Yesterday, Nasdaq filed a proposal that would require companies listed on its U.S. exchange to have at least two diverse directors.
Nasdaq is an American stock exchange based in New York City. It filed the proposal to the U.S. Securities Exchange Commission in order to provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that companies are making diversity efforts.
More specifically, the rules require one director who self-identifies as female and one who self-identifies as an underrepresented minority or LGBTQ. The proposal offers flexibility to foreign and smaller reporting companies, allowing the requirement to be satisfied by two female directors.
“Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders,” Nasdaq President and CEO Adena Friedman said. “We believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.”
Minorities make up just 19.5% of Fortune 100 board seats. The right mix of directors is not only critical to improving board performance, but it can also drive sustainable organizational change.
Learn more from @Nasdaq and Susan Caminiti: https://t.co/ocGxHjaO73 pic.twitter.com/9cTaDB8LIG
— Nasdaq (@Nasdaq) December 2, 2020
The demographic makeup of Fortune 100 CEOs severely lacks diversity. Over 90 percent are white men and the average age is 57. A report by the Wall Street Journal found Fortune 100 board seats were increasing in diversity. However, as of 2018, the percentage of seats held by women and minorities still came in at just 38.6 percent. Total minority representation of Fortune 500 board seats came in at 16.1 percent.
Upon proposal approval, all Nasdaq-listed companies will have to publicly disclose board-level diversity statistics within one year, with consideration of the company’s listing tier. They will have two years to select one diverse director and four years to fully meet the requirement.
While an important move, Nasdaq’s diversity initiative will require more effort to produce real change. As explained in Forbes by diversity and inclusion expert Jennifer Brown: “Diversity is the who and the what… Inclusion, on the other hand, is the how. Inclusion is the behaviors that welcome and embrace diversity.” If the workplace culture does not evolve as a result of Nasdaq’s proposal, it is worthless.
“Nasdaq’s effort to prod and push its listed companies is a welcomed and necessary first step,” ACLU Executive Director Anthony Romero said. “With increased representation of people of color, women and LGBTQ people on corporate boards, corporations will have to take actionable steps to ensure underrepresented communities will have a seat at the table.
