In a push for greater corporate diversity, NASDAQ is proposing a rule that would require its thousands of listed companies to have at least two diverse board directors.
NASDAQ filed a proposal with the Securities and Exchange Commission this month that would require companies to have on their board at least one woman and one member of an underrepresented minority group.
This second clause includes people of color and members of the LGBTQ+ community. Smaller or foreign companies on the exchange can comply with two female directors.
Their proposed rules would require at least one diverse director within two years and two within four to five years, depending on company size. Companies that do not comply would have their shares delisted from the exchange. Companies in the NASDAQ would also be required to disclose “consistent, transparent diversity statistics” about their boards. This includes the annual disclosure of board-level diversity data on their websites or in their information statements for shareholder meetings, using NASDAQ’s Board Diversity Matrix.
This follows a growing group of organizations pushing for greater diversity in the boardroom. In January, Goldman Sachs announced it would not take a company public unless it had at least one diverse board member. In September, California Governor Gavin Newsom signed a law that would require at least one minority member on the boards of all publicly traded companies based in California. NASDAQ’s proposal presents an analysis of over two dozen studies that found a relationship between diverse boards and better financial performance and corporate governance.
Many large public companies already comply with the minimum requirements of the new NASDAQ rule. A NASDAQ spokesman said it believes that at least 85% of its 3,249 listed companies already have either one woman or one member of an underrepresented group on their boards.
Unfortunately, most boards still have a ways to go in increasing their diversity. A study in September found that only 16.8% of 33,000 directors at large cap companies are members of a minority group, and only 27.4% of directors are women. NASDAQ is seeking to augment these percentages with its diversity proposal; Adena Friedman, the CEO of NASDAQ, says that they do not seek to create an optimal board composition with these new rules but rather to give every board the minimum level of diversity that it believes every board should have.