Nasdaq has filed a proposal with the US Securities and Exchange Commission (SEC) today, to approve new rules that will force listed company boards to become more diverse and transparent.
If approved by the SEC, its new listing rules would require all companies listed on Nasdaq’s US exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors. Additionally, the rules would require most Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors, including one 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, said Nasdaq.
The goal of the proposal is to provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity in the context of selecting directors, either by including at least two diverse directors on their boards or by explaining their rationale for not meeting that objective.
NASDAQ’S ‘DIVERSITY’ PROPOSAL
As part of rationale for the new requirements, Nasdaq’s proposal presents an analysis of over two dozen studies that found an association between diverse boards and better financial performance and corporate governance. Under the proposal, all Nasdaq-listed companies will be required 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. The timeframe to meet the minimum board composition expectations set in the proposal will be based on a company’s listing tier.
Specifically, all companies will be expected to have one diverse director within two years of the SEC’s approval of the listing rule, confirmed Nasdaq. Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market will be expected to have two diverse directors within four years of the SEC’s approval of the listing rule. Companies listed on the Nasdaq Capital Market will be expected to have two diverse directors within five years of the SEC’s approval. However, those firms that are not in a position to meet the board composition objectives within the required timeframes, will not be subject to delisting “if they provide a public explanation of their reasons for not meeting the objectives”, Nasdaq stated.
CHAMPIONING INCLUSIVE GROWTH
“Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies,” explained Adena Friedman, President and CEO of Nasdaq. “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’s Chairman Michael Splinter agrees: “Diversity of experience, gender, race, knowledge and perspective means that a company is more capable of seeing the full picture, assessing risk and overcoming challenges with forward-looking, innovative solutions.”
Nasdaq will also introduce a partnership with Equilar, the leading provider of corporate leadership data solutions, to aid Nasdaq-listed companies with board composition planning challenges. Through the Equilar BoardEdge platform, hosting nearly one million profiles and the Equilar Diversity Network, and by leveraging existing services through the Nasdaq Center for Board Excellence, the partnership will enable Nasdaq-listed companies that have not yet met the proposed diversity objectives to access a larger community of highly-qualified, diverse, board-ready candidates to amplify director search efforts.
CLEAR PATH TO INNOVATION & GROWTH
“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,” said Nelson Griggs, President of Nasdaq Stock Exchange. “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.”
Through this proposal and other corporate initiatives, Nasdaq seeks to make a positive impact in the global community by leveraging the scale of its operations and client network. In September, Nasdaq announced the launch of its Purpose Initiative, designed to champion inclusive growth and prosperity for all stakeholders. This effort will include the relaunched Nasdaq Foundation and initiatives through the company’s employee volunteerism and philanthropic programmes and the Nasdaq Entrepreneurial Center.
ADDRESSING RACIAL & GENDER EQUITY
Many corporate leaders welcomed Nasdaq’s move today. “Successful companies must cultivate diversity to fuel innovation and to thrive in today’s era of ongoing environmental, social and economic change,” stated Linda Moore, President & CEO of TechNet. “The technology industry is committed to promoting inclusivity at all levels to ensure that our economy remains robust and innovative. We support Nasdaq’s proposal to advance diversity throughout corporate America.”
By pushing its listed companies to address racial and gender equity in corporate boards, Nasdaq is “heeding the call of the moment”, noted Anthony Romero, Executive Director, American Civil Liberties Union. “Incremental change and window-dressing isn’t going to cut it anymore as consumers, stakeholders and the government increasingly hold corporate America’s feet to the fire. Nasdaq’s efforts to prod and push its listed companies is a welcomed and necessary first step. With increased representation of people of colour, women and LGBTQ people on corporate boards, corporations will have to take actionable steps to ensure underrepresented communities have a seat at the table.”
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