to facilitate informed discussions with
companies. See id. at 8.
    \50\ See letter from Stephen J. Kastenberg, Ballard Spahr LLP,
to Vanessa Countryman, Secretary, Commission, dated February 5, 2021
(submitted on behalf of the Exchange by its counsel) (``Nasdaq
Response Letter I''), at 2.
    \51\ See id. at 2-3. See also Nasdaq Response Letter II at 7.
    \52\ See Nasdaq Response Letter I at 3.
    \53\ See Nasdaq Response Letter II at 7. See also infra Section
II.D. (describing the Exchange's argument that companies are free to
decide where to list and may switch listing markets).
---------------------------------------------------------------------------

    The Board Diversity Proposal would establish a disclosure-based
framework for Nasdaq-listed companies that would contribute to
investors' investment and voting decisions. While the proposal may have
the effect of encouraging some Nasdaq-listed companies to increase
diversity on their boards, the proposed rules do not mandate any
particular board composition. The proposal would not require a company
to select a director solely because that person falls within the
proposed definition of ``Diverse,'' would not prevent companies and
their shareholders from selecting directors based on experience,
competence, and skills, and would not substitute a regulator's judgment
for companies' or their shareholders' judgment in selecting directors.
Rather, a Nasdaq-listed company that does not meet the board diversity
objectives may comply with proposed Rule 5605(f) by identifying the
requirements of Rule 5605(f)(2) that apply to the company and
explaining why it does not meet the objectives, and the Exchange would
not assess the substance of the company's explanation.\54\
---------------------------------------------------------------------------

    \54\ One commenter states that, if the Exchange is truly
interested in establishing only a disclosure framework, it should
remove the diversity objectives and only require board-level
statistical disclosure, or alternatively require all companies to
disclose an explanation for the constitution of their boards. See
Publius Letter II at 2. As discussed in Section II.C.2., it is not
unreasonable to only require companies that do not meet the proposed
diversity objectives to disclose why they have not done so, rather
than to require all Nasdaq-listed companies to disclose their
approach to board diversity. Moreover, as discussed in Section
II.A.2., explanations from companies that do not meet the proposed
diversity objectives, in addition to board-level statistical
disclosure, would contribute to investors' investment and voting
decisions.
---------------------------------------------------------------------------

    Some companies may prefer not to explain their approach to board
diversity for various reasons, such as concerns regarding perceived
reputational, legal, or other harm. However, the proposal could
mitigate potential concerns by giving companies substantial flexibility
in crafting the required explanation--including how much detail to
provide--and the Exchange would not evaluate the substance of the
explanation. Moreover, while there would be costs to listing
elsewhere,\55\ companies that object to providing any explanation can
choose instead to list on a different exchange. No company is required
to list on Nasdaq. Rather, exchanges compete for listings, with four
exchanges that currently list securities of operating companies \56\
and nine exchanges that have rules for the listing of issuers on the
exchange.\57\ Listing exchanges compete with each other for listings in
many ways, including listing fees, listing standards, and listing
services.\58\ In approving proposed rule changes relating to
complimentary services that exchanges offer to issuers, including
issuers that switch listing markets, the Commission has also explained
that exchanges are responding to competitive market pressures.\59\ As
discussed in Section II.D. below, the current proposals may provide
another way in which the exchanges compete for listings.
---------------------------------------------------------------------------

    \55\ These costs would include the fixed costs associated with
listing on a different exchange (such as the exchange's application
fee, and the legal and accounting expenses associated with ensuring
that the issuer satisfies the listing standards of the new
exchange), as well as the costs associated with communicating with
investors about the transfer of listing. See Securities Act Release
No. 10428 (October 24, 2017), 82 FR 50059, 50065 (October 30, 2017)
(``Rule 146 Release'').
    \56\ These exchanges are Nasdaq; New York Stock Exchange LLC
(``NYSE''); Cboe BZX Exchange, Inc. (``BZX''); and NYSE American LLC
(``NYSE American'').
    \57\ These exchanges are Nasdaq; NYSE; BZX; NYSE American;
Investors Exchange LLC (``IEX''); Long-Term Stock Exchange, Inc.
(``LTSE''); Nasdaq BX, Inc.; NYSE Arca, Inc.; and NYSE Chicago, Inc.
See also, e.g., LTSE Rule 14.425(a)(1)(C) (requiring LTSE-listed
issuers to adopt and publish a policy on the company's approach to
diversity and inclusion).
    \58\ See Rule 146 Release, supra note 55, at 50064. The
Exchange, along with other exchanges, currently have a number of
listing standards governing a listed company's board of directors.
See, e.g., Nasdaq Rule 5600 Series; NYSE Listed Company Manual
Section 303A.00.
    \59\ See, e.g., Securities Exchange Act Release No. 90893
(January 11, 2021), 86 FR 4166 (January 15, 2021) (approving SR-
NYSE-2020-94 relating to certain complimentary services); Securities
Exchange Act Release No. 90729 (December 18, 2020), 85 FR 84434
(December 28, 2020) (approving SR-NASDAQ-2020-060 relating to
certain complimentary services).
---------------------------------------------------------------------------

2. Demand for and Potential Benefits of the Proposed Disclosures
    In the Board Diversity Proposal, the Exchange states that its
discussions with organizational leaders representing a broad spectrum
of market participants and stakeholders (including members of the
business, investor, governance, legal, and civil rights communities)
revealed strong support for disclosure requirements that would
standardize the reporting of board diversity statistics.\60\ The
Exchange also states that current reporting of board diversity data is
not provided in a consistent manner or on a sufficiently widespread
basis and, as such, investors are not able to readily compare board
diversity statistics across companies.\61\ In pointing out the ``broad
latitude'' afforded to companies by Commission rules relating to board
diversity and proxy disclosure, the Exchange states that the absence of
a specific definition of ``diversity'' for such disclosures has
resulted in current reporting of board-level diversity
---------------------------------------------------------------------------

    \60\ See Amendment No. 1 to the Board Diversity Proposal at
Section 3.a.V. The Exchange also states that such discussions
reinforced the notion that if companies recruit by skill set and
experience rather than title, diverse talent would satisfy demand.
See id. at 19-20, 46. According to the Exchange, studies suggest
that the traditional director candidate selection process may create
barriers to considering qualified diverse candidates for board
positions. See id. at 41-44, Section 3.b.II.A.
    \61\ See id. at 9. The Exchange also states that, while
conducting research on the state of board diversity among its listed
companies, it encountered multiple key challenges, such as: (1)
Inconsistent disclosure and definitions of ``diversity'' across
companies; (2) limited data on diverse characteristics outside of
gender; (3) inconsistent or no disclosure of a director's race,
ethnicity, or other diversity attributes (e.g., nationality); (4)
difficult-to-extract data because statistics are often embedded in
graphics; and (5) aggregation of information, making it difficult to
separate gender from other categories of diversity. See id. at 51.
See also id. at 59, 107.

---------------------------------------------------------------------------

statistics being significantly unreliable and unusable to
investors.\62\ The Exchange notes that the lack of transparency creates
barriers to investment analysis, due diligence, and academic study, and
affects investors who are increasingly basing public advocacy, proxy
voting, and direct shareholder-company engagement decisions on board
diversity considerations.\63\
---------------------------------------------------------------------------

    \62\ See id. at Sections 3.a.VI.A-B.
    \63\ See id. at 51-52. See also id. at Section 3.a.VI.C.
(describing examples of support for board diversity disclosures).
---------------------------------------------------------------------------

    The Exchange asserts that the disclosure-based framework of
proposed Rule 5605(f) may influence corporate conduct if a company
chooses to meet the proposed diversity objectives,\64\ and could help
increase opportunities for Diverse candidates.\65\ Moreover, the
Exchange states that, if a company does not meet the proposed
objectives, the disclosure under proposed Rule 5605(f)(3) would provide
analysts and investors with a better understanding about a company's
reasons for not doing so.\66\ The Exchange believes that this
disclosure would enable the investment community to conduct more
informed analyses of, and have more informed conversations with,
companies and improve the quality of information available to investors
who rely on this information to make informed investment and voting
decisions.\67\
---------------------------------------------------------------------------

    \64\ See id. at 121.
    \65\ See id. The Exchange also states that proposed Rule 5605(f)
would empower companies to maintain decision-making authority over
the composition of their boards. See id. at 122. The Exchange
recognizes that directors may bring diverse perspectives, skills,
and experiences to the board, notwithstanding that they have similar
attributes; therefore, the Exchange believes that it is in the
public interest to permit a company to choose whether to meet the
proposed diversity objectives or explain why it does not. See id. at
129-30.
    \66\ See id. at 122.
    \67\ See id. at 122-23.
---------------------------------------------------------------------------

    In addition, the Exchange believes that the disclosure-based
framework of proposed Rule 5606 would eliminate data collection
inaccuracies, decrease investors' costs, enhance investors' ability to
utilize the information disclosed, and make information available to
investors who otherwise would not be able to obtain individualized
disclosures.\68\ The Exchange also states that proposed Rule 5606 would
protect investors that view information related to board diversity as
material to their investment and voting decisions, and enhance investor
confidence by assisting investors in making more informed
decisions.\69\ Moreover, the Exchange believes that the disclosures
would provide consistent information to the public and would enable
investors to continually review the board composition of a company to
track trends,\70\ as well as simplify or eliminate the need for a
company to respond to multiple investor requests for board diversity
information.\71\
---------------------------------------------------------------------------

