U.S. markets regulator approves Nasdaq’s proposal to require board diversity

By Jessica DiNapoli

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission has approved a proposal by stock operator Nasdaq Inc that requires its listed companies to have diverse boards, or why they don’t.

The proposal requires companies to have two different directors, one of whom identifies as a woman and another as an under-represented or LGBTQ + minority, or explains why they don’t. Companies must also publicly disclose the diversity of their boards.

“These rules will give investors a better understanding of the Nasdaq-listed companies’ approach to board diversity,” SEC Chairman Gary Gensler said in a statement.

The Nasdaq said it was “looking forward to working with our companies to implement this new listing rule and set a new standard for corporate governance.”

Women and minorities have been under-represented in the senior ranks of business, leading to a recent calculation of racial and gender diversity in American businesses. According to data from Equilar, the Russell 3000 boards are at the midpoint of gender parity. In the Russell 1000, 18.4% of directors are under-represented minorities.

Investor efforts to examine diversity on boards of directors have also been hampered by a lack of disclosure, with many companies not detailing the gender, race or ethnicity of directors.

Republican lawmakers and some companies criticized the Nasdaq proposal and urged the SEC to reject it, saying it would interfere with board responsibilities to shareholders and could impose new costs on companies.

Advocates for people with disabilities had pushed the Nasdaq and the SEC to include disability in the proposal, but were “rejected,” Ted Kennedy Jr, president of the American Association of People with Disabilities (AAPD), said in an interview with Reuters.

The Nasdaq said in a comment letter that companies may consider and disclose other miscellaneous attributes such as disability or veteran status. But these attributes would not meet the demands of a woman or someone who identifies as an under-represented or LGBTQ + minority.

California and Illinois have onboard diversity laws for companies headquartered in their states.

(Reporting by Jessica DiNapoli in New York; Additional reporting by Chris Prentice in Washington, DC and Ross Kerber in Boston; Editing by Jonathan Oatis and Matthew Lewis)