The policy will require the roughly 3,000 companies listed on Nasdaq to hire at least one woman on … [+]
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The Securities and Exchange Commission (SEC), the top regulator that protects investors, maintains a fair, orderly and efficient securities marketplace and capital formation, approved a proposal by Nasdaq, which runs an exchange of primarily tech-related and growth companies, to increase the number of underserved groups on U.S. corporate boards.
Nasdaq is similar to the New York Stock Exchange (NYSE). Companies that want to go public will choose a platform, such as Nasdaq or the NYSE. Then, their stock could be bought, sold and traded. The exchanges will also oversee and regulate activities.
The policy will require the roughly 3,000 companies listed on Nasdaq to hire at least one woman on their board of directors, along with one person who is racially diverse or self-identifies as LGBTQ.
It also requires listed corporations to disclose the demographic breakdown of the board members. If the companies can’t meet this objective, they’ll be required to explain why they weren’t able to do so. In a review undertaken by Nasdaq, it was found that around 75% of their listed companies don’t meet this new threshold.
Nasdaq CEO Adena Friedman offered her rationale for this policy in an interview with the Wall Street Journal. Friedman said, “The genesis of this has actually been over many years. In addition to operating the markets here in the U.S., we also own and operate several of the markets in the Nordic countries in Europe. Many countries in Europe have taken a leadership role in having different ways to establish standards, particularly around gender diversity. They’ve been quite effective in improving the diversity of corporate boards in those countries.”
The chief executive continued, “But frankly, this year, and all of the experiences that we’ve all had this year, I think it’s really raised the awareness in Corporate America around the benefits of diversity. We do think that this effort here is one of those important steps that Nasdaq can take to help push the needle.”
The new head of the SEC, Gary Gensler, said, “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.”
The commissioners for the SEC are both Democratic and Republican members. Of the two SEC commissioners, one Republican voted against the decision and the second only offered some support. Senate Banking Committee Republican Pat Toomey said, “By defining diversity by race, gender, and sexual orientation, Nasdaq’s mandate will inevitably pressure companies to subordinate crucial factors, such as knowledge, experience and expertise when selecting board members.”
Leading up to this change, there has been a steady push by investors and politicians to ensure that the boards better reflect the American public. Their reasoning is that by having a wide array of people, the boards will benefit from different perspectives. It’s important to avoid group-think by only having similar types of people responsible for overseeing the CEO and the organization’s business activities.
According to a study from the Alliance of Board Diversity and consulting firm Deloitte, about 82.5% of directors among Fortune 500 company boards were white as of June 2020. It was found that the number of women rose up to a 26.5% representation on boards. There has been a large number of newly appointed Black board directors. From July 2020 to May 2021, about 32% of newly appointed board members in the S&P 500 were Black, according to an analysis by ISS Corporate Solutions.