    \68\ See id. at 110-13.
    \69\ See id. at 110-11.
    \70\ The Exchange also states that the disclosures under
proposed Rule 5606 would provide a means for the Exchange to assess
whether companies meet the diversity objectives under proposed Rule
5605(f). See id. at 116.
    \71\ See id. at 112.
---------------------------------------------------------------------------

    Many commenters who support the Board Diversity Proposal believe
that investors currently do not have sufficient access to consistent,
meaningful, or reliable board diversity information.\72\ Many
commenters believe that board diversity information is important for
investment decision making,\73\ investment strategies and analysis,\74\
and voting decisions.\75\ Some commenters also believe that the
availability of board diversity information would facilitate studies on
the impact of board diversity.\76\ In addition, many commenters believe
that the proposed board diversity disclosures would be material to
investors,\77\ would improve access to transparent and comparable board
diversity disclosures across companies,\78\ would allow more efficient
and less costly access to and usage of board diversity information,\79\
and would allow investors to monitor

and assess companies' board diversity.\80\ Moreover, some commenters
believe that the proposal would enhance progress in increasing board
diversity.\81\
---------------------------------------------------------------------------

    \72\ See, e.g., letter from Aron Szapiro, Head of Policy
Research, Morningstar, Inc., and Michael Jantzi, Chief Executive
Officer, Sustainalytics, to Vanessa Countryman, Secretary,
Commission, dated January 13, 2021 (``Morningstar Letter''), at 1-2;
letter from Ramiro A. Cavazos, President and CEO, United States
Hispanic Chamber of Commerce, to Vanessa Countryman, Secretary,
Commission, dated January 4, 2021 (``Hispanic Chamber of Commerce
Letter''), at 3; New York City Comptroller Letter at 2-3; Fairfax
Letter at 7; letter from Michael W. Frerichs, Illinois State
Treasurer, to Vanessa Countryman, Secretary, Commission, dated
December 31, 2020 (``Illinois State Treasurer Letter''), at 2;
Constance F. Armstrong, Executive Director, The Boston Club, to
Vanessa Countryman, Secretary, Commission, dated December 31, 2020
(``Boston Club Letter'') at 1; letter from Roger W. Ferguson, Jr.,
President and CEO, Teachers Insurance and Annuity Association of
America, and Jose Minaya, CEO, Nuveen, LLC, to Vanessa Countryman,
Secretary, Commission, dated December 31, 2020 (``TIAA Letter''), at
2; letter from Esther Aguilera, President and CEO, Latino Corporate
Directors Association, to Vanessa Countryman, Secretary, Commission,
dated December 30, 2020 (``LCDA Letter''), at 9-11; letter from
Robert W. Lovelace, Chief Executive Officer, Capital Research and
Management Company, to Vanessa Countryman, Secretary, Commission,
dated December 22, 2020 (``Capital Research and Management Company
Letter''), at 2-3; letter from Rachel Stern, Executive Vice
President, Chief Legal Officer and Global Head of Strategic
Resources, FactSet Research Systems Inc., to Vanessa Countryman,
Secretary, Commission, dated December 22, 2020 (``FactSet Letter''),
at 1-2. Some commenters also note that not all investors currently
have the same access to board diversity information. See, e.g.,
Fairfax Letter at 6 (stating that collection of board diversity data
on a company-by-company basis creates informational asymmetries,
particularly for investors without the time or resources to
effectively engage in this manner); New York City Comptroller Letter
at 3 (stating that the proposal would level the playing field for
smaller institutional investors who may not have the resources
available to do the research and engagement necessary to ascertain
the racial and ethnic diversity of boards).
    \73\ See, e.g., BMO Letter at 1; letter from Olshan Frome
Wolosky LLP to Vanessa A. Countryman, Secretary, Commission, dated
January 6, 2021 (``Olshan Letter''), at 3-4; letter from Steve
Nelson, Chief Executive Officer, Institutional Limited Partners
Association, to Vanessa Countryman, Secretary, Commission, dated
January 4, 2021 (``Institutional Limited Partners Association
Letter''), at 2; TIAA Letter at 3; LCDA Letter at 6-10; letter from
Mary Pryshlak, Head of Investment Research, Wellington Management
Company LLP, to Vanessa Countryman, Secretary, Commission, dated
December 30, 2020 at 1-2; Ariel Letter at 1. Some commenters also
specifically express support for the proposed disclosures of the
reason why a company does not meet the board diversity objectives
and believe that such disclosures would contribute to investment or
voting decisions. See, e.g., letter from Jeffrey P. Mahoney, General
Counsel, Council of Institutional Investors, to Secretary,
Commission, dated December 30, 2020, at 4-5; Ariel Letter at 1.
    \74\ See, e.g., T. Rowe Letter at 1-2; UAW Letter at 6; FactSet
Letter at 1-2.
    \75\ See, e.g., letter from Dev Stahlkopf, Corporate Vice
President, General Counsel and Secretary, Microsoft Corporation, to
Vanessa Countryman, Secretary, Commission, dated January 4, 2021
(``Microsoft Letter''), at 2; New York City Comptroller Letter at 2-
3.
    \76\ See, e.g., letter from Olivia D. Morgan, Executive Director
and Co-Founder, California Partners Project, to Vanessa Countryman,
Secretary, Commission, dated January 3, 2020 [sic] (``California
Partners Project Letter''), at 2; letter from Dieter Waizenegger,
Executive Director, CtW Investment Group, to Vanessa Countryman,
Secretary, Commission, dated December 31, 2020 (``CtW Letter''), at
2; Soundboard Letter at 2; UAW Letter at 6; letter from Sarah
Keohane Williamson, Chief Executive Officer, Ariel Fromer Babcock,
Managing Director, Head of Research, and Victoria Tellez Leal,
Senior Associate, Research, FCLTGlobal, to Vanessa Countryman,
Secretary, Commission, dated December 18, 2020, at 3.
    \77\ See, e.g., letter from Fran Seegull, President, U.S. Impact
Investing Alliance, to Vanessa Countryman, Secretary, Commission,
dated March 5, 2021 (``Alliance Letter''), at 1; CFA Letter at 3;
letter from Edgar Hernandez, Assistant Director, Capital
Stewardship, Service Employees International Union, to Vanessa A.
Countryman, Secretary, Commission, dated January 4, 2020 [sic]
(``SEIU Letter''), at 2; Illinois State Treasurer Letter at 1-2.
    \78\ See, e.g., BMO Letter at 1; SEIU Letter at 2; letter from
Alfred P. Poor, Chief Executive Officer, Ideanomics, Inc., to
Vanessa Countryman, Secretary, Commission, dated December 28, 2020
(``Ideanomics Letter''), at 1, 3; letter from Kimberly Jeffries
Leonard, National President, The Links, Incorporated, to Vanessa A.
Countryman, Secretary, Commission, dated December 17, 2020 (``Links
Letter''), at 2.
    \79\ See, e.g., letter from Paul M. Kinsella, Emily J. Oldshue,
Jeremiah Williams, Partners, Ropes & Gray LLP, to Vanessa
Countryman, Secretary, Commission, dated December 31, 2020 (``Ropes
& Gray Letter''), at 4; UAW Letter at 6.
    \80\ See, e.g., Fairfax Letter at 7; letter from Lisa Hayles,
Investment Manager, Trillium Asset Management, to Vanessa
Countryman, Secretary, Commission, dated January 4, 2021 (``Trillium
Letter''), at 3; letter from Charlotte Laurent-Ottomane, Executive
Director, and Toni Wolfman, Co-Chair, Public Policy Outreach
Committee, Thirty Percent Coalition, to Vanessa Countryman,
Secretary, Commission, dated January 1, 2021 (``Thirty Percent
Coalition Letter''), at 1; CtW Letter at 2; OPERS Letter at 1-2.
    \81\ See, e.g., FactSet Letter at 2; letter from Fiona Ma,
California State Treasurer, to Vanessa Countryman, Secretary,
Commission, dated December 15, 2020 (``California State Treasurer
Letter''). See also, e.g., letter from Thomas Chow, Irene Liu, and
Andrew Song, Co-Chairs, Bay Area Asian American General Counsel, to
Vanessa Countryman, Secretary, Commission, dated January 4, 2021, at
2 (stating that the Board Diversity Proposal provides an appropriate
impetus to depart from the traditional director search process and
to diversify the candidate pool).
---------------------------------------------------------------------------

    Some commenters, by contrast, argue that the perceived investor
demand for diverse boards and diversity information is overstated, and
if diversity requirements increase returns, then boards, management,
and shareholders would not require any regulatory mandate to adopt
them.\82\ Further, some commenters argue that the proposal is
unnecessary and that company boards are already becoming more
diverse,\83\ and some commenters argue that shareholders have the power
to push for diversity changes in the boardroom.\84\
---------------------------------------------------------------------------

