Board diversity requirements for public companies have narrowed sharply. As of 2025, Nasdaq’s listing rules on diverse directors have been repealed, California’s quota statutes remain enjoined, and the largest proxy advisor has suspended its racial and ethnic diversity voting policy for U.S. companies. What remains is a federal disclosure obligation under SEC rules, a scattered set of state disclosure laws, and continued (though softened) attention from institutional investors. No federal or exchange rule now requires any specific board composition.
SEC Disclosure Under Regulation S-K
The one durable federal requirement is a disclosure rule. Item 407(c)(2)(vi) of Regulation S-K requires publicly traded companies to describe, in their proxy statements, whether and how their nominating committee considers diversity when identifying director nominees. If the board has a formal diversity policy, the proxy must also explain how the company implements that policy and how it measures effectiveness.1eCFR. 17 CFR 229.407 – (Item 407) Corporate Governance
The SEC does not define “diversity.” A company can read the term to mean professional background, geographic experience, or demographic characteristics. The rule only demands that whatever the board’s approach is, it gets disclosed. A company with no formal diversity policy can simply say so. A company with detailed demographic targets explains them. Item 401 separately requires companies to describe each director’s business experience and qualifications, giving investors a fuller picture of who sits on the board and why.
Nasdaq’s Repealed Board Diversity Rules
For a brief period, Nasdaq imposed the most specific diversity requirements in U.S. securities regulation. Rules 5605(f) and 5606, approved by the SEC in 2021, required most Nasdaq-listed companies to either have at least two diverse directors or publicly explain why they did not. The rules specified that one director should self-identify as female and another as an underrepresented minority or LGBTQ+.2U.S. Securities and Exchange Commission. Nasdaq Rule 5605(f) – Diverse Board Representation Rule 5606 required annual disclosure using a standardized Board Diversity Matrix reporting directors’ self-identified gender, race, and ethnicity.3Nasdaq. Board Diversity Matrix Instructions and Templates
In December 2024, the Fifth Circuit vacated the SEC’s approval order in Alliance for Fair Board Recruitment v. SEC, holding that the SEC had not shown the rules were “related to” any actual purpose of the Securities Exchange Act of 1934.4U.S. Court of Appeals for the Fifth Circuit. Alliance for Fair Board Recruitment v. SEC Nasdaq then proposed repealing both rules, and the SEC approved the repeal effective February 4, 2025. Many companies dropped the Board Diversity Matrix from their proxy filings during the 2025 reporting season. Companies that had relied on the Nasdaq framework as their primary diversity disclosure now have no exchange-level obligation to report board demographics.
State Law Requirements
State treatment varies widely. California went furthest and lost in court. SB 826 (2018) required publicly held corporations headquartered in the state to include female directors, and AB 979 (2020) extended similar requirements to directors from underrepresented racial, ethnic, and LGBTQ+ communities. Both authorized fines of $100,000 for a first violation and $300,000 for each subsequent violation, counted per unfilled required seat per year.
In Crest v. Padilla, California courts ruled both statutes unconstitutional under the equal protection provisions of the California Constitution, finding that the classifications were not narrowly tailored to a compelling government interest.5Courthouse News Service. Crest v. Padilla – Verdict A California appeals court reinstated injunctions against both laws, and enforcement remains blocked.
Other states have taken softer approaches that have avoided constitutional challenge:
- Washington’s SB 6037, effective January 2022, uses a comply-or-explain model. Publicly traded companies headquartered in the state must either maintain a board where at least 25 percent of directors self-identify as female, or deliver a written analysis to shareholders describing what the company is doing to develop and maintain board diversity.
- Illinois, Maryland, and New York require companies to report demographic information about their boards in annual state filings, without setting composition targets.
- Colorado passed a non-binding resolution encouraging gender diversity without any enforcement mechanism.
