D&IDiversify or delist: Nasdaq files new board diversity rules with FCC

Nasdaq to advance diversity through new proposed listing requirements
Marcom Weekly StaffDecember 1, 20206 min
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Nasdaq today filed a proposal with the U.S. Securities and Exchange Commission (SEC) to adopt new listing rules related to board diversity and disclosure. If approved by the SEC, the new listing rules would require all companies listed on Nasdaq’s U.S. exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors.

Additionally, the rules would require most Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either LGBTQ+ or one or more of the following groups: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander or Two or More Races or Ethnicities. Foreign companies and smaller reporting companies would have additional flexibility in satisfying this requirement with two female directors.

“Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies,” said Adena Friedman, president and CEO, Nasdaq. “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.”​

The goal of the proposal is to provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity in the context of selecting directors, either by including at least two diverse directors on their boards or by explaining their rationale for not meeting that objective. As part of the rationale for the new requirements, Nasdaq’s proposal presents an analysis of over two dozen studies that found an association between diverse boards and better financial performance and corporate governance.

Under the proposal, all Nasdaq-listed companies will be required to publicly disclose board-level diversity statistics through Nasdaq’s proposed disclosure framework within one year of the SEC’s approval of the listing rule. The timeframe to meet the minimum board composition expectations set forth in the proposal will be based on a company’s listing tier. Specifically, all companies will be expected to have one diverse director within two years of the SEC’s approval of the listing rule. Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market will be expected to have two diverse directors within four years of the SEC’s approval of the listing rule. Companies listed on the Nasdaq Capital Market will be expected to have two diverse directors within five years of the SEC’s approval. For companies that are not in a position to meet the board composition objectives within the required timeframes, they will not be subject to delisting if they provide a public explanation of their reasons for not meeting the objectives.

In a statement released today, Nasdaq director Alfred Zollar wrote, “Nasdaq’s diversity proposal marks a transformative moment in a larger movement toward greater representation of women and people of color in the boardroom and beyond.”

Through this proposal and other corporate initiatives, Nasdaq seeks to make a positive impact in the global community by leveraging the scale of its operations and client network. In September, Nasdaq announced the launch of its Purpose Initiative, designed to champion inclusive growth and prosperity for all stakeholders. This effort will include the relaunched Nasdaq Foundation and initiatives through the company’s employee volunteerism and philanthropic programs and the Nasdaq Entrepreneurial Center.

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