Nasdaq and SEC Near Agreement on Plan To Increase Diversity Within Corporate Boards

The multinational financial services corporation Nasdaq Inc. and the stock exchanges it operates are on the verge of becoming much more diverse and inclusive, especially when it comes to the number of women and minorities serving on the boards of member companies.

Bloomberg’s Andrew Ramonas and Claire Hao have reported that “the Securities and Exchange Commission is expected to give initial, and potentially binding, approval of a Nasdaq board diversity proposal by Aug. 8.” 

The Nasdaq proposal was first revealed late last fall. Should the endorsement come to pass, experts say it would be the SEC’s most substantial effort yet to promote diversity and inclusion within corporate America. The agency’s last major reform effort focused on improving environmental, social and governance as part of the newly enacted Biden administration.

“Nasdaq’s plan would be the most significant diversity requirement in the U.S. since California passed laws in 2018 and 2020 that mandated diverse boards for companies headquartered in the state,” Ramonas and Hao reported. “The proposal directs its listed companies to pursue board diversity — by having at least one female board member and at least one who identifies as an underrepresented minority or LGBTQ — or explain why they don’t.”

In an interview with Bloomberg Law, former SEC Commissioner Annette Nazareth said she had little doubt the agency would allow Nasdaq to implement its proposal — especially since the SEC itself is also currently examining its own need for new regulations focused around diversity and inclusion.

She called the Nasdaq initiative “a nice way to test the waters” and see what kinds of change the reform could help to bring about.

Should the Nasdaq diversity program be endorsed by SEC and fully put into place, companies within its stock exchange would have four years to meet the new diversity rules. Small or foreign boards may be eligible for exceptions but would still be required to have some level of diversity.

Only companies that successfully explain why their boards lack sufficient diversity would be allowed to bypass the new requirement. Fortunately, for many companies, meeting the new diversity rules shouldn’t be a problem.

“The fact is a lot of companies, in particular in the last two years, have made a lot of progress in this direction,” Georgetown University Law Center professor Hillary Sale said in an interview with Bloomberg Law.

The U.S. Chamber of Commerce and tech conglomerates such as Facebook Inc. and Microsoft Corp. have already announced their support for the new plan. And numerous companies have already begun increasing the diversity of the boards even without the Nasdaq rule in place.

According to Ramonas and Hao, “On the S&P 500, at least 145 companies have added at least one Black director since June 2020. Women also hold about a third of all seats on the S&P 500.”

Should the SEC endorsement go through, the agency’s chairman Gary Gensler has set an October deadline “to propose rules requiring disclosures about the diversity of board members and nominees.”

If the agency rejects the regulations, Ramonas and Hao said Congress may still ultimately require its implementation since the House approved legislation in June 2021 mandating board diversity disclosures. The bill just needs to be taken up for a vote and approved by the Senate before becoming official federal law.


Related: For more recent diversity and inclusion news, click here.