Nasdaq proposes listing standards for boardroom diversity
Nasdaq has proposed new listing standards to require greater diversity on public company boards of directors and more disclosures related to the subject, according to an SEC filing on Tuesday by the stock exchange.
After a phase-in period, the proposal would eventually require most companies listed with Nasdaq to have at least two board directors who self-identify as having diverse backgrounds: one female, another either an "underrepresented minority" or "LGBTQ+," the exchange said in a news release.
Nasdaq's move comes amid pressure from investors and advocates for more information on companies related to environmental, social, and governance issues. The exchange said in its proposal that was part of why it is seeking the changes.
"Nasdaq believes that the heightened focus on corporate board diversity by companies, investors, corporate governance organizations, and legislators demonstrates that investor confidence is enhanced when boardrooms are comprised of more than one demographic group," the exchange wrote. "Nasdaq has also observed recent calls from SEC commissioners and investors for companies to provide more transparency regarding board diversity."
The rules would require that within one year that all companies listed with the stock exchange disclose board-level diversity statistics, and the companies would "be expected to have at least one diverse director within two years" of approval, Nasdaq said.
Companies that cannot meet the new board member and reporting standards will face potential delisting, although that consequence can be avoided if they disclose why they aren't meeting the diversity objectives or if they nominate additional diverse candidates to their board to satisfy the requirements.
Nasdaq CEO Adena Friedman said in an interview on CNBC earlier Tuesday that the disclosure requirements were proposed with the idea that listed companies eventually will have "a standardized table so investors can understand it easily and can compare companies across the spectrum of Nasdaq companies at least."
The proposal received mixed reactions from investors, with some critics suggesting that the move could inappropriately affect personnel decisions that should only be based on merit. Friedman responded that delisting was not a hard and fast requirement for companies that don't meet board composition standards.
"I just want to make sure it's clear that we're marching down the road, we're establishing a minimum that we expect companies to meet, or to explain publicly why they aren't able or aren't interested in meeting them," she said.
The exact requirements and time frames for compliance vary based on the size of the company and where its securities are traded. Smaller and foreign reporting companies can satisfy diversity requirements with two female directors instead, for example.
The proposal is subject to public comment and consideration by the SEC.
