The Nasdaq proposal would require extra range on firm boards
Nasdaq is pushing for more diversity among the more than 3,000 companies listed on its stock exchange.
The exchange operator tabled a proposal Tuesday calling on the Securities and Exchange Commission to approve new listing rules for corporate board memberships, as well as greater transparency about who occupies the boardroom seats.
According to the proposal, the majority of companies must have at least two different board members: a woman and a person who identifies as either an under-represented minority or LGBTQ. If a company cannot meet these requirements, it will not be delisted but must explain why it cannot achieve the goals. However, failure to publish board data may result in delisting.
If the SEC approves the plan, all companies would have to publish board-level diversity statistics within one year of the guideline being passed. Nasdaq said in a statement that the timeframe for companies to meet board requirements will vary depending on each company's listing level, but that all companies are expected to have at least one diverse director within two years of SEC approval .
"Disclosure is really the bedrock of our markets and our economy," said Adena Friedman, President and CEO of Nasdaq, to CNBC's "Squawk Box." "We rely on companies to provide full and accurate information to keep investors informed so that investors can choose which companies to invest in and what to expect from the companies they invest in."
According to a New York Times story quoting data from Nasdaq, more than 75% of the roughly 3,200 companies on the exchange do not meet the criteria
Nasdaq's push – the first exchange to call for diversity requirements – is taking place amid a boom in so-called ESG investments – when a company's environmental, social and governance factors are assessed. Companies take note of this given the record inflows into ESG funds. In January Goldman Sachs announced that companies without "at least one diverse board candidate" would not be listed on the stock exchange.
Nasdaq's proposal follows countless studies touting the benefits of greater diversity at board level and across all companies. In a 2019 study, McKinsey found that companies in the top quarter of gender diversity in leadership teams were 25% more likely to have above-average profitability than companies in the bottom quarter.
"We're taking the lead here because so little has been done on this front and we think it's important for us to create a more inclusive capitalist society and we think that's progress," Friedman said.