The 2025 Federal Executive Order
On January 20, 2025, a federal executive order titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” directed federal agencies to terminate DEI offices, equity action plans, and related contracts and grants, and to identify federal contractors and grantees that had provided DEI training or advanced DEI programs since January 2021.6The White House. Ending Radical and Wasteful Government DEI Programs and Preferencing
The order does not directly regulate the composition of private-company boards or private-sector diversity policies. Its legal authority reaches the federal government’s own operations, contractors, and grantees. Companies with substantial federal contracts have reassessed the risk profile of visible DEI programs, and many companies streamlined or removed DEI-related language from public filings during the 2025 proxy season.
What Proxy Advisors and Asset Managers Now Look For
The most effective non-governmental pressure on board composition has historically come from proxy advisory firms and large asset managers. Both are pulling back on explicit demographic triggers.
Institutional Shareholder Services previously recommended votes against the nominating committee chair at Russell 3000 and S&P 1500 companies with no racially or ethnically diverse directors, and applied a similar approach to boards with no female directors. As of February 25, 2025, ISS indefinitely halted the consideration of racial and ethnic board diversity when making director election recommendations for U.S. companies.7ISS. US Voting Guidelines The gender diversity component appears to remain in effect. Glass Lewis still lists board diversity in its 2026 benchmark guidelines, but with softer language and fewer automatic triggers.
The three largest asset managers have taken different positions:
- BlackRock evaluates boards case by case and may vote against nominating committee members at S&P 500 companies where the board is “a sustained outlier compared to market practice in terms of its variety of experiences, perspectives, and skillsets.” The language avoids naming demographic categories.8BlackRock. BIS Proxy Voting Guidelines – U.S.
- State Street Global Advisors has stated that it “does not apply, nor will it discuss, specific targets or thresholds of gender, racial or ethnic diversity in connection with U.S. portfolio companies.”9State Street Global Advisors. Global Proxy Voting and Engagement Policy
- Vanguard’s policy states that directors “should be appropriately independent, experienced, committed, capable, and diverse,” and treats “diversity of thought, background, and experiences” as contributing to effective oversight, without published demographic voting triggers.10Vanguard. Proxy Voting Policy for US Portfolio Companies
Nominating Committee Practices
With Nasdaq’s rules repealed, California’s mandates blocked, and proxy advisors softening their policies, the strongest remaining driver of board composition is a company’s own governance framework. Nominating and corporate governance committees operate under written charters that specify the skills, experiences, and characteristics the board needs, and the substantive work happens there.
One widely adopted practice is a version of the “Rooney Rule,” which requires that the initial candidate pool for any open board seat include at least one person from an underrepresented background. A majority of S&P 500 companies report having some form of this policy. Many committees also engage executive search firms specializing in board placement to identify qualified candidates outside existing directors’ personal networks. Term limits and mandatory retirement ages create the regular openings that let refreshment happen at all.
A committee charter that defines diversity as a selection criterion and requires documented candidate searches creates a durable internal standard that does not depend on external mandates.
Shareholder Litigation Risk
Shareholders have tried to use the courts as a lever, with limited success. Derivative lawsuits have alleged that directors breached their fiduciary duties by failing to diversify the board, made misleading statements about diversity commitments in proxy materials, or allowed discriminatory employment practices that benefited directors financially. Some complaints have cited Section 14(a) of the Securities Exchange Act of 1934, arguing that public statements valuing diversity were materially false when the board remained homogeneous.
These cases face steep hurdles. Derivative suits require shareholders to make a pre-suit demand on the board or show demand futility, and most complaints have relied on futility. Courts have been skeptical that the absence of board diversity, standing alone, creates liability that overcomes business judgment rule deference. Quantifying financial harm to the company from a lack of diversity is a further barrier. Most of these suits have been dismissed at the pleading stage or settled without establishing precedent.
The exposure that remains is more specific: companies that make measurable public commitments to diversity and then fail to follow through can face securities fraud claims based on the gap between stated commitments and actual practice. That is the concrete legal risk to manage when drafting proxy language about board composition.