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ARLINGTON, Va. (AP) – The Securities and Exchange Commission on Friday approved Nasdaq’s groundbreaking proposal to increase the number of women, racial minorities and LGBTQ people on U.S. corporate boards.
The new policy – the first of its kind for a U.S. stock exchange – requires most of the nearly 3,000 companies listed on the Nasdaq to have at least one woman on their board of directors, as well as one person from a racial minority background. or who identifies as homosexual. , lesbian, bisexual, transgender or queer. It also requires companies to publicly disclose statistics on the demographics of their boards of directors.
“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,” SEC Chairman Gary Gensler said in a statement accompanying the decision.
Nasdaq-listed companies with five or fewer board members, however, will only have one diverse member. The exchange relaxed the requirement for little advice after considering comments from investors, asset managers, lawmakers and advocacy groups on whether its proposal went too far or not enough.
Companies that do not meet the diversity criteria will not be delisted but will have to explain publicly why they were not able to comply.
The deadline set by the Nasdaq for companies to include various directors differs depending on how companies are listed on the stock exchange, but all companies must have at least one board member within one year.
“We are delighted that the SEC has approved Nasdaq’s proposal to improve board diversity disclosure and encourage the creation of more diverse boards through a market-driven solution,” said declared the Nasdaq. The exchange is in partnership with Equilar, an organization that advocates for more diverse boards, to help companies recruit board candidates.
American companies have stepped up efforts to appoint more women and racial minorities to their boards, responding to pressure from investors and elected officials. The Nasdaq’s requirement carries significant weight because of its ability to define rules for its listed companies.
While the number of female directors has increased dramatically in recent years, studies suggest that companies were slower in bringing more racial minorities onto boards of directors until the murder of George Floyd by police in May 2020 sparks nationwide protests and a nationwide reckoning on racism.
According to a study by the Alliance of Board Diversity and consultancy firm Deloitte, 82.5% of directors on boards of directors of Fortune 500 companies were white in June 2020. The number of racial minorities on boards of directors of the Fortune 500 only grew by 1% between 2018 and June 2020. However, the number of women increased by 4 percentage points over two years to reach 26.5%.
More recently, there has been a wave of black board director appointments. Between July 2020 and May 2021, some 32% of new S&P 500 board members were black, up from 11% the year before, according to an ISS Corporate Solutions analysis.
According to an Equilar study, 18% of the board members of Russell 1000 companies are racial minorities.
Some conservative groups and Republican lawmakers vigorously opposed the proposal, arguing the demands were arbitrary and onerous. Republicans on the Senate Banking Committee wrote a letter urging the SEC to reject the plan, saying “American corporate boards are not the place for social engineering.”
But Lorraine Hariton, CEO of the women’s workplace advocacy group Catalyst, said the Nasdaq plan was a reasonable response to the desire of consumers, investors and many business leaders for greater transparency on the issue. diversity of companies.
“It’s progressive but it’s not irrelevant,” Hariton said. “They don’t say you have to do this to be listed. They say you have to explain this.
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