The drumbeat on board diversity sounded louder than ever Tuesday as Nasdaq said it was asking the SEC to approve a plan requiring “most” listed companies to install “at least two diverse directors” to their board of directors—or explain publicly why they have not.
According to Nasdaq, all listed companies would also be required to “publicly disclose consistent, transparent diversity statistics regarding their board of directors” within one year of SEC approval. If approved by the SEC, Nasdaq would become the first stock exchange to have such requirements for its listed companies.
Under the proposed rules, companies would be required to have at least one female director and one director who self identifies as either an underrepresented minority or LGBTQ. Nasdaq says foreign companies and smaller reporting companies would have the option of satisfying the requirement with two female directors.
If adapted, the impact on corporate governance—and, potentially, on Nasdaq—will be sweeping. The exchange said that it had found more than 75 percent of their listed companies did not meet the proposed diversity requirements over the last six months.
“Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies,” Adena Friedman, President and CEO of Nasdaq, said in a press release. “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.”
The move is just the latest—though perhaps the most far-reaching—effort to systematically increase diversity in American boardrooms. In 2018, the State of California required all public companies headquartered in the state to have at least one female board member by the end of 2019. In September 2020, the state passed a law requiring at least one director from underrepresented community on every California public company board by the end of 2021. Goldman Sachs earlier this year said it would only take companies public if they had at least one diverse director on their board.
The SEC will solicit public comments on the proposal over the coming weeks before it decides whether or not to approve the change.