Nasdaq seeks mandatory rule about board diversity
The Nasdaq stock exchange is seeking U.S. authority to require more diversity in the boardrooms of Nasdaq-listed companies, or for those companies to explain why they cannot.
It is the first major exchange to pursue such a requirement.
The proposal filed Tuesday with the U.S. Securities and Exchange Commission, 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.
Corporate boards are overwhelmingly white and male.
According to the 2018 Board Diversity Census fromthe Alliance for Board Diversity and the consulting firm Deloitte, women held 22% of Fortune 500 seats in 2018, compared to 20% a year earlier and 16 percent in 2010. Whitemen held 66% of Fortune 500 board seats in 2018. Blacks held nearly 9% of seats in 2018, compared with nearly 8% in 2010.
“We’re taking the leadership here because there has been so little action on this front, and we do think it’s an important thing for us to do, to create a more inclusive capitalist society and we think this is a step forward,” Nasdaq CEO Adena Friedman said on CNBC.
Companies that do not meet the diversity requirement will not be delisted from Nasdaq, Friedman said, but they will have to outline the obstructions to doing so.
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 aswell.
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.