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SEC Approves Nasdaq’s Board Diversity Disclosure and Recruiting Proposals

Posted on August 2021August 2021 by info

Under newly SEC-approved Nasdaq rules relating to required disclosure of board diversity, beginning in 2023 listed companies will be expected to have at least two diverse directors – one female and one under-represented racial or LGBTQ+ individual – and in 2022 publicly disclose certain board diversity statistics. If they do not have two diverse directors, listed companies will be required to explain the reasons why. To help provide access to diverse directors, Nasdaq is offering free board recruiting services for one year to certain companies.

Summary of Rulings

On August 6, 2021, the SEC approved Nasdaq Stock Market LLC’s (“Nasdaq” or the “Exchange”) proposed rule changes related to the Board Diversity Disclosure and Board Recruiting Service Proposals. All Nasdaq-listed companies, unless subject to certain exceptions, are required to have at least two diverse board members or explain why they do not. The new listing standard will also require disclosure, in an aggregated form, of information on the voluntary self-identified gender, racial characteristics, and LGBTQ+ status of the company’s board.

The rules provide for certain cure measures and periods if a company fails to comply with the new disclosure requirements.

In addition to the disclosure rule, the board recruiting service proposal gives certain companies access to Nasdaq’s and their partners[1] board recruiting services for one year, on a complimentary basis. This is intended to provide access to a network of board-ready diverse candidates for companies.

Required Disclosures

All operating companies listed on Nasdaq’s U.S. exchange will need to use the Board Diversity Matrix (pictured below), or a format substantially similar, to annually disclose board-level diversity data. Companies will provide this disclosure in the company’s proxy statement or its information statement (or if the company does not file a proxy, its Form 10-K or 20-F), or on the company’s website.

Note: For Foreign Issuers, demographic background would reflect underrepresented individuals in the home country jurisdiction and LGBTQ+.

View examples of acceptable (i.e., same or substantially similar) and unacceptable (i.e., substantially different) disclosures by Nasdaq.

Additionally, a company that does not have at least two diverse directors, as defined above, is required to disclose why it does not meet the diversity objectives. Nasdaq will verify whether the company has provided an explanation but will not assess the merits of the explanation. That is, there is no “right or wrong” reason that a company may give for not having at least two diverse directors.

Effectiveness, Exemptions and Transitions

Disclosure of board diversity data similar to the data above will be required annually and companies have until the later of August 8, 2022 or the date the company files its proxy statement or information statement for its annual shareholder meeting during 2022.

With respect to the requirement to have diverse board members or disclose why the company does not meet the diversity requirements:

Based upon the company’s listing tier:
Nasdaq Global Select Market or Global Market companies are required to have (or explain why they don’t have) one diverse director by August 7, 2023 and two diverse directors by August 6, 2025
Nasdaq Capital Market companies are required to have (or explain why they don’t have) one diverse director by August 7, 2023 and two diverse directors by August 6, 2026
All companies with boards that have five or fewer directors are required to have (or explain why they don’t have) one diverse director by August 7, 2023
Smaller Reporting Companies can meet the diversity objective with two female directors, or with one female director and one director who is an underrepresented minority or LGBTQ+.
Newly listed companies (e.g., including IPOs and direct listings) and SPACs (including the post-merger registrant) have special phase-in rules.
Foreign Issuers can meet the diversity objective with two female directors, or with one female director and one director who is an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the country of the company’s principal executive offices, or LGBTQ+.

SEC Approval

Many feel that this is step in the right direction to advance board diversity, which has been top of mind for investors. In approving these rules, SEC Commissioners Allison Herren Lee and Caroline A. Crenshaw issued a joint public statement indicating “NASDAQ’s proposal should improve the quality of information available to investors for making investment and voting decisions by providing consistent and comparable diversity metrics.” SEC Chair Gary Gensler stated that he believes that “these rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have the flexibility to make decisions that best serve their shareholders.” However, there is also dissent among SEC Commissioners Hester M. Peirce and Elad L. Roisman who, while supportive of Nasdaq’s board recruitment services and the goal of expanding diversity within the boardroom, question the legal basis for proposed disclosure requirements and delisting implications and whether the proposal is actually within the scope and purpose of the Securities Exchange Act of 1934.