    \82\ See, e.g., Alliance for Fair Board Recruitment Letter at
43; CEI Letter at 1-2; letter from John Quigley to Vanessa
Countryman, Secretary, Commission, dated January 25, 2021 (``Quigley
Letter''), at 1; Heritage Foundation Letter at 3, 5-6; letter from
Boyden Gray & Associates PLLC, dated January 4, 2020 [sic]
(``Project on Fair Representation Letter''), at 5; Publius Letter at
3. See also NLPC Letter at 4 (stating that it is in a company's
interest to promote and advertise the diversity of its board if it
believes that such diversity would attract investors, regardless of,
or in addition to, the economic performance of the company).
    \83\ See, e.g., letter from Pat Toomey et al, U.S. Senators, to
Allison Herren Lee, Acting Chair, Commission, dated February 12,
2021 (``Toomey Letter''), at 3; NLPC Letter at 3-4 (also arguing
that information is available on a company's website with the
biographical information of its board members and officers, and that
investors are unlikely to access such information from the
Commission); Publius Letter at 2-3.
    \84\ See, e.g., Project on Fair Representation Letter at 5;
letter from Jerry D. Guess, Founder, Chairman, and CEO, Guess & Co.
Corporation, to Martha Miller, Director, Office of the Advocate for
Small Business Formation, Commission, dated December 2, 2020
(``Guess Letter''), at 2.
---------------------------------------------------------------------------

    In response, the Exchange states that investors are increasingly
interested in board diversity data, as investors view board diversity
as a key indicator of corporate governance.\85\ Moreover, the Exchange
states that the wave of investors increasingly calling for companies to
disclose diversity metrics and diversify their boards, and basing their
voting decisions on whether companies do or do not, demonstrates that
investors consider diversity disclosures material to their voting and
investment decisions.\86\ The Exchange explains that its goal is to
facilitate the collection, reliability, and uniformity of board
diversity data, while expanding access to the information.\87\ The
Exchange also states that its proposal would level the playing field
for retail and institutional investors, and decrease the cost and time
associated with data collection for all investors, by providing them
with accessible, comparable, and transparent information by which they
could critically evaluate a company's decisions with respect to how,
whether, or when to pursue board diversity.\88\ And the Exchange
reiterates that the proposal provides flexibility for companies that do
not wish to achieve the diversity objectives or wish to do so on a
different timeline.\89\
---------------------------------------------------------------------------

    \85\ See Nasdaq Response Letter II at 20.
    \86\ See id. at 12.
    \87\ See id. at 20.
    \88\ See id. at 13, 25.
    \89\ See id. at 25. The Exchange also states that, absent
encouragement, progress toward increased board diversity has been
demonstrably slow, and that regulatory action has proven effective
in removing barriers and increasing board diversity among those
traditionally underrepresented in other jurisdictions. See id. at
15, 25-26.
---------------------------------------------------------------------------

    The Commission finds that the Board Diversity Proposal would
provide widely available, consistent, and comparable information that
would contribute to investors' investment and voting decisions. Because
the Exchange would define ``Diverse'' for purposes of the proposed
disclosures and would require consistent format and timing for the
proposed disclosures,\90\ the proposal would make it more efficient and
less costly for investors to collect, use, and compare information on
board diversity. The reduced cost and improved efficiency in
collecting, using, and comparing such information could enhance
investors' investment and voting decision-making processes, and enhance
investors' ability to make informed investment and voting decisions.
Because the proposal would make such information widely available on
the same basis to all investors, the proposal would also mitigate any
concerns regarding unequal access to information that may currently
exist between certain (likely larger and more resourceful) investors
who could obtain the information and other (likely smaller) investors
who may not be able to do so. Accordingly, the Commission finds that
the proposal is designed to promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and protect investors and the
public interest.
---------------------------------------------------------------------------

    \90\ In particular, companies would be required to: make board-
level diversity disclosures in a substantially similar format as the
Board Diversity Matrix; following the first year of disclosure,
disclose the current year and immediately prior year Board Diversity
Matrix; provide the Board Diversity Matrix in a searchable format;
and provide the required disclosures in a proxy statement or
information statement (or if a company does not file a proxy, in its
Form 10-K or 20-F) in advance of the company's annual shareholders
meeting or provide the required disclosures on the company's website
concurrently with the filing of the company's proxy statement or
information statement (or, if the company does not file a proxy, its
Form 10-K or 20-F).
---------------------------------------------------------------------------

    The diverse collection of commenters who expressed interest in
board diversity information, including institutional investors,
investment managers, listed companies, and individual investors, as
well as statements made by institutional investors, asset managers, and
business organizations,\91\ demonstrates the broad demand for this
information.\92\ Moreover, while investors may have differing views
regarding whether companies should increase board diversity and whether
and how board diversity affects company performance and governance, the
proposed disclosures would contribute to investors' investment and
voting

decisions regardless of their views on whether board diversity is
desirable or beneficial. For example, for investors who support board
diversity, the proposed disclosures could inform their decision on
issues related to corporate governance, including director elections,
and company explanations as to why they do not meet the diversity
objectives could better inform those investors as to the risks and
costs of increased board diversity. And for investors who do not
believe that having additional ``Diverse'' directors would be
beneficial for a company, the proposed disclosures could inform their
decision to vote to preserve the existing board composition in a
company. The disclosures' focus on providing greater transparency
regarding existing board composition and companies' approaches to board
diversity--rather than mandating any particular board composition or
requiring Nasdaq-listed companies to change the composition of their
boards--will provide investors with board-level diversity statistics
and explanations for certain companies' approaches to board diversity,
which would contribute to investors' investment and voting decisions,
including decisions related to companies' board compositions.
---------------------------------------------------------------------------

    \91\ See, e.g., Amendment No. 1 to the Board Diversity Proposal
at 8 n.9, 54 n.142 (referencing statements from Vanguard, State
Street Global Advisors, and BlackRock that call for companies to
disclose board diversity information); id. at 54 nn.139-40
(referencing petitions for Commission rulemaking from groups of
institutional investors that call for disclosures of board diversity
information); id. at 54 n.143 (referencing an initiative by a state
treasurer and group of institutional investors calling for Russell
3000 companies to disclose board diversity information); id. at 57
n.152 (referencing a letter from various business associations
expressing support for the passage of a bill by the U.S. House of
Representatives that would require board diversity disclosures).
    \92\ Commenters who express support for the proposed disclosures
include institutional investors, investment managers, listed
companies, and individual investors. See, e.g., letter from Cynthia
Overton to Vanessa Countryman, Secretary, Commission, dated January
3, 2021; letter from Dan Dees, Co-Head Investment Banking Division,
Goldman Sachs Group, Inc., to Secretary, Commission, dated January
1, 2021 (``Goldman Sachs Letter''); letter from Marcie Frost, Chief
Executive Officer, California Public Employees' Retirement System,
to Vanessa Countryman, Secretary, Commission, dated December 31,
2020; TIAA Letter; letter from Jo Brickman, dated December 18, 2020.
They also include listed companies. See, e.g., Microsoft Letter;
letter from Sheryl Sandberg, Chief Operating Officer, Facebook Inc.,
to Vanessa Countryman, Secretary, Commission, dated January 3, 2021;
letter from Jeff Ray, CEO, Brightcove, to Vanessa Countryman, dated
December 23, 2020 (``Brightcove Letter'').
---------------------------------------------------------------------------

B. Potential Effects of Board Diversity on Companies and Investors

    In the Board Diversity Proposal, the Exchange states that it has
reviewed dozens of empirical studies and found that an extensive body
of empirical research demonstrates that diverse boards are positively
associated with improved corporate governance and company
performance.\93\ While the Exchange states that the overwhelming
majority of empirical studies it has reviewed indicate that board
diversity is positively associated with company performance, it
acknowledges that the results of some studies on gender diversity are
mixed.\94\ Nevertheless, the Exchange believes that ``there is a
compelling body of credible research on the association between company
performance and board diversity'' and, at a minimum, the academic and
empirical studies support the conclusion that board diversity does not
have adverse effects on company performance.\95\
---------------------------------------------------------------------------

    \93\ See Amendment No. 1 to the Board Diversity Proposal at 13.
The Exchange states that studies have identified positive
relationships between board diversity and commonly used financial
metrics, including higher returns on invested capital, returns on
equity, earnings per share, earnings before interest and taxation
margin, asset valuation multiples, and credit ratings. See id. at
13, Section 3.a.III.A. The Exchange also points to a report that
suggests that the relationship between board gender diversity and
corporate performance may extend to LGBTQ+ diversity. See id. at 25.
    \94\ See id. at 25-28 (referencing Carter et al., infra note
119, and the U.S. Government Accountability Office's conclusion that
the mixed nature of various academic and empirical studies may be
due to differences in methodologies, data samples, and time
periods).
    \95\ See id. at 28.
---------------------------------------------------------------------------

    The Exchange also states that there is substantial evidence that
board diversity promotes investor protection, including by enhancing
the quality of a company's financial reporting, internal controls,
public disclosures, and management oversight.\96\ According to the
Exchange, more than a dozen studies have found a positive association
between gender diversity and important investor protections,\97\ and
some academics assert that such findings may extend to other forms of
diversity, including racial and ethnic diversity.\98\ The Exchange also
states that it has reviewed studies suggesting that board diversity
could enhance a company's ability to monitor management by reducing
``groupthink'' and improving decision-making.\99\
---------------------------------------------------------------------------

