CBx Daily

Nasdaq Secures SEC Approval To Increase Board Diversity

Aug 18

By CultureBanx Team

  • Nasdaq won approval by the SEC to require at least two diverse board members in its companies listing rules
  • Board appointments for people of color in the U.S. increased from 13% in 2010 to 23% in 2019

Nasdaq challenged the status quo and won approval by the SEC to require race and gender disclosures in its listing rules. The mandate will make sure that listed companies on its exchange have at least two diverse board members, which should have huge dividends for people of color and women who have been systemically left without a seat at these corporate tables. Board appointments for people of color in the U.S. increased from 13% in 2010 to 23% in 2019, so if Nasdaq companies don’t or seemingly can’t diversify their boards, they will be publicly required to explain why not, and possibly risk being delisted.

Why This Matters: The aftermath of George Floyd has laid bare the inequities and disenfranchisement that African Americans have faced for centuries. It forced Corporate America to reevaluate its diversity and inclusion practices which meant creating more paths for diverse candidates to achieve a C-Suite role that isn’t related to diversity, equity, and inclusion. It also meant more diversity on boards of Fortune 500 companies and beyond. Nasdaq’s first-of-its-kind rule will re-write the status quo for board diversity.

“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,” said SEC Chair Gary Gensler.

Nasdaq found in a study conducted in 2020 that more than 75% of its listed companies wouldn’t have met its proposed requirements. So by taking this unique stand, the exchange operator has huge potential to move the needle on corporate diversity.

“We are pleased that the SEC has approved Nasdaq’s proposal to enhance board diversity disclosures and encourage the creation of more diverse boards through a market-led solution,” Nasdaq said.

What’s Next: Board diversity has a long way to go because the reality is that 50% of new board members are former CEOs, along with 21% being current or former CFOs in 2019, according to Heidrick & Struggles. However, if people of color aren’t reaching the CEO or CFO level, how can they join boards? The system does not set up people of color for success for board appointment. Now, with the Nasdaq calling out its listed companies by holding them accountable to make their boards more diverse, they have the opportunity to change things.

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