Nasdaq wants boards to diversify, or face being delisted

Nasdaq’s CEO Adena Friedman wants boards to diversify, or face being delisted

3 in 4 boards do not meet the diversity requirements the Nasdaq is proposing.

Across the Nasdaq’s 3249 listed companies, the boards are very white and very male.

Now Nasdaq CEO Adena Friedman (pictured) wants to change this, threatening to delist boards that fail to include at “least two diverse directors”.

Nasdaq has submitted a proposal to the Securities and Exchange Commission requiring boards to have at least one female director and at least one director who identifies as an underrepresented minority or as LGBTQ+. These companies would also need to publicly disclose “consistent, transparent diversity statistics” regarding their boards.

They’re requirements that are more difficult to meet than you’d think. According to The New York Times’ DealBook which has reported the Nasdaq announcement, more than three in four of these boards do not currently meet these proposed diversity requirements.

Friedman concedes that the requirements they’ve proposed really are the bare minimum.

“It’s not like we’re saying this is an optimal composition of a board, but it’s a minimum level of diversity that we think every board should have,” she told DealBook.

These companies will be given some time to make the change. If the proposal is approved, they will be expected to have at least one diverse director within two years. Companies will have longer to meet the two diverse director rule, depending on what ‘tier’ they sit within on the Nasdaq.

In the announcement press release, Friedman said the overall goal is to provide a “transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders.”

She said they believe the listing rule takes them one step closer to the “broader journey to achieve inclusive representation across corporate America.”

Nasdaq also released their announcement by delivering an analysis of more than two dozen studies that found an association between diverse boards and better corporate governance and financial performance.

They’ve defined an “underrepresented minority” as being: an individual who self-identifies in 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.

It’s a start — a small one with a lengthy time frame for change and some loopholes. For example, Nasdaq says that companies may be able to avoid such delisting if they publicly explain themselves. Meanwhile, “foreign companies and smaller reporting companies” would also have some additional flexibility, and able to satisfy the requirements with at least two female directors.

But this announcement from Nasdaq has got business circles talking. It’s further pushing the conversation among investors employees and boards themselves. And that, says Nasdaq, is the ultimate goal: to give stakeholders an understanding of a company’s board composition and give investors more confidence that listed entities are considering diversity when selecting directors.

You’d think that most companies will also want to do everything possible to avoid an awkward “public explanation” for why they can’t find at least two diverse directors.

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