Nasdaq Seeks to Require Board Diversity for Companies

The proposal would require most Nasdaq-listed companies to have — or explain why they don’t have — at least two diverse directors.

A United States flag reflected in the window of the Nasdaq studio, Times Square, New York, March 16, 2020.
A United States flag reflected in the window of the Nasdaq studio, Times Square, New York, March 16, 2020.
AP Photo/Seth Wenig, File

The Nasdaq stock exchange is seeking U.S. authority to require more diversity in the boardrooms of Nasdaq-listed companies, or to explain why they can not.

It is the first major exchange to pursue such a requirement.

The proposal filed with the U.S. Securities and Exchange Commission on Tuesday, if approved, would require all companies listed on the exchange to publicly disclose consistent, transparent diversity statistics about their board of directors.

It would require most Nasdaq-listed companies to have, or explain why they don’t have, at least two diverse directors. This includes having one board member who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ. Foreign companies and smaller reporting companies would have additional flexibility in satisfying this requirement with two female directors.

Corporate boards are overwhelmingly white and male.

According to the 2018 Board Diversity Census from the Alliance for Board Diversity and the consulting firm Deloitte, women held just 22% of Fortune 500 seats in 2018, compared to 20% a year earlier and 16 percent in 2010. White men held 66% of Fortune 500 board seats in 2018. Blacks held nearly 9% of seats in 2018, compared with nearly 8% in 2010.

“This proposal and partnership gives companies an opportunity to make progress toward increasing representation of women, underrepresented minorities and the LGBTQ+ community on their boards,” Nelson Griggs, president of the Nasdaq Stock Exchange, said in a prepared statement. “Corporate diversity, at all levels, opens up a clear path to innovation and growth. We are inspired by the support from our issuers and the financial community with this effort and look forward to working together with companies of all sizes to create stronger and more inclusive boards.”

The Nasdaq contains all of companies that trade on the exchange, more than 3,300 of them. It is dominated by technology companies, but there are a lot of financial, biotech and industrial companies as well.

Nasdaq said the proposal's goal is to give stakeholders a better understanding of a company's current board composition and to bolster investor confidence that all listed companies are considering diversity when the look for new board members.

The proposal would require all Nasdaq-listed companies to publicly disclose board-level diversity statistics through Nasdaq’s proposed disclosure framework within one year of the SEC’s approval of the listing rule.

All companies will be expected to have one diverse director within two years of the SEC’s approval of the listing rule. Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market will be expected to have two diverse directors within four years of listing rule approval. Companies listed on the Nasdaq Capital Market will be expected to have two diverse directors within five years of the SEC’s approval.

Companies that can't meet the board composition objectives within the required timeframes won't be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives.

Nasdaq began in 1971 with the world's first electronic stock market. It currently has more than 4,000 company listings on its exchange. The Nasdaq has been a destination for many tech companies, including Apple, which launched its initial public offering on the exchange in 1980. Some other tech companies its drawn in include Microsoft, Cisco, Amazon and Google, which is now part of Alphabet.

Nasdaq named Adena Friedman as its CEO in 2016, the first woman to lead a major U.S. exchange.

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