    \96\ See id. at 29.
    \97\ See id. at 29, Section 3.a.III.B. The Exchange states that
studies have found that gender-diverse boards or audit committees
are associated with: More transparent public disclosures and less
information asymmetry; better reporting discipline by management; a
lower likelihood of manipulated earnings through earnings
management; an increased likelihood of voluntarily disclosing
forward-looking information; a lower likelihood of receiving audit
qualifications due to errors, non-compliance, or omission of
information; and a lower likelihood of securities fraud. See id. at
13, Section 3.a.III.B. In addition, the Exchange states that studies
found that having at least one woman on the board is associated with
a lower likelihood of material weaknesses in internal control over
financial reporting and a lower likelihood of material financial
restatements. See id. at 13, Section 3.a.III.B, Section 3.b.II.B.
    \98\ See id. at 29, Section 3.a.III.B.
    \99\ See id. at Section 3.a.III.C.
---------------------------------------------------------------------------

    Some commenters similarly believe that there are benefits
associated with board diversity, such as improved board decision-
making,\100\ corporate governance,\101\ financial performance or
shareholder value,\102\ risk mitigation,\103\ innovation,\104\ investor
protection,\105\ investor confidence,\106\ and corporate culture.\107\
By contrast, some commenters argue that the Exchange has not
demonstrated causation between board diversity and the benefits
described in the Board Diversity Proposal, and that the supporting
studies cited by the Exchange do not show that diversity on a company's
board causes, rather than is merely correlated with, performance
enhancement.\108\ Commenters further assert that the peer-reviewed
economics literature is inconclusive, with most studies showing little
or no discernable effect based on the sexual, racial, or ethnic
composition of corporate boards.\109\ In addition, some commenters
state that some studies have not found a positive correlation between
board diversity and benefits, and point out the lack of research
relating to LBGTQ+ board

representation and diversity relating to Underrepresented
Minorities.\110\ Moreover, some commenters argue that there is academic
work reporting that diversifying boards can harm financial performance
or shareholder value.\111\ Another commenter argues that the proposal
is not consistent with a free market because the proposed diversity
requirement does not demonstrably improve corporate performance, and
could sometimes harm it.\112\ This commenter further argues that the
proposal may result in increases in the size of boards, potentially
hindering corporate oversight and governance.\113\
---------------------------------------------------------------------------

    \100\ See, e.g., letter from Kewsong Lee, Chief Executive
Officer, The Carlyle Group, to Vanessa Countryman, Secretary,
Commission, dated March 16, 2021 (``Carlyle Letter''), at 1; letter
from Joan Haffenreffer, President, Women's Forum of New York, to
Vanessa Countryman, Secretary, Commission, dated January 4, 2021
(``Women's Forum Letter''), at 1-2; letter from Abraham Kim,
Executive Director, Council of Korean Americans, to Vanessa
Countryman, Secretary, Commission, dated January 3, 2021, at 1;
Goldman Sachs Letter at 1; T. Rowe Letter at 1-2; Ideanomics Letter
at 2, 4; letter from Aaron Meder, CEO, LGIM America, to Vanessa
Countryman, Secretary, Commission, dated December 23, 2020 (``LGIM
America Letter''), at 2; Goodman and Olson Letter at 1-2; letter
from Mercy Investment Services, Inc., to Vanessa Countryman,
Secretary, Commission, dated December 22, 2020 (``Mercy Investment
Letter''), at 1; letter from Luan Jenifer, President, Miller/Howard
Investments, Inc., to Vanessa Countryman, Secretary, Commission,
dated December 22, 2020 (``Miller/Howard Letter''), at 1; letter
from Kerrie Waring, Chief Executive Officer, International Corporate
Governance Network, to Jay Clayton, Chairman, Commission, dated
December 16, 2020, at 2.
    \101\ See, e.g., Carlyle Letter at 1; letter from Dorri
McWhorter, Chief Executive Officer, YWCA Metropolitan Chicago, to
Vanessa Countryman, Secretary, Commission, dated January 4, 2021;
Women's Forum Letter at 2; AAAIM Letter at 2; Miller/Howard Letter
at 1; letter from Seth Brody, Partner and Global Head of the
Operational Excellence Practice, Apax Partners, to Vanessa
Countryman, Secretary, Commission, dated December 16, 2020.
    \102\ See, e.g., Carlyle Letter at 1; letter from Kerry E.
Berchem, Akin Gump Strauss Hauer & Feld LLP, to Vanessa Countryman,
Secretary, dated January 4, 2021 (``Akin Gump Letter''), at 2;
Goldman Sachs Letter at 1; Capital Research and Management Company
Letter at 1; FactSet Letter at 1.
    \103\ See, e.g., Akin Gump Letter at 4; letter from Michelle
Dunstan, SVP, Global Head of Responsible Investing, and Diana Lee,
AVP, Director of Corporate Governance, AllianceBernstein L.P., to
Vanessa A. Countryman, Secretary, Commission, dated January 4, 2021
(``AllianceBernstein Letter''), at 1; Hispanic Chamber of Commerce
Letter at 3.
    \104\ See, e.g., LGIM America Letter at 2; Miller/Howard Letter
at 1.
    \105\ See, e.g., Women's Forum Letter at 2; Miller/Howard Letter
at 1; Douglas B. Sieg, Managing Partner, Lord Abbett, to Vanessa
Countryman, Secretary, Commission, dated December 18, 2020, at 1.
    \106\ See, e.g., FactSet Letter at 2; Miller/Howard Letter at 1;
UAW Letter at 3-4.
    \107\ See, e.g., Akin Gump Letter at 4; California Partners
Project Letter at 2; Capital Research and Management Company Letter
at 1-2.
    \108\ See, e.g., Publius Letter II at 2; Toomey Letter at 2;
Heritage Foundation Letter at 7-10; Project on Fair Representation
Letter at 3-4; letter from Scott Shepard, Free Enterprise Project,
National Center for Public Policy Research, to Vanessa Countryman,
Secretary, Commission, dated December 30, 2020 (``Free Enterprise
Project Letter''), at 2-3; Publius Letter at 4-7; letter from John
Richter dated December 12, 2020 (``Richter Letter''), at 1-2.
    \109\ See Heritage Foundation Letter at 7-10. See also, e.g.,
Alliance for Fair Board Recruitment Letter at 7-31; De La Vega
Letter at 2; Richter Letter at 1.
    \110\ See, e.g., Toomey Letter at 2; Donnellan Letter at 1;
Project on Fair Representation Letter at 6-7; Publius Letter at 6-7;
Alliance for Fair Board Recruitment Letter at 26-28.
    \111\ See, e.g., letter from Samuel S. Guzik, Guzik &
Associates, to J. Matthew DeLesDernier, Assistant Secretary,
Commission, dated April 5, 2021 (``Guzik Letter''), at 3-5; letter
from Theo Vermaelen, dated December 29, 2020.
    \112\ See Toomey Letter at 2.
    \113\ See id. at 3. Another commenter also predicts that the
proposal will weaken corporate governance. See De La Vega Letter at
2-3.
---------------------------------------------------------------------------

    With respect to comments that disagree that board diversity is
linked to enhanced company performance, innovation, long-term
sustainable returns, or investor protection, the Exchange states that
``the weight of empirical evidence'' supports its belief in the
benefits of board diversity for companies that choose to meet the
proposed diversity objectives.\114\ With respect to commenters' view
that there is insufficient evidence to establish a positive
relationship between LGBTQ+ diversity and board performance, the
Exchange reiterates that it is reasonable and in the public interest to
treat LGBTQ+ status as ``inextricably'' intertwined with gender
identity.\115\
---------------------------------------------------------------------------

    \114\ See Nasdaq Response Letter II at 8-10.
    \115\ See id. at 10.
---------------------------------------------------------------------------

    The Exchange also states that Section 6(b)(5) of the Act does not
require the Exchange to show that its listing rules enhance the
financial performance of listed companies.\116\ With respect to the
comment that adding board members to satisfy the proposal could create
less effective corporate oversight and governance due to a larger
board, the Exchange states that the proposal would not require that
companies add or remove any directors in order to increase
diversity.\117\
---------------------------------------------------------------------------

    \116\ See id.
    \117\ See id. at 28.
---------------------------------------------------------------------------

    The conclusions from the studies together referenced by the
Exchange and commenters on the effects of changes in board diversity on
investors are mixed.\118\ Some of the results from the studies cited by
the Exchange and commenters are consistent with the view that increases
in board diversity cause increases in shareholder wealth.\119\ One
study concludes that greater board diversity leads to better firm
performance, consistent with diversity fostering more efficient (real)
risk-taking, firms with greater board diversity are found to invest
persistently more in research and development and have more efficient
innovation processes.\120\ Other studies have concluded that increases
in board diversity may not be beneficial to investors. For example, one
study concludes that the effect of gender diversity on firm performance
is negative for some companies.\121\ In addition, some studies of some
board diversity mandates have concluded they are not beneficial to
investors.\122\ For example, studies of the effects of the board
diversity mandates in Norway have presented indications that the
mandates caused a decline in company performance and reduced
shareholder wealth.\123\ According to one study, some companies chose
to go private rather than comply with the Norway board diversity
mandate.\124\ A more recent study, however, questions the statistical
significance of these findings.\125\ Taken together, studies of the
effects of board diversity are generally inconclusive, and suggest that
the effects of even mandated changes remain the subject of reasonable
debate.
---------------------------------------------------------------------------

