Nasdaq’s Plan to Strengthen Diversity on Boards Gets SEC Approval

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The rule requires that all companies listed on the Nasdaq have at least two miscellaneous directors, including a woman and a member of an “under-represented” minority group, including blacks, Latinos, or members of the LGBTQ + community. Companies that do not have at least two different directors will be required to provide in writing a reason why they do not have one.

Small businesses and foreign stock exchange companies could comply with two female directors.

Companies will also be required to publicly disclose diversity statistics on the board of directors within one year and to have at least one diverse director within two years and two within four to five. years, depending on the size of the company and their stock market level.

“These rules will allow investors to better understand the approach of Nasdaq-listed companies to board diversity, while ensuring that these companies have the flexibility to make decisions that best serve their shareholders,” said SEC Chairman Gary Gensler in a statement.

Nasdaq’s new disclosure requirements will provide “consistent and comparable data when making decisions about their investments,” he said.

The Nasdaq first set its rules for diversity on boards of directors in December as part of its efforts to “champion inclusive growth and prosperity to fuel stronger economies.”
The news comes amid growing demand for diversity among board directors. White women and minorities accounted for 38.3% of seats on the Fortune 500 board in 2020, up from 34% in 2018, according to a study published by the Alliance for Board Diversity in collaboration with Deloitte.
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In September, California Governor Gavin Newsom signed a diversity law that requires companies to have at least one board member from an under-represented community by the end of 2021 and at least two or three – depending on the size of the board of directors – by the end of 2022. California-listed companies that do not comply with the diversity rule could face fines ranging from $ 100,000 to $ 300,000 $ per violation.

Republican members of the U.S. Senate Banking Committee, including Senator Pat Toomey, opposed the Nasdaq diversity rule, calling on the SEC to block its proposal in February.

“These prescriptive requirements can ultimately hurt economic growth and investors by pressuring companies to select directors from a smaller pool of candidates and discouraging others from going public,” Toomey said. in a press release after the news. “I am disappointed that President Gensler is turning a financial regulator into a laboratory of progressive social engineering.”

CNN’s Chris Isidore and Jeanne Sahadi contributed to this report.

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