Insight:

This ruling will have significant impact for years to come on investor information. Board-level diversity statistics are currently not widely available on a consistent and comparable basis. By providing this level of detail, investors and prospective investors will have more access to information about the board’s composition.

These rulings are the latest effort in the push for board diversity. They come on the heels of California enacting a law in September 2020 requiring any publicly-held organization headquartered in the state to include board members from underrepresented communities. Other steps taken previously include updates made by proxy advisors to their voting guidelines to recommend against boards without racially or ethnically diverse members as well as rules – e.g., California – already put in place around gender diversity.

As stated by the SEC, Nasdaq’s rule 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.” It is important to note that the disclosure ruling establishes a disclosure-based framework and not a mandate. This is “a comply or explain rule.” If the board does not meet the diversity requirements, it can issue a public statement explaining why it does not.

It is also important to keep in mind that information underlying these rules is based upon voluntary self-identification of a company’s directors for such disclosed information. A company that provides disclosure indicating that directors’ diversity characteristics are not disclosed would still be in compliance with the rules.

In addition to the disclosure, allowing companies to have access to recruiting services of firms that are partnering with Nasdaq gives smaller public companies a chance to compete with larger public companies for the best talent and broaden their range of expertise.

The opportunity in this ruling is to identify candidates who have a diversity of background and thought and will be able to drive the overall success of an organization through their perspective and experience. When looking to fill gaps in board composition, boards should stive to find candidates who possess both diverse perspectives and needed skillsets. Coupling these will help boards navigate company priorities with agility and creativity, leading to a more sustainable business model.

What’s Next for Board Diversity

According to BDO’s 2021 BDO Winter Board Pulse Survey, boards are enhancing their Diversity, Equity & Inclusion (DE&I) strategies. BDO’s pulse survey collected results on corporate strategies in four priority areas related to DE&I:

In addition to these important advancements, the recent reckoning around social justice has furthered the push for greater diversity on boards. Board directors (55%) are signaling plans to focus on building a more diverse board and leadership team in the next 12-18 months. Six months ago, 50% said building a more diverse board leadership team was at the top of their long-term ESG priority list. The SEC’s approval of the Nasdaq rules underscores the need for board diversity and the importance of reporting as a short-term priority for Nasdaq listed organizations.

Moving forward, incorporating hiring and human capital advancement practices into business processes and protocols cannot just be a human resource responsibility. It is also the duty of the board and management teams to ensure maximum efficacy and integration into the organization’s overall business strategy. Historically, business leaders have turned to their networks to identify potential board members. The new disclosure rules may upend this tradition and encourage leaders to look beyond their established networks to identify candidates with diverse skills, experiences and perspectives to help grow their organizations. Organizations whose missions are to further the recruitment of diverse boards will be a crucial resource when it comes to providing companies access to a larger pool of diverse candidates to move beyond the limits of traditional networks and thinking.

Major institutional investors, including BlackRock, State Street and Vanguard, all called for increased board and management diversity in external communications ahead of last year’s shareholder meeting season. This pressure from institutional investors remains high. It remains to be seen if other exchanges will follow Nasdaq’s lead, whether imposing diversity requirements or penalizing those companies that do not act to diversify their boardrooms.

While unprecedented within the U.S. listing exchanges, this type of ruling has been anticipated since 2020. The investing community has significant power to create change. Investors are seeking accountability from management and the board. They also want boards to create an environment for board effectiveness based on the corporate strategies and priorities. Diversity, both on boards and management teams, has been proven to lead to better returns and increase long-term value, a win for both organizations and shareholders. It also has the benefit of minimizing reputational risk – a more diverse board comes with a broader range of perspectives, allowing organizations to identify areas of risk that may have otherwise been overlooked.

Learn More

Nasdaq provided an FAQ publication on its new diversity rules and intends to host several live webinars to help companies understand key elements of the rules and access a variety of free board recruiting services. Register for the first program on August 17, 2021.

[1] To date, Nasdaq has established partnerships with Equilar, Athena Alliance, and the Boardlist to aid Nasdaq-listed companies that have not yet met the diversity objectives and would like assistance doing so. The services offered are complementary and are not mandatory. Here’s how your company can gain free access to Equilar’s BoardEdge Platform and Equilar Diversity Network, Athena Alliance’s community of women leaders, and the Boardlist’s premium talent marketplace.

