SEC Endorses Nasdaq Plan to Strengthen Diversity on Boards of Directors

The Securities and Exchange Commission on Friday approved new Nasdaq rules that will require companies that list shares on its exchanges to meet certain race and gender goals.

The announcement by Wall Street’s main regulator marks the end of a months-long debate in the SEC over whether to approve further changes at one of the world’s largest stock market operators.

The rules will ensure that company boards meet racial and gender diversity requirements or require companies to explain in writing why they have not done so.

The Nasdaq’s goal for most American businesses is to have at least one female director in addition to another board member who identifies as a member of a racial minority or LGBTQ community.

“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.

“These rules reflect investor calls for greater transparency about who runs public companies, and a wide range of commentators have supported the proposed board diversity disclosure rule,” he said. added.

The rule changes also require companies to publish diversity statistics about their boards. The Nasdaq found in a study conducted in 2020 that more than 75% of its listed companies would not have met the proposed requirements.

The exchange trader applauded the SEC’s order in a press release.

“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,” Nasdaq said . “We look forward to working with our companies to implement this new listing rule and establish a new standard of corporate governance.”

Republicans on the Senate Banking Committee blasted the plan when the Nasdaq first released it in December. The group called the Nasdaq decision excessive and an example of a company inappropriately advocating a political agenda.

Sen. Pat Toomey, the committee’s top Republican, criticized the SEC decision and the Nasdaq’s efforts on Friday.

“Corporate boards, like all organizations, can benefit from a variety of perspectives, but NASDAQ’s single quota misses the mark,” he said in an emailed statement. “By defining diversity by race, gender and sexual orientation, NASDAQ’s mandate will inevitably push companies to subordinate crucial factors such as knowledge, experience and expertise when selecting board members. “

“I am disappointed that President Gensler is turning a financial regulator into a progressive social engineering laboratory,” he added.

Toomey asked the then-candidate Gensler in March if he thought boards should be “forced or coerced into meeting some sort of quota when it comes to race, gender or sexual orientation.” “.

Gensler responded by touting the benefits of diversity more widely and among the ranks of the commission. Democrats and some companies, including Goldman Sachs, have backed the Nasdaq initiative.