Arlington, Va.: The Securities and Exchange Commission on Friday approved Nasdaq’s unprecedented proposal to promote the number of women, racial minorities and LGBTQ people on US corporate boards.
The new policy, the first of its kind for the U.S. Securities Exchange, requires most of the nearly 3,000 companies listed on the Nasdaq to have at least one woman on their board of directors, as well as a racial minority or one who identifies as gay, lesbian. , is needed. , bisexual, transgender or queer. It also requires companies to publicly disclose data on the demographic composition of their boards.
SEC Chairman Gary Gensler said in a statement accompanying the decision that these rules will allow investors to gain a better understanding of the Nasdaq-listed companies’ board diversity approach, while ensuring those companies have access to decision-making. have the flexibility to best serve their shareholders.
However, Nasdaq-listed companies with five or fewer board members will only be required to have one miscellaneous member. The stock exchange downplayed the need for smaller boards after considering feedback from investors, asset managers, lawmakers and advocacy groups whether its proposal went too far, or not too far.
Companies that do not meet the diversity criteria will not be delisted, but must publicly explain why they could not comply.
The Nasdaq deadline for companies to induct miscellaneous directors depends on how the companies are listed on the exchange, but all corporations must have at least one board member within a year.
We are pleased that the SEC has approved Nasdaq’s proposal to increase disclosure of board diversity and encourage the creation of more diverse boards through market-led solutions. The exchange is partnering with Equilar, an organization that advocates for more diverse boards, to help companies recruit candidates to the board.
Responding to pressure from investors and elected officials, US companies have ramped up efforts to appoint more women and racial minorities to their boards.
California passed a law in 2017 requiring publicly traded companies headquartered in the state to have at least two or three female directors, depending on the size of their boards. Last year, the state passed a similar law that requires at least one board member to be from an underrepresented ethnic community, or one who identifies as LGBTQ.
The need for Nasdaq carries significant weight because of its ability to set rules for its listed companies.
While the number of female directors has increased significantly in recent years, studies show that companies were slow to bring more racial minorities on board, until the May 2020 police killing of George Floyd sparked nationwide protests. And did not do a national reckoning on racism.
According to a study by the Alliance of Board Diversity and consulting firm Deloitte, 82.5% of directors on Fortune 500 company boards as of June 2020 were white. The number of racial minorities on Fortune 500 boards grew just 1% between 2018 and June 2020. However, the number of women increased by 4 percent to 26.5% in two years.
Recently, there has been a boom in appointments to black board of directors. According to an analysis by ISS Corporate Solutions, between July 2020 and May 2021, some 32% of newly appointed board members in the S&P 500 were Black, up from 11% the previous year.
Nasdaq said in a public filing that it received more than 200 letters of response to its proposal, most of them positive.
While some advocacy groups said the requirements were too modest, Nasdaq said it sought to “provide a flexible, attainable approach for companies to achieve a reasonable objective that is not overly burdensome or overwhelming.”
Some conservative advocacy groups argued that the proposal forced companies to choose less qualified candidates. In its public filing, Nasdaq said it “categorically rejects the premise that there is a lack of available and qualified candidates who are women, minorities, or individuals who self-identify as LGBTQ+.” “
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