The Securities and Exchange Commission (SEC) on Friday approved Nasdaq’s proposal requiring its public listed companies to disclose gender and racial diversity of their boards; and eventually have at least two diverse directors.
Described as a ‘positive first step’, the new policy will require around 3,000 companies listed on Nasdaq to have “at least one director who self-identifies as female and at least one director who self-identifies as LGBTQ+ or an underrepresented minority”; identifying as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, confirmed the SEC order.
BOARD DIVERSITY COMPLIANCE
Under the Nasdaq proposal, which was filed in December, companies without two diverse directors would have to publicly explain why they could not comply. Nasdaq’s deadline for companies to include diverse directors differs depends on how companies are listed on the exchange. However, they are all required to have at least one diverse board member within a year.
“These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity; while ensuring that those companies have the flexibility to make decisions that best serve their shareholders,” stated SEC’s Chair Gary Gensler. “These rules reflect calls from investors for greater transparency about the people who lead public companies; and a broad cross-section of commenters supported the proposed board diversity disclosure rule. Investors are looking for consistent and comparable data when making decisions about their investments. I believe that our markets work best when investors have access to such information.”
POSITIVE FIRST STEP FOR INVESTORS
SEC Commissioner Allison Herren Lee and Commissioner Caroline A Crenshaw described the new rules as a “positive first step for investors”. “Nasdaq’s proposal should improve the quality of information available to investors for making investment and voting decisions; by providing consistent and comparable diversity metrics,” they stated.
However, both pointed out that there is “more work to be done in improving both diversity and transparency” at public companies; and in the capital markets more broadly. “For example, disability may be a relevant characteristic, as well as diversity among senior management and the workforce more broadly. There is a continued, harmful disparity in the representation of a wide range of communities in our capital markets. Because enhanced diversity is critically important for investors, the markets, and our economy, we hope this is a starting point for initiatives related to diversity; not the finish line,” they highlighted.
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