    \118\ The studies and their findings are also subject to the
various caveat and limitations that are described in the studies.
    \119\ See, e.g., Gennaro Bernile et al., Board Diversity, Firm
Risk, and Corporate Policies, 127 J. Fin. Econ. 588, 605 (2018);
David A. Carter et al., The Gender and Ethnic Diversity of US Boards
and Board Committees and Firm Financial Performance, 18 Corporate
Governance 396, 410 (2010); Jason M. Thomas & Megan Starr, The
Carlyle Group, Global Insights: From Impact Investing to Investing
for Impact 5 (2020). See also Olga Kuzmina & Valentina Melentyeva,
Gender Diversity in Corporate Boards: Evidence from Quota-Implied
Discontinuities (CEPR, Discussion Paper No. DP14942, 2021),
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3638047; Muhammad Nadeem et al., Women on
Boards, Firm Risk and the Profitability Nexus: Does Gender Diversity
Moderate the Risk and Return Relationship?, 64 Int'l Rev. Econ. &
Fin. 427 (2019).
    \120\ See Bernile et al., supra note 119.
    \121\ See Ren[eacute]e B. Adams & Daniel Ferreira, Women in the
Boardroom and Their Impact on Governance and Performance, 94 J. Fin.
Econ. 291 (2009). This study observes that the effect of gender
diversity on firm performance may be negative and in general depends
on the specification of the analysis.
    \122\ See Alliance for Fair Board Recruitment Letter at 2, 24.
    \123\ See, e.g., Kenneth R. Ahern & Amy K. Dittmar, The Changing
of the Boards: The Impact on Firm Valuation of Mandated Female Board
Representation, 127 Q.J. Econ. 137 (2012); David A. Matsa & Amalia
R. Miller, A Female Style in Corporate Leadership? Evidence from
Quotas, 5 a.m. Econ. J. Applied Econ. 136 (2013). As an additional
example, some studies of the effects of the 2018 California law
requiring increased board gender diversity have reported indications
of negative effects on shareholder wealth. See, e.g., Daniel Greene
et al., Do Board Gender Quotas Affect Firm Value? Evidence from
California Senate Bill No. 826, J. Corp. Fin., (February 2020);
Sunwoo Hwang et al., Mandating Women on Boards: Evidence from the
United States (Kenan Institute of Private Enterprise, Research Paper
No. 18-34, 2018), available at https://ssrn.com/abstract=3265783.
    \124\ See [Oslash]yvind B[oslash]hren & Siv Staubo, Does
Mandatory Gender Balance Work? Changing Organizational Form to Avoid
Board Upheaval, 28 J. Corp. Fin. 152 (2014).
    \125\ See B. Espen Eckbo et al., Valuation Effects of Norway's
Board Gender-Quota Law Revisited (ECGI, Finance Working Paper No.
463/2016, 2021), available at https://ssrn.com/abstract=2746786.
---------------------------------------------------------------------------

    Studies of board diversity mandates, in any event, do not provide a
reliable basis for evaluating the likely overall effects of the Board
Diversity Proposal, which does not mandate any particular board
composition. Unlike companies in those studies, Nasdaq-listed companies
would have the option of providing an explanation for their board
composition under the new listing standard. This is distinct from
facing a fine as an alternative to compliance or possibly facing the
requirement to dissolve for non-compliance. Some of the mandates
requiring increased board diversity do not present companies with the
option of providing an explanation rather than facing a sanction, or
any other option besides compliance with the mandate.\126\ According to
one study, comply-or-explain corporate governance reforms have been
found to increase shareholder wealth more than corporate governance
mandates, on average.\127\ Further, under the Board Diversity Proposal,
Nasdaq-listed companies would be required to disclose board-level
diversity statistics, and those companies that do not meet the proposed
diversity objectives would be required to choose between providing an
explanation and increasing the diversity of their boards. In responding
to the disclosure requirements, companies can consider the analyses and
conclusions from academic and

other studies on the effects of changes in board composition on company
performance and share value. And they may apply those conclusions to
their own circumstances.
---------------------------------------------------------------------------

    \126\ See A.B. 979, 2019-2020 Leg., Reg. Sess. (Cal. 2020)
(amending Cal. Corp. Code Section 301.3 and adding Cal. Corp. Code
Sections 301.4 and 2115.6), available at http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB979; S.B. 826, 2017-2018
Leg., Reg. Sess. (Cal. 2018) (adding Cal. Corp. Code Sections 301.3
and 2115.5), available at https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB826.
    \127\ See Larry Fauver et al., Board Reforms and Firm Value:
Worldwide Evidence, 125 J. Fin. Econ. 120 (2017) (providing evidence
of a greater increase in firm value from comply-or-explain-based
reforms than for rule-based reforms in a study of the impact of
corporate board reforms on firm value across 41 countries).
---------------------------------------------------------------------------

    The Board Diversity Proposal is thus distinguishable from the board
diversity mandates described above. Moreover, the Exchange's proposal
would mitigate concerns regarding unequal access to information that
may currently exist between certain (likely larger and more
resourceful) investors who could obtain board diversity information and
other (likely smaller) investors who may not be able to do the same.
And, because the Board Diversity Proposal would not mandate any
particular board composition, companies that choose to meet the
diversity objectives are likely to be the ones who stand to benefit the
most, or incur the least cost. Those companies which view the diversity
objectives themselves as challenging are likely to choose to explain
rather than incur the costs to them of meeting the objectives, and
those companies for whom explaining would be challenging will have the
option to list on a different exchange. For these reasons, the costs of
the Board Diversity Proposal are likely to be relatively limited as
compared to those regulatory regimes that have mandated board diversity
and provided neither the option to explain or to opt-out of the regimes
by listing elsewhere.
    In light of the disclosure benefits that the Board Diversity
Proposal would provide, and given that the studies of the effects of
board diversity are generally inconclusive and the costs of the
proposal are likely to be comparatively limited, the Commission finds
that the Board Diversity Proposal is consistent with the requirements
of the Act.

C. Applicability of the Board Diversity Rules

1. Definition of Diverse
    In the Board Diversity Proposal, the Exchange states that current
reporting of board-level diversity statistics is unreliable and
unusable to investors and points to inconsistencies in the definitions
of diversity characteristics across companies.\128\ It notes that a
transparent, consistent definition of Diverse would provide
stakeholders with a better understanding of a company's current board
composition and philosophy regarding diversity if the company does not
meet the proposed diversity objectives.\129\ In addition, the Exchange
believes that having a broader definition of ``Diverse'' would permit
inconsistent, non-comparable disclosures, whereas a narrower definition
of ``Diverse'' focused on race, ethnicity, sexual orientation, and
gender identity will promote the public interest by improving
transparency and comparability.\130\
---------------------------------------------------------------------------

    \128\ See Amendment No. 1 to the Board Diversity Proposal at 50-
51.
    \129\ See id. at 107.
    \130\ See id. The Exchange also states that the categories it
has proposed to comprise an Underrepresented Minority are consistent
with the categories reported to the Equal Employment Opportunity
Commission (``EEOC'') through the Employer Information Report EEO-1
Form (``EEO-1''). See id. at 9-10, 61. In addition, the Exchange
states that, while the EEO-1 report refers to ``Hispanic or Latino''
rather than ``Latinx,'' the Exchange proposes to use the term
``Latinx'' to apply broadly to all gendered and gender-neutral forms
that may be used by individuals of Latin American heritage. See id.
at 61 n.160. The Exchange further states that the terms in the
proposed definition of LGBTQ+ are similar to the identities defined
in California's A.B. 979, but have been expanded to include the
queer community. See id. at 61.
---------------------------------------------------------------------------

    Some commenters support the proposed definition of ``Diverse''
because it would improve the transparency, consistency, and
comparability of disclosures across companies, whereas a broader
definition would maintain the status quo of inconsistent, non-
comparable data.\131\ One commenter points out that the proposal would
not prevent companies from considering other attributes beyond the
proposed definition of ``Diverse,'' such as veteran or disability
status.\132\ By contrast, other commenters object to the proposed
definition of ``Diverse'' as narrow and superficial.\133\ Moreover,
some commenters request that the Exchange expand the proposed
definition of ``Diverse'' to include individuals with
disabilities,\134\ veterans, or others who are not typically well-
represented at the board level.\135\
---------------------------------------------------------------------------

