NEW YORK (Reuters) – The U.S. Securities and Exchange Commission approved a proposal from stock exchange operator Nasdaq Inc that requires its listed companies to have diverse boards, or explain why they do not.
The proposal requires that companies have two diverse directors, including one who identifies as female and another as an underrepresented minority or LGBTQ+, or explain why they do not. Companies also have to publicly disclose the diversity of their boards.
“These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity,” said SEC Chair Gary Gensler in a prepared statement.
Nasdaq said it is looking “forward to working with our companies to implement this new listing rule and set a new standard for corporate governance.”
Women and minorities have been underrepresented in the top ranks of companies, leading to a recent reckoning on racial and gender diversity in Corporate America. According to data from Equilar, boards in the Russell 3000 are halfway to gender parity. In the Russell 1000, 18.4% of directors are under-represented minorities.
Investor efforts to scrutinize diversity on boards have also been stymied by a lack of disclosure, with many companies not detailing the gender and race or ethnicity of directors.
Republican lawmakers and some companies criticized Nasdaq’s proposal and urged the SEC to reject it, saying it would interfere with boards’ responsibilities to shareholders and could impose new costs on companies.
Advocates for people with disabilities had pushed both Nasdaq and the SEC to include disability in the proposal, but were “rebuffed,” said Ted Kennedy Jr, chairman of the American Association of People With Disabilities (AAPD), in an interview with Reuters.
Nasdaq said in a comment letter that companies could consider and disclose additional diverse attributes such as disability or veteran status. But those attributes would not meet the requirements for a female or person who identifies as an under-represented minority or LGBTQ+.
California and Illinois have laws on board diversity for companies headquartered in their states.
(Reporting by Jessica DiNapoli in New York; Additional reporting by Chris Prentice in Washington, D.C. and Ross Kerber in Boston; Editing by Jonathan Oatis and Matthew Lewis)