Nasdaq proposes diversity disclosure for listed companies

The stock exchange group wants companies to disclose diversity data and impose minimum representation requirements 

Nasdaq has filed a proposal with the US Securities and Exchange Commission (SEC) that, if approved, would require all companies listed on Nasdaq’s US exchange to disclose board diversity or face delisting. 

The rules would require most Nasdaq-listed companies to have at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+. If they do not meet these criteria, the companies will have to explain why. 

All companies would be expected to have one diverse director within two years of the SEC’s approval of the listing rule. 

Adena Friedman, president and chief executive of Nasdaq, said: “Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders. 

“We believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.” 

Foreign companies and smaller reporting companies would have additional flexibility in satisfying this requirement with two female directors, according to Nasdaq’s proposal. 

Companies that are not in a position to meet the board composition goals within the required timeframes will not be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives. 

Nasdaq cited an analysis of over two dozen studies, which found an association between diverse boards and better financial performance and corporate governance. 

Some of the largest listed companies in the US - such as Apple, Microsoft, Facebook, and Google owner Alphabet - already meet the Nasdaq proposal, but many still fall short. 

Linda Moore, president and chief executive of TechNet, said: “Successful companies must cultivate diversity to fuel innovation and to thrive in today’s era of ongoing environmental, social and economic change.  

“The technology industry is committed to promoting inclusivity at all levels to ensure that our economy remains robust and innovative. We support Nasdaq’s proposal to advance diversity throughout corporate America.” 

Earlier this year, several industry bodies wrote to the Senate committee on banking, housing and urban development urging support for a law on board diversity, which was passed by the House of Representatives in late 2019. 

PwC’s latest Annual Corporate Directors Survey found that 94% of board directors agreed that a diverse membership brought unique perspectives, while 87% said it enhanced performance. A large majority also said diversity aided relationships with investors.