    \131\ See, e.g., Women's Forum Letter at 2; Miller/Howard Letter
at 2. See also, e.g., Fairfax Letter at 8-9; CFA Letter at 4-5.
    \132\ See Goodman and Olson Letter at 2.
    \133\ See, e.g., Toomey Letter at 1-3; Heritage Foundation
Letter at 16; Richter Letter at 2-3.
    \134\ See, e.g., letter from National LGBT Chamber of Commerce
(NGLCC), National Veteran-Owned Business Association (NaVOBA), Out &
Equal Workplace Advocates, U.S. Black Chambers, Inc. (USBC), United
States Hispanic Chamber of Commerce (USHCC), US Pan Asian American
Chamber of Commerce Education Foundation (USPAACC), and Women
Impacting Public Policy (WIPP), to Vanessa Countryman, Secretary,
Commission, dated April 2, 2021; letter from The Members of the
National Disability Alliance, to Adena T. Friedman, President and
Chief Executive Officer, Nasdaq, dated March 9, 2021; letter from
Maria Town, President & CEO, American Association of People with
Disabilities, and Jill Houghton, President & CEO, Disability:IN, to
Allison Lee, Acting Chair, Commission, dated February 2, 2021;
letter from Janice S. Lintz, CEO, Hearing Access & Innovations,
Inc., dated January 25, 2021; letter from Jennifer Laszlo Mizrahi,
President, RespectAbility, Carol Glazer, President, National
Organization on Disability, Katherine McCary, CEO, Disability: IN DC
Metro, William D. Goren, Attorney and Consultant, Americans with
Disabilities, Thomas Foley, President, National Disability
Institute, and Sean Luechtefeld, Senior Director Communications,
ANCOR, to Vanessa Countryman, Secretary, dated January 25, 2021;
letter from Zainab Alkebsi, President, Board of Directors, Deaf and
Hard of Hearing Bar Association, to Vanessa Countryman, Secretary,
Commission, dated January 25, 2021; letter from Victor Calise,
Commissioner, New York City Mayor's Office for People with
Disabilities, dated January 8, 2021; letter from Nicholas D. Lawson,
J.D. Candidate, Georgetown University Law Center, to Vanessa
Countryman, Secretary, Commission, dated January 15, 2021; letter
from Robert Ludke, Founder, Ludke Consulting, LLC, and Regina Kline,
Founder and CEO, SmartJob, LLC, to Vanessa Countryman, Secretary,
Commission, dated December 31, 2020; CFA Letter at 5; Ideanomics
Letter at 4; letter from James Morgan dated December 22, 2020;
letter from Carol Glazer, CEO, National Organization on Disability,
to Vanessa Countryman, Secretary, Commission, dated December 9,
2020.
    \135\ See, e.g., CFA Letter at 5; Ideanomics Letter at 4-5. See
also, e.g., letter from Kevin R. Eckert, Partner, Task Force X
Capital, to Vanessa Countryman, Secretary, Commission, dated April
20, 2021 (urging the inclusion of veterans in the definition of
Diverse); letter from David A. Morken, CEO and Chairman, Bandwidth
Inc., to Vanessa Countryman, Secretary, Commission, dated April 6,
2021. One commenter states that the proposal would fail to treat
similarly situated categories alike, and that the proposal's
distinctions are arbitrary and capricious. See Alliance for Fair
Board Recruitment Letter at 53-54.
---------------------------------------------------------------------------

    In response to comments,\136\ the Exchange reiterates that the
proposed definition of ``Diverse'' is suitable to improve transparency
and comparability of disclosures across companies.\137\ The Exchange
also states that companies are not precluded from using a broader
definition of diversity, including persons with disabilities and other
categories such as veteran status or age, provided that these companies
disclose this under proposed Rule 5605(f)(3).\138\
---------------------------------------------------------------------------

    \136\ The Exchange also points to commenters who argue that the
proposal would not promote diversity because, for example, it would
not prohibit homogenous boards, and Diverse directors would bring
similar perspectives to those of white male board members. See
Nasdaq Response Letter II at 10-11. The Exchange states that
companies are free to consider additional diverse attributes when
identifying director nominees (e.g., nationality, disability,
veteran status) and are free to disclose information relating to
diverse attributes beyond those highlighted in the proposal. See id.
at 11.
    \137\ See id. at 14.
    \138\ See id. The Exchange also encourages companies to disclose
board diversity metrics beyond those categories identified in the
proposal, to the extent a company considers it material to its
investors' voting and investment decisions. See id.
---------------------------------------------------------------------------

    The proposal would facilitate comparable board diversity
disclosures by Nasdaq-listed companies, which would lead to more
efficient collection and use of the information by investors. In
connection with facilitating comparable board diversity disclosures and
for the reasons discussed below, the Exchange's proposed definition of

``Diverse'' is not unreasonable. It is not unreasonable for the
Exchange to propose a definition of ``Underrepresented Minority'' that
is consistent with the EEO-1 categories reported to the EEOC because,
among other reasons, companies may already be familiar with the EEO-1
categories, which could promote efficiency for companies in complying
with the proposed rules. It is also not unreasonable for the Exchange
to include LGBTQ+ in its proposed definition of ``Diverse.'' Moreover,
as stated by the Exchange, companies are not precluded from considering
director characteristics that do not fall within the proposed
definition of ``Diverse'' and providing the disclosures under proposed
Rule 5605(f)(3) if the company does not satisfy the proposed board
diversity objectives.
2. Flexibility for Certain Companies
    In the Board Diversity Proposal, the Exchange recognizes that the
operations, size, and current board composition of each Nasdaq-listed
company are unique, and states that it endeavors to provide a
disclosure-based, business-driven framework to enhance board diversity
that balances the need for flexibility with each company's particular
circumstances.\139\ According to the Exchange, the proposed disclosure
framework and phase-in \140\ and transition periods \141\ under Rule
5605(f) recognize the differences (e.g., in demographics or resources)
among different types of companies and would not unfairly discriminate
among companies.\142\ The Exchange states that the definition of
Foreign Issuer is designed to recognize that companies that are not
Foreign Private Issuers but are headquartered outside of the United
States are foreign companies, notwithstanding the fact that they file
domestic Commission reports, and is designed to exclude companies that
are domiciled in a foreign jurisdiction without having a physical
presence in that country.\143\ Further, according to the Exchange,
because the EEOC categories of race and ethnicity may not extend to all
countries globally since each country has its own unique demographic
composition, and because on average women tend to be underrepresented
in boardrooms across the globe, proposed Rule 5605(f)(2)(B) would allow
Foreign Issuers to meet the diversity objectives by having one Female
director and one Underrepresented Individual \144\ (rather than
Underrepresented Minority) or LGBTQ+ director, or two Female
directors.\145\ With respect to Smaller Reporting Companies, the
Exchange states that, because these companies may not have the
resources necessary to compensate an additional director or engage a
search firm to search outside of directors' networks, it proposes to
provide these companies with additional flexibility in their
approach.\146\ Moreover, in providing additional flexibility to
Companies with a Smaller Board, the Exchange states that these
companies may face similar resource constraints to those of Smaller
Reporting Companies, but not all Companies with a Smaller Board are
Smaller Reporting Companies, and therefore the alternative diversity
objective that would be provided to Smaller Reporting Companies may not
be available to them.\147\ The Exchange further states that Companies
with a Smaller Board may be disproportionately impacted if they plan to
satisfy proposed Rule 5605(f)(2) by

adding additional directors, which may impose additional costs in the
form of director compensation and D&O insurance.\148\ With respect to
Exempt Companies,\149\ the Exchange states that they do not have
boards, do not list equity securities, list only securities with no
voting rights towards the election of directors, or are not operating
companies, and that holders of the securities they issue do not expect
to have a say in the composition of their boards.\150\ And the Exchange
states that proposed Rule 5606 would provide appropriate flexibility
for Foreign Issuers \151\ and exceptions for certain types of Nasdaq-
listed companies.\152\
---------------------------------------------------------------------------

