Nasdaq proposal would require companies to have greater diversity on boards


Sun shines outside of the Nasdaq MarketSite in New York, U.S., on Monday, Nov. 9, 2020.

Michael Nagle | Bloomberg | Getty Images

Nasdaq is pushing for greater diversity among the more than 3,000 companies listed on its exchange.

Nasdaq filed a proposal Tuesday with the Securities and Exchange Commission asking the regulatory body to adopt new listing rules surrounding the makeup of companies’ board of directors, as well as greater transparency around who fills the seats in the boardroom.

Under the proposal, the majority of companies will be required to have at least two diverse board directors: one woman, and one person who identifies as either an underrepresented minority or LGBTQ. If a company cannot meet these requirements, it will need to explain why.

Should the proposal be approved by the SEC, all companies would have to disclose board-level diversity statistics publicly ithin one year of the policy being passed. Nasdaq said in a statement that the timeframe for companies to meet the board requirements will depend on each company’s listing tier, but that all companies will be expected to have at least one diverse director within two years of the SEC’s approval.

“Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders; we believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America,” Nasdaq President and CEO Adena Friedman said in a statement.

More than 75% of the exchange’s roughly 3,200 companies do not currently meet the criteria, according to a New York Times story citing data from Nasdaq

The push from Nasdaq — the first exchange that has called for the implementation of diversity requirements — comes amid a boom in so-called ESG investing, which is when a company’s environmental, social and governance factors are evaluated. With ESG funds seeing record inflows, companies are taking note. In January, Goldman Sachs announced that it will not take companies public without “at least one diverse board candidate.”

Nasdaq’s proposal follows countless studies touting the benefits of greater diversity at the board level and throughout companies more broadly.

“Companies in the top quartile of gender diversity on executive teams were 25 percent more likely to experience above-average profitability than peer companies in the fourth quartile,” McKinsey said in a 2019 study. “This is up from 21 percent in 2017 and 15 percent in 2014.”

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