By April Hall
December 2, 2020
Directors & Boards
Nasdaq has made history by asking the SEC to require
board diversity to be listed on the exchange.
The proposal, announced Tuesday, would require most
boards to add a woman and a director who self-identifies as LGBTQ+ or as a
member of another underrepresented community. (Foreign and smaller reporting
companies would be exempt from the underrepresented community requirement but
would need to have two women.) The move would also require consistent
disclosure of board makeup.
One year after the SEC approves the proposal, companies
must disclose their board composition; two years after passage, there must be
one diverse director on every board; in five years, boards must have two
diverse directors in place. Currently, 75% of the Nasdaq-listed companies do
not fulfill the requirements.
Corporate governance diversity advocates applaud the
“Nasdaq’s call for diversity could not have come at a
more critical time,” says Esther Aguilera, president and CEO of the Latino
Corporate Directors Association.
The CEO of WomenCorporateDirectors Foundation, Susan
Keating, notes that Institutional Shareholder Services, Goldman Sachs and
BlackRock have also instituted diversity
directives and sees this trend as “part of the journey.” She adds, “To have
Nasdaq step in and take some action accelerates achieving more diversity on
Nasdaq’s guidelines are similar to a series of laws
passed in California. The first required
public companies incorporated in the state to have a woman director on their
Keating says the legislation worked. In 2018, 30% of
public company boards were composed solely of men. That percentage has shrunk
to just under 3%.
The second California mandate, signed into law in
September, requires at least one director from an underrepresented community.
Aguilera says the first law was groundbreaking and the second was a necessary
Of women appointed to boards after the law was passed,
70% were white, she says. While Latinos make up 30% of the state population,
only 3.3% of new women directors at California companies have been Latinas.
If Nasdaq-listed companies do not meet the proposed
quotas in five years’ time, they must disclose the reason why if they want to
stay on the exchange. The disclosure does not let companies off the hook,
“At the end of the day, what gets measured gets results,”
she says. “The call for disclosure, I think, is really important. Not just for
boards and management, but for investors.”
And when those disclosures come out, both Aguilera and
Keating say the inability to find diverse talent will not be a valid excuse.
Their organizations were founded largely to build networks that showcase
successful women and Latinos in business.
The announcement Tuesday included a partnership between
Nasdaq and Equilar — in particular the company’s recruitment tool, BoardEdge —
that will help corporations find diverse talent.
Now that Nasdaq’s application has been submitted, the SEC
will hold a period of public comment on the proposal before making a decision.
“I don’t know what the SEC will do,” Keating says, but
“think of where we are today. In the pandemic, companies have had to rethink
and reimagine their future. We see companies that are innovative, emerging or
bankrupt. The more diverse the boards, the better chance they have of getting
Nasdaq representative was not available for comment.