    \139\ See Amendment No. 1 to the Board Diversity Proposal at 16-
17.
    \140\ Proposed Rule 5605(f)(5) would specify the phase-in period
for any company newly listing on the Exchange (including companies
listing through an initial public offering, direct listing, transfer
from another exchange or the over-the-counter market, in connection
with a spin-off or carve-out from a company listed on the Exchange
or another exchange, or through a merger with an acquisition company
listed under IM-5101-2 (``acquisition company'')) that was not
previously subject to a substantially similar requirement of another
national securities exchange, and any company that ceases to be a
Foreign Issuer, a Smaller Reporting Company, or an Exempt Company.
In particular, any newly-listed company on the Nasdaq Global Select
Market (``NGS'') or Nasdaq Global Market (``NGM'') would be
permitted to satisfy the requirement to have, or explain why it does
not have: (i) At least one Diverse director by the later of (a) one
year from the date of listing or (b) the date the company files its
proxy statement or information statement (or, if the company does
not file a proxy, its Form 10-K or 20-F) for the company's first
annual meeting of shareholders subsequent to the company's listing;
and (ii) at least two Diverse directors by the later of (a) Two
years from the date of listing or (b) the date the company files its
proxy statement or information statement (or, if the company does
not file a proxy, its Form 10-K or 20-F) for the company's second
annual meeting of shareholders subsequent to the company's listing.
See proposed Rule 5605(f)(5)(A). In addition, any newly-listed
company on the Nasdaq Capital Market (``NCM'') would be permitted to
satisfy the requirement to have, or explain why it does not have, at
least two Diverse directors by the later of: (i) Two years from the
date of listing; or (ii) the date the company files its proxy
statement or information statement (or, if the company does not file
a proxy, its Form 10-K or 20-F) for the company's second annual
meeting of shareholders subsequent to the company's listing. See
proposed Rule 5605(f)(5)(B). Moreover, any newly listed Company with
a Smaller Board would be permitted to satisfy the requirement to
have, or explain why it does not have, at least one Diverse director
by the later of: (i) Two years from the date of listing, or (ii) the
date the company files its proxy statement or information statement
(or, if the company does not file a proxy, its Form 10-K or 20-F)
for the company's second annual meeting of shareholders subsequent
to the company's listing. See proposed Rule 5605(f)(5)(D). Any
company that ceases to be a Foreign Issuer, Smaller Reporting
Company, or Exempt Company would be permitted to satisfy the
requirements of proposed Rule 5605(f) by the later of: (i) One year
from the date that the company no longer qualifies as a Foreign
Issuer, Smaller Reporting Company, or Exempt Company; or (ii) the
date the company files its proxy statement or information statement
(or, if the company does not file a proxy, its Form 10-K or 20-F)
for the company's first annual meeting of shareholders subsequent to
such event. See proposed Rule 5605(f)(5)(C).
    \141\ Proposed Rule 5605(f)(7) would specify the transition
period for the implementation of proposed Rule 5605(f). As proposed,
each company listed on the Exchange (including a Company with a
Smaller Board) would be required to have, or explain why it does not
have, at least one Diverse director by the later of: (i) Two
calendar years after the approval date of the proposal (``First
Effective Date''); or (ii) the date the company files its proxy
statement or information statement (or, if the company does not file
a proxy, its Form 10-K or 20-F) for the company's annual
shareholders meeting during the calendar year of the First Effective
Date. See proposed Rule 5605(f)(7)(A). In addition, each company
listed on NGS or NGM must have, or explain why it does not have, at
least two Diverse directors by the later of: (i) Four calendar years
after the approval date of the proposal (``Second NGS/NGM Effective
Date''); or (ii) the date the company files its proxy statement or
information statement (or, if the company does not file a proxy, its
Form 10-K or 20-F) for the company's annual shareholders meeting
during the calendar year of the Second NGS/NGM Effective Date. See
proposed Rule 5605(f)(7)(B). Moreover, each company listed on NCM
must have, or explain why it does not have, at least two Diverse
directors by the later of: (i) Five calendar years after the
approval date of the proposal (``Second NCM Effective Date''); or
(ii) the date the company files its proxy statement or information
statement (or, if the company does not file a proxy, its Form 10-K
or 20-F) for the company's annual shareholders meeting during the
calendar year of the Second NCM Effective Date. See proposed Rule
5605(f)(7)(C).
    \142\ See Amendment No. 1 to the Board Diversity Proposal at
Section 3.b.II.D. According to the Exchange, the proposed transition
and phase-in periods are intended to provide newly listed public
companies with additional time to meet the diversity objectives of
proposed Rule 5605(f)(2), as newly listed public companies may have
unique governance structures, such as staggered boards or director
seats held by venture capital firms, that require additional timing
considerations when adjusting the board's composition. See id. at
79. The Exchange further states that the proposed transition and
phase-in periods are intended to provide additional flexibility to
companies listed on NCM, as such companies are typically smaller and
may face additional challenges and resource constraints when
identifying additional director nominees who self-identify as
Diverse. See id. The Exchange also states that its proposed phase-in
periods are consistent with the phase-in periods it provides to
companies for other board composition requirements. See id. at 81.
See also, e.g., Rules 5615(b)(1), 5615(b)(3), and 5620.
    \143\ See Amendment No. 1 to the Board Diversity Proposal at 83.
    \144\ The definition of Underrepresented Individual is based on
the United Nations Declaration on the Rights of Persons Belonging to
National or Ethnic, Religious and Linguistic Minorities and the
United Nations Declaration on the Rights of Indigenous Peoples. See
id. at 69, 140-41.
    \145\ See id. at 81-82.
    \146\ See id. at 84-85.
    \147\ See id. at 86.
    \148\ See id. The Exchange also states that proposed Rule
5605(f)(2)(D) would avoid complexity for Companies with a Smaller
Board that attempt to satisfy the diversity objectives by adding a
Diverse director to their board, and prevent such companies from
thereby being subject to a higher threshold (i.e., that of proposed
Rule 5605(f)(2)(A), (B), or (C)) as a result. See id. at 86-87.
    \149\ Proposed Rule 5605(f)(4) would exempt the following types
of companies from the requirements of proposed Rule 5605(f)
(``Exempt Companies''): (1) Acquisition companies; (2) asset-backed
issuers and other passive issuers (as set forth in Rule 5615(a)(1));
(3) cooperatives (as set forth in Rule 5615(a)(2)); (4) limited
partnerships (as set forth in Rule 5615(a)(4)); (5) management
investment companies (as set forth in Rule 5615(a)(5)); (6) issuers
of non-voting preferred securities, debt securities, and derivative
securities (as set forth in Rule 5615(a)(6)) that do not have equity
securities listed on the Exchange; and (7) issuers of securities
listed under the Rule 5700 series.
    \150\ See Amendment No. 1 to the Board Diversity Proposal at 90,
150. The Exchange states that, although it is exempting acquisition
companies from the requirements of proposed Rule 5605(f), upon such
a company's completion of a business combination with an operating
company, the post-business combination entity would be provided the
same phase-in period as other newly listed companies to satisfy the
requirements of proposed Rule 5605(f). See id. at 90-91, 151.
    \151\ See id. at 115-16. The Exchange recognizes that some
Foreign Issuers may have their principal executive offices located
outside of the U.S. and in jurisdictions that may impose laws
limiting or prohibiting self-identification questionnaires. See id.
at 68. The Exchange also states that the proposed definition of
Underrepresented Minority may be inapplicable to a Foreign Issuer
and make the Board Diversity Matrix data less relevant for such
companies and not useful for investors. See id.
    \152\ See id. at 117-18.
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    Some commenters express support for the proposed additional
flexibility for foreign or smaller companies, or ``other groups of
issuers that are more constrained for valid reasons.'' \153\ Another
commenter contends, however, that the proposal is inconsistent with
Section 6(b)(5) of the Act because it appears to be designed to permit
unfair discrimination between issuers and impose burdens on competition
that are not necessary or appropriate in furtherance of the applicable
provisions of the Act.\154\ One commenter further asserts that the
proposal is inconsistent with Section 6(b)(5) of the Act because it
unfairly discriminates among issuers by giving foreign issuers
flexibility that is not available to domestic issuers.\155\ One
commenter also argues that the proposal would unnecessarily burden
competition and unfairly discriminate between issuers who meet the
proposed diversity objectives and those who do not,\156\ and one
commenter argues that the proposal would burden competition between
exempt and non-exempt companies.\157\
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    \153\ See AllianceBernstein Letter at 2. See also, e.g.,
Stardust Letter at 2; letter from Gary A. LaBranche, FASAE, CAE,
President & CEO, National Investor Relations Institute, to Vanessa
Countryman, Secretary, Commission, dated December 30, 2020, at 4.
    \154\ See Guzik Letter at 1, 7-10.
    \155\ See Alliance for Fair Board Recruitment Letter at 47-49.
    \156\ See Guzik Letter at 8.
    \157\ See Project on Fair Representation Letter at 6.
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    In response to comments, the Exchange states that the Board
Diversity Proposal would provide companies with a flexible, attainable
approach to achieving a reasonable objective that is not overly
burdensome or coercive.\158\ The Exchange also states that the Board
Diversity Proposal would align investors' demands for increased
diversity with companies' needs for a flexible approach that
accommodates each company's unique circumstances.\159\
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    \158\ See Nasdaq Response Letter II at 4.
    \159\ See id. The Exchange also states that companies are not
precluded from striving to achieve higher or lower diversity
objectives. See id.
---------------------------------------------------------------------------

    The Board Diversity Proposal is consistent with Sections 6(b)(5)
and 6(b)(8) of the Act. As discussed below, the proposal is not
designed to permit unfair discrimination between issuers and would not
impose a burden on competition between issuers that is not necessary or
appropriate in furtherance of the purposes of the Act.\160\ As an
initial matter, even though the Board Diversity Proposal would
establish different diversity objectives and disclosures for different
types of Nasdaq-listed companies, it would not mandate any particular
board composition for Nasdaq-listed companies, companies that do not
meet the applicable diversity objectives would only need to explain
their reason(s) for not meeting the objectives and would have
substantial flexibility in crafting such an explanation, and directors
would not be required to self-identify their Diverse characteristics
for purposes of the Board Diversity Matrix.
---------------------------------------------------------------------------

    \160\ Exchanges currently provide flexibilities to certain
issuers under their listing standards. See, e.g., Nasdaq Rule
5615(a)(3) (providing certain flexibility to foreign private
issuers); Nasdaq Rule 5605(d)(5) (providing certain flexibility to
smaller reporting companies); NYSE Listed Company Manual Section
303A.00 (providing certain flexibility to foreign private issuers
and smaller reporting companies).
---------------------------------------------------------------------------

