Nasdaq’s plan to boost diversity on corporate boards gets SEC approval

By Jazmin Goodwin, CNN Business

The Securities and Exchange Commission approved Nasdaq’s proposal to increase diversity on the boards of companies listed on its exchange.

The rule requires all Nasdaq-listed companies to have at least two diverse directors, including one woman and one member of an “underrepresented” minority group, including Black people, Latinos or members of the LGBTQ+ community. Companies that don’t have at least two diverse directors, will be required to provide in writing a reason for why they do not.

Smaller companies and foreign companies on the exchange could comply with two female directors.

Companies will also be required to publicly disclose boardroom diversity statistics 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 exchange tier.

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

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

Nasdaq first outlined its rules for boardroom diversity in December as part of its effort to “champion inclusive growth and prosperity to power stronger economies.”

The news comes amid growing demand for diversity among directors on corporate boards. White women and minorities made up 38.3% of Fortune 500 board seats in 2020, up from 34% in 2018, according to a study released by the Alliance for Board Diversity in collaboration with Deloitte.

In September, California Governor Gavin Newsom signed a diversity law that requires companies to have at least one board member from an underrepresented community by the end of 2021 and at least two or three — depending on the board’s size — by the end of 2022. Publicly-traded companies in California that fail to comply with the diversity rule could face fines from $100,000 to $300,000 per violation.

Republican members of the US Senate’s banking committee, including Senator Pat Toomey, opposed the Nasdaq’s diversity rule, calling for the SEC to block its proposal in February.

“These prescriptive requirements may ultimately harm economic growth and investors by pressuring companies to select directors from a narrower pool of candidates and discouraging others from going public,” Toomey said in a statement following the news. “I’m disappointed Chairman Gensler is turning a financial regulator into a laboratory for progressive social engineering.”

The opposition from Toomey and other Republicans follows strong support of Nasdaq’s diversity standards by others, including Facebook, Microsoft, Goldman Sachs and some Democrats.

“Corporate America must do more to increase diversity in the boardroom,” Senator Sherrod Brown, chairman of the US Senate Committee on Banking said in a statement following the approval. “I applaud the SEC and Nasdaq for recognizing the benefits to companies and shareholders of a more inclusive and equitable economy.”

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

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