Nasdaq seeks authority to enforce gender diversity in company boardrooms

The Nasdaq stock exchange wants its listed companies to diversify their boards of directors — or explain why they can’t.

In a proposal filed with the U.S. Securities and Exchange Commission on Tuesday, Nasdaq would require all companies listed on the exchange to publicly disclose consistent, transparent diversity statistics about their board of directors. It would require those companies to have, or explain why they don’t have, at least two diverse directors. This includes having one board member who self-identifies as female and one who self-identifies as either an underrepresented racial minority or LGBTQ. Foreign companies and smaller reporting companies would have additional flexibility.

It’s the first major exchange to pursue such a requirement.

Corporate boards are overwhelmingly white and male. According to the 2018 Board Diversity Census from the Alliance for Board Diversity and the consulting firm Deloitte, women held just 22% of Fortune 500 seats in 2018, compared to 20% a year earlier and 16% in 2010. White men held 66% of Fortune 500 board seats in 2018. Black people held nearly 9% of seats in 2018, compared with nearly 8% in 2010.

Calif. to require women on corporate boards 00:26

California mandate

California, in 2018, became the first state to require publicly traded companies with headquarters in its state to include women on their boards of directors. The amendment was one of several laws boosting or protecting women signed by former Governor Jerry Brown during his fourth and final term in office. The law, SB 826, required at least one female director on the board of each California-based public corporation by the end of 2019.

That law appears to have made a significant impact on California’s corporate boards, according to a recent progress report by The California Partners Project. The group found that the number of board seats held by women at California public companies has increased 66.5% since SB 826 was passed. 

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While similar legislation has been proposed in Massachusetts, California remains the only state to mandate gender diversity in boardrooms. 

“We’re taking the leadership here because there has been so little action on this front, and we do think it’s an important thing for us to do, to create a more inclusive capitalist society, and we think this is a step forward,'” Nasdaq CEO Adena Friedman said on CNBC. “But we would welcome the opportunity for the New York Stock Exchange and for the SEC to take an active role here as well.”

Companies that do not meet the diversity requirement will not be delisted from Nasdaq, but they will have to provide a public explanation for their failure to do so, said Friedman.

Nasdaq proposal goal

Nasdaq said the proposal’s goal is to give stakeholders a better understanding of a company’s current board composition and to bolster investor confidence that all listed companies are considering diversity when they look for new board members.

The proposal would require all Nasdaq-listed companies 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.

All companies will be expected to have one diverse director within two years of the SEC’s approval of the listing rule. Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market will be expected to have two diverse directors within four years of listing rule approval. Companies listed on the Nasdaq Capital Market will be expected to have two diverse directors within five years of the SEC’s approval.

Companies that can’t meet the board composition objectives within the required timeframes won’t be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives.

Nasdaq began in 1971 with the world’s first electronic stock market. It currently has more than 3,300 company listings on its exchange. The Nasdaq has been a destination for many tech companies, including Apple, which launched its initial public offering on the exchange in 1980; Amazon, Cisco, Microsoft and Google, which is now part of Alphabet.

It is the second-largest exchange by market capitalization, behind the New York Stock Exchange.

Nasdaq named Adena Friedman as its CEO in 2016, making her the first woman to lead a major U.S. exchange.

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