    Moreover, it is not unreasonable for the Exchange, in crafting
board diversity disclosures, to recognize that the proposed definition
of ``Underrepresented Minority'' for domestic companies may not be as
effective in identifying underrepresented board members in foreign
countries that have differing ethnic and racial compositions, and may
therefore result in disclosures that are less useful for investors who
seek board diversity information for Foreign Issuers. It is therefore
not unreasonable for the Exchange to require Foreign Issuers to provide
disclosures relating to underrepresented individuals based on national,
racial, ethnic, indigenous, cultural, religious, or linguistic identity
in the country of the issuer's principal executive offices. Similarly,
to the extent Foreign Issuers choose to meet the proposed diversity
objectives, it is not unreasonable for the Exchange to take into
account the differing demographic compositions of foreign countries and
to provide Foreign Issuers flexibility in recognition of the different
circumstances associated with Foreign Issuers hiring Diverse directors.
Moreover, investors would still have access to a Foreign Issuer's Board
Diversity Matrix and any disclosures explaining why it does not meet
the applicable diversity objective, and this information may still be
important to investors' investment and voting decisions notwithstanding
the flexibility provided to Foreign Issuers. Accordingly, it is not
unfairly discriminatory, and does not impose an unnecessary or
inappropriate burden on competition, for the Exchange to provide this
flexibility to Foreign Issuers.
    In addition, it is not unreasonable for the Exchange to recognize
the unique challenges (including potential resource constraints) faced
by Smaller Reporting Companies and Companies with a Smaller Board in
meeting the proposed diversity objectives and to provide more
flexibility to these companies to the extent they choose to meet the
diversity objectives (i.e., two Diverse directors, which could be
satisfied with two Female directors, for a Smaller Reporting Company
and one Diverse director for a Company with a Smaller Board). And, as
with Foreign Issuers, investors would still have access to the Board
Diversity Matrix from Smaller Reporting Companies and Companies with a
Smaller Board, as well as any disclosures explaining why such companies
do not meet their applicable board diversity objectives, and this

information may still be important to investors' investment and voting
decisions even though these companies have more flexible diversity
objectives. Accordingly, it is not unfairly discriminatory, and does
not impose an unnecessary or inappropriate burden on competition for
the Exchange to provide more flexible diversity objectives for Smaller
Reporting Companies and Companies with a Smaller Board.
    Moreover, the Board Diversity Proposal would not unfairly
discriminate against companies that make disclosures under proposed
Rule 5605(f)(3) or impose an unnecessary or inappropriate burden on
competition between companies that choose to meet the diversity
objectives and companies that make the disclosures under proposed Rule
5605(f)(3). Specifically, as discussed below, the Board Diversity
Proposal is designed to not unduly burden Nasdaq-listed companies and
would provide companies flexibility in formulating an explanation for
not meeting the diversity objectives,\161\ thereby minimizing any
potential burdens on competition. In addition, it is not unreasonable,
and mitigates the impact of different circumstances on how companies
respond to the proposal, to only require companies that do not meet the
proposed diversity objectives to disclose why they have not met such
objectives, rather than to require all Nasdaq-listed companies
(including those that already have Diverse directors on their boards
sufficient to satisfy the objectives) to more generally disclose their
approaches to board diversity. In addition, the proposal would not
mandate any particular board composition, and there is competition
among the exchanges for listings. A company may choose to meet the
proposed diversity objectives or explain its reasons for not doing so,
or the company may transfer its listing to another exchange if it does
not wish to comply with the proposed listing rules.
---------------------------------------------------------------------------

    \161\ See infra Section II.D.
---------------------------------------------------------------------------

    Finally, the proposal would not unfairly discriminate against
companies that are not exempt from the proposal or impose an
unnecessary or inappropriate burden on competition between Exempt
Companies and companies that are not exempt. It is not unreasonable for
the Exchange to recognize the differences between operating companies
that issue equity securities with voting rights that are listed on the
Exchange and Exempt Companies.\162\
---------------------------------------------------------------------------

    \162\ The Exchange currently exempts certain types of issuers
from certain corporate governance requirements. See Nasdaq Rule
5615.
---------------------------------------------------------------------------

D. Burdens Associated With Complying With the Board Diversity Rules and
Other Economic Impacts Associated With the Board Diversity Rules

    In the Board Diversity Proposal, the Exchange states that
collecting and disclosing the statistical data under proposed Rule 5606
would impose a minimal time and economic burden on listed
companies,\163\ and any such burden would be counterbalanced by the
benefits that the information would provide to a company's
investors.\164\
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    \163\ See Amendment No. 1 to the Board Diversity Proposal at 159
(stating that, while the time and economic burden may vary based on
a company's board size, the Exchange does not believe that there is
any significant burden associated with gathering, preparing, and
reporting this data).
    \164\ See id. at 159-60.
---------------------------------------------------------------------------

    The Exchange also argues that because proposed Rule 5605(f) would
allow a company to explain why it does not meet the proposed diversity
objectives, it would mitigate any burdens on companies for which
meeting those objectives is not cost effective, appropriate, feasible,
or desirable.\165\ Moreover, the Exchange states that the costs of
identifying director candidates and total annual director compensation
can range widely.\166\ The Exchange states, however, that most, if not
all, of these costs would be borne in the search for new directors
regardless of the proposed rule.\167\ The Exchange also notes that
while the proposal may lead some companies to search for director
candidates outside of already established networks, the incremental
costs of doing so would be tied directly to the benefits of a broader
search.\168\ Moreover, the Exchange states, the proposed compliance
periods would allow companies to avoid incurring immediate costs, and
the proposed flexibilities for certain types of companies would reduce
their compliance burden.\169\
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    \165\ See id. at 160-61.
    \166\ See id. at 161.
    \167\ See id.
    \168\ See id. at 161-62 (also stating that the Board Recruiting
Service Proposal would reduce costs for companies that do not
currently meet the separately proposed diversity objectives, that
the Exchange has published FAQs on its Listing Center to provide
guidance to companies on the application of the proposed rules in
the Board Diversity Proposal, and that the Exchange will establish a
dedicated mailbox for companies and their counsel to email
additional questions to the Exchange regarding the application of
such proposed rules).
    \169\ See id. at 162.
---------------------------------------------------------------------------

    Some commenters believe that the Board Diversity Proposal would not
be burdensome because companies are already familiar with the type of
disclosures required,\170\ disclosures are required on an aggregate
basis, and the disclosures are based on voluntary self-
identification.\171\ One commenter asserts that the proposal would not
be burdensome, as companies could expand the size of their boards to
add Diverse directors instead of replacing existing directors or could
simply explain why they have not met the proposed diversity
objectives.\172\ Some commenters also state that finding qualified
Diverse directors would not be unduly difficult.\173\
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    \170\ Some commenters point out that the Board Diversity
Proposal would require disclosure based on the same categories that
companies already use to report workforce diversity data to the EEOC
on the EEO-1 report. See, e.g., Morningstar Letter at 1-2; Fairfax
Letter at 7-8; Ideanomics Letter at 4; Goodman and Olson Letter at
2.
    \171\ See, e.g., Olshan Letter at 3-4; CFA Letter at 5; Fairfax
Letter at 7-8; Stardust Letter at 1-2; TIAA Letter at 3; Soundboard
Letter at 2-3. See also letter from Theresa Whitmarsh, Executive
Director, Washington State Investment Board, to Vanessa A.
Countryman, Secretary, Commission, dated December 23, 2020
(``Washington State Investment Board Letter''), at 2.
    \172\ See Akin Gump Letter at 5 (also stating that boards of
directors of Nasdaq-listed companies will not be confronted with any
undue hardship, other than the ordinary course onboarding hurdles or
drafting of requisite disclosure).
    \173\ See, e.g., letter from Rosie Bichard and Patricia
Rodriguez Christian, Co-Presidents, WomenExecs on Boards, to Jay
Clayton, Chairman, Commission, dated January 4, 2021 (``WomenExecs
Letter''); Ariel Letter at 1. See also Goodman and Olson Letter at
2-3.
---------------------------------------------------------------------------

    Other commenters express concern with the economic impacts of
proposed Rule 5605(f), however.\174\ One argues that the proposal could
harm economic growth by imposing costs on public corporations,
discouraging private corporations from going public, and enabling
certain groups to initiate pressure campaigns against corporations with
non-Diverse boards; the same commenter expresses concern that the
Exchange has not undertaken a serious effort to quantify the proposal's
costs and benefits.\175\
---------------------------------------------------------------------------

    \174\ See, e.g., CEI Letter at 4-5; Quigley Letter; IBC Letter
at 1-4; letter from Matthew Glen dated December 31, 2020 (noting the
need for additional services to seek Diverse candidates).
    \175\ See Toomey Letter at 1, 5-6. See also, e.g., Alliance for
Fair Board Recruitment Letter at 31-32 (stating that failure to cure
a deficiency would result in a staff delisting determination, that
the proposal would create a target for activist divestment campaigns
or shareholder lawsuits alleging misrepresentations and breach of
fiduciary duties, and that companies will need to spend limited
resources to hire communications consultants and attorneys to
evaluate the marketing and legal risks of providing an explanation
for not having the applicable number of Diverse directors); Guzik
Letter at 8 (expressing concern regarding pressure from activist
groups, as well as litigation, for issuers that are unwilling or
unable to meet the proposed diversity objectives); letter from Art
Ally, President and CEO, Timothy Plan, dated March 25, 2021
(``Timothy Plan Letter''), at 1-2 (stating that the proposal may
subject certain firms to harassment, including legal threats);
letter from Tom Quaadman, Executive Vice President, U.S. Chamber of
Commerce's Center for Capital Markets Competitiveness, to Vanessa
Countryman, Secretary, Commission, dated January 4, 2021, at 2
(expressing support for the Board Diversity Proposal while
suggesting ongoing careful assessment of how the proposal could
affect Emerging Growth Companies, as well as the potential effect
that the proposed new listing standards could have on the future of
initial public offerings).

---------------------------------------------------------------------------

    In response to such comments, the Exchange states that companies
may decide where to list and that listings contracts and fees do not
impede issuers from switching listing markets.\176\ The Exchange also
asserts that many long-term, newer, and potential public companies
strongly support and value the objectives of the proposal and may
affirm their choice or choose to list on Nasdaq because of it.\177\ The
Exchange further contends that private companies recognize the value of
board diversity for public companies and would not have any misgivings
about going public as a result of the proposal.\178\ The Exchange