[CM1]This footnote must be printed with any Alliance Firm re-use.

Strengthening Workers’ Financial Wellness After The Pandemic

Posted on August 2021August 2021 by info

Even before the COVID-19 pandemic, employers were becoming increasingly focused on helping their workforces prepare for retirement and address other areas of financial wellness. Unfortunately, the pandemic heightened the pressures that many workers face in multiple areas of their financial lives. In fact, more than a third of people surveyed by the Society of Actuaries said that they have changed or have considered changing when they will retire as a result of the pandemic.

As employers look for ways to strengthen the financial wellness tools they offer employees, employers should keep in mind that workers’ needs—and the ways workers may have been affected by the pandemic—likely vary by generation. We identify some of the issues the pandemic brought on for each generation and considerations for employers interested in creating or boosting financial wellness programs.

Post-Pandemic Financial Wellness Trends for Each Generation

Gen Z (Born 1997 or after): The pandemic forced many of today’s youngest workers to deal with a major financial disruption early in their careers. Many companies canceled internships and other entry-level positions. Layoffs and furloughs can be particularly damaging for young workers trying to get an early start paying off student loans or saving for a down payment on a home. As a result of these newfound pressures, 34% of Gen Zers say that their mental health has deteriorated over the past year, according to an American Psychological Association survey.

Millennials (Born 1981–1996): Nearly 40% of this segment believe that they will not be able to pay off debt without some kind of assistance, according to a Georgetown University survey. In addition, nearly three-quarters of millennials reported spending $5,000 or more from their retirement savings because of the pandemic, a Real Estate Witch study showed.

Gen X (Born 1965–1980): On average, this group has reduced retirement contributions by 11% because of the pandemic, the Real Estate Witch study noted. Even before the pandemic, 65% of this generation was stressed about money, a Brown & Brown Insurance white paper reported. The paper, however, also noted one area of improvement in financial wellness: a quarter of Gen Xers have increased emergency savings since the pandemic.

Baby boomers: (Born 1946–1964): The pandemic has caused many older workers to take a hard look at their retirement plans and timelines. According to a Pew Research Center report, the number of retired baby boomers increased 3.2 million in 2020; this figure had been growing at an average of 2.1 million from 2012 to 2019. Many baby boomers’ retirement savings were hit hard by the global financial crisis of 2007–2008, and the median 401(k) balance for baby boomers today is about $58,000, according to Fidelity.[1]

Financial Wellness Tools To Consider

There are a host of tools that employers may want to consider offering to strengthen their workers’ financial wellness, and many of these tools may have varying levels of impact for different generations:

Advisory services: With so many workers of all ages dipping into their savings during the pandemic, employers can offer additional tools and training to help workers across generations rebuild those reserves. Gen Z and millennials may benefit from basic educational training on topics such as buying a home or investing for retirement. Meanwhile, Gen Xers may seek more information about investment options, and baby boomers may need help with catch-up contributions. In addition, workers across generations may have different preferences for how they receive this education: Baby boomers may prefer in-person sessions, while younger generations may favor online and self-education options.
Side-car savings accounts: Some workers can’t even think about saving for retirement because they are living paycheck-to-paycheck. This is particularly true for younger workers who haven’t yet had time to build up a rainy-day fund. After-tax accounts may be a good solution to help workers create short-term savings for unexpected emergencies.
Student loan debt management: Today, 43.2 million people owe an average $39,351 in student loan debt, according to EducationData.org, and the strain of this debt is particularly acute for younger workers (e.g., Gen Zers and millennials). Employers now have more options for providing student loan benefit programs to help workers address this debt. It is important to realize that this benefit would most likely overwhelmingly benefit younger workers. As a result, older workers might resent that a similar benefit wasn’t available to them when they were paying off their student loans.

Insight:

Understand the demographics and needs of your workforce

The return to working in offices provides employers a good opportunity to revisit their approaches to financial wellness. Because the financial wellness needs of workers can vary across age groups, it is important for employers to understand the demographic makeup of their workforces. Information about ages, participation rates, and average account balances can help determine which collection of tools will be most effective in addressing your workforce’s needs.

[1] Insider, Older Americans expect retirement to be blissful, but they may be way off the mark, October 2020.

[CM1]This footnote must be printed with any Alliance Firm re-use.

