Nasdaq on Tuesday announced it asked the Securities and Exchange Commission for permission to require companies listed on its United States stock exchange to increase board diversity by having at least one woman and one person who self-identifies as underrepresented or LGBTQ and to publish board diversity reports, which would make it the first major exchange to demand companies disclose more than the legal requirements.
The companies will be mandated to publish board diversity data within a year of approval, to have at least one underrepresented or LGBTQ board member within two years and large companies must have at least two diverse directors in four years.
Companies that don’t publicly disclose the data could be removed from the stock exchange and ones that fail to meet the diversity requirements will need to publish a reason.
Nasdaq CEO Adena Friedman told the New York Times it would be ideal for the SEC to adopt a similar rule because it would be applied to public companies and the private equity companies it regulates.
Friedman said the decision is based on data showing the positive impact board diversity has on a company’s financial performance and said it increases investors’ confidence in the “future sustainability” of the company.
75%. Nasdaq found that more than 75% of its listed companies did not met these diversity requirements within the last six months, according to data shared with the New York Times.
The newest research from the consulting company McKinsey & Co. shows companies in the top quartile for gender diversity were at least 25% more likely to financially outperform in 2019 and those in the top quartile for ethnic diversity were at least 36% more likely to outperform. Companies and states have taken note in recent years. In January, Goldman Sachs CEO David Solomon announced the investment bank will only take companies public if they have at least one “diverse” board member, with a focus on women. The rule went into effect in Europe and the U.S. this July, and Soloman said the goal is to increase to two board seats by 2021. In September, California became the first state to institute a diversity quota for board membership when Gov. Andrew Gavin Newsom signed a bill into law requiring public companies headquartered in the state to have at least one board member from an underrepresented community by 2021 and for companies to have a minimum of three by the end of 2022, depending on board size. In 2018, the state mandated the companies to have at least one female board member by the end of 2019 and a minimum of three by the end of 2021.
Tom Fitton, the president of the conservative advocacy group Judicial Watch, told CNN his organization is against the mandate, saying it “may violate the law for Nasdaq to seemingly require a discriminatory quota system for race and gender.” In September, Judicial Watch filed a lawsuit aimed at blocking the California law.
Nasdaq to Advance Diversity through New Proposed Listing Requirements (Nasdaq)
Nasdaq Pushes for Diversity in the Boardroom (New York Times)
Diversity wins: How inclusion matters (McKinsey & Co.)