U.S. Senate Gives Official Approval For Bipartisan Infrastructure Package

Posted on August 2021August 2021 by info

In less than 24 hours, the U.S. Senate voted to advance two legislative packages that would result in combined spending of approximately $4.5 trillion in both traditional infrastructure projects and an expansive array of initiatives encompassing healthcare, education and climate change.

On Tuesday, August 10, the Senate voted 69 to 30 in favor of a roughly $1 trillion infrastructure bill. The 2,700-page “Infrastructure One” bill would fund investment in improvements to the country’s roads, bridges, highways and Internet connections. Then early Wednesday morning, the Senate approved, on a party line 50-49 vote, a $3.5 trillion budget resolution—“Infrastructure Two”—that could enable sweeping changes to a broad range of laws to secure enactment of the Biden administration’s “Build Back Better” agenda. The Senate’s adoption of the budget resolution sets the stage for the budget reconciliation process; legislation passed under these procedures generally cannot be filibustered, so that only a simple majority is required for Senate passage.

The budget resolution now heads to the House, which is expected to return from recess the week of August 23 to consider the measure.

Infrastructure One – Tax-Related Provisions

The Infrastructure One package, the “Infrastructure Investment and Jobs Act,” does not include major corporate or individual tax proposals, but it does contain some tax provisions that would raise $50 billion in net revenue. For example, the legislation includes a provision that would amend Internal Revenue Code (IRC) Section 6045 to expand information reporting requirements to include brokers or any person who is responsible for regularly providing any service effectuating transfers of digital assets, including cryptocurrency, on behalf of another person. The measure would also add digital assets to current rules that require businesses to report cash payments over $10,000. This provision would apply to returns required to be filed after Dec. 31, 2023.

The cryptocurrency provisions in the Infrastructure One bill ran into some headwinds in the Senate over attempts to amend the definition of “broker.” Several amendments were introduced, but none were passed, and the bill now heads to the House for consideration. But the issue may not have been put to rest, as press reports indicate that both Republican and Democratic House members support amending the definition, which they deem to be too broad.

The Infrastructure One bill also includes a provision that would amend IRC Section 3134 to terminate the employee retention credit on October 1, 2021, three months earlier than the current Jan. 1, 2022 end date. The provision would apply to calendar quarters beginning after Sep. 30, 2021.

Another revenue raiser included is a provision that would modify the IRC Section 430(h)(2)(C)(iv) table of applicable minimum and maximum percentages with respect to certain pension plans, known as “pension smoothing,” which is estimated to raise approximately $2.9 billion over a 10-year period by reducing the level of deductible employer pension contributions required under the pension funding rules. These amendments would apply to plan years beginning after Dec. 31, 2021.

The bill would also reinstate and modify some expired Superfund excise taxes imposed on the production of specified chemicals.

Infrastructure Two

Approval of the budget resolution by both the House and the Senate would allow Senate Democrats to use the budget reconciliation process to advance their tax policy agenda without Republican support.

While the Infrastructure One package generally avoids consideration of the administration’s tax policy priorities, the broader Infrastructure Two bill is to be fully offset by a combination of new tax revenues, healthcare savings and long-term economic growth. In addition, the agreed-to framework would prohibit new taxes on families making less than $400,000 per year and on small businesses and family farms.

Policy priorities included in the Infrastructure Two package include:

Paid family and medical leave
ACA expansion extension and filling the Medicaid coverage gap
Expanding Medicare to include dental, vision, hearing benefits and lowering the eligibility age
Addressing healthcare provider shortages (graduate medical education)
Child tax credit, earned income tax credit and child and dependent care tax credit extension
Long-term care for seniors and persons with disabilities
Clean energy, manufacturing and transportation tax incentives
Pro-worker incentives and worker support
Health equity (maternal, behavioral and racial justice health investments)
Housing incentives
State and local tax cap relief

In a memorandum issued August 9, Senate Democrats called for the following measures to offset the cost of these provisions:

Corporate and international tax reform
“Tax fairness” for high-income individuals
Enhanced IRS tax enforcement
Healthcare savings
Carbon polluter import fee

The memorandum explains that the Finance Committee’s reconciliation product will account for both substantial portions of the investments contemplated by the $3.5 trillion package but also nearly all of the stated offsets.

Next Steps

It is expected that further action on both bills will be taken in the fall when both the House and Senate return from August recess.