Nasdaq Proposes Board-Diversity Rule for Listed Companies

Nasdaq Inc. aims to require listed companies to include women and people of diverse racial identities or sexual orientation on their boards, a move that could prompt change at hundreds of companies.

The exchange operator filed a proposal with the Securities and Exchange Commission that would require listed companies to have at least one woman on their boards, in addition to a director from an underrepresented minority or one who is lesbian, gay, bisexual or transgender. Companies that don’t meet the standard would be required to explain why not.

The plan is Wall Street’s latest effort to diversify the heavily white and male boardrooms of corporate America. But it could have more impact than previous attempts because of Nasdaq’s ability to set rules for the more than 3,000 companies listed on its stock exchange. Potentially, companies that fail to meet the requirements could be delisted.

In a review carried out over the past six months, Nasdaq found that more than three-quarters of its listed companies would have fallen short of the proposed requirements. A supermajority of companies had at least one female director, but most didn’t have a second board member that would meet the diversity requirements. The exchange operator said it was difficult to measure precisely because of inconsistencies in the way companies report such data.

The review found smaller companies tended to have less diverse boards and would need to do more to respond to the proposed rule, said Nelson Griggs, an executive vice president at Nasdaq who leads its listing business. “With smaller issuers, there will be greater impact,” he said in an interview.

Foreign companies and smaller companies could meet the requirement with two female directors, Nasdaq said.

If the proposal is approved by the SEC, companies would be required to disclose board-diversity statistics within a year. Time frames to meet diversity requirements for board composition would depend on a company’s listing tier, Nasdaq said. It would rely on companies’ self-reporting to determine how many board members belonged to various groups.

Nasdaq Chief Executive Adena Friedman said the rule would help promote inclusive representation in corporate leadership. In the exchange operator’s proposal to the SEC, Nasdaq also cited multiple studies which found that greater diversity on boards is associated with improved corporate governance and financial performance.

Like other proposed changes to exchange listing rules, Nasdaq’s proposal is subject to review by the SEC and will undergo a public-comment process, meaning it will likely be months before the commission approves or rejects the plan. That means such a decision would likely come under the incoming administration of President-elect Joe Biden, who will appoint a new chairman to lead the commission. Mr. Biden has made diversity a priority in selecting White House staffers and nominees for his cabinet.

Under former SEC Chairman Mary Jo White, who was appointed by Barack Obama, the regulator explored a draft plan to require companies to provide more details on the diversity of their boards, but never put forward a formal proposal.

SEC Chairman Jay Clayton, an appointee of President Trump who is stepping down at the end of the year, said in a statement: “We welcome dialogue on how to improve diversity, inclusion and opportunity in the financial services sector and our economy more broadly.”

Earlier this year, Goldman Sachs Group Inc. said it would no longer underwrite initial public offerings of companies in the U.S. and Europe unless they had at least one “diverse” board member, with a focus on women, a requirement that the bank plans to expand to two diverse board members next year.

Pressure to diversify corporate boards has also come from big asset managers like BlackRock Inc. and State Street Global Advisors, which have pushed companies that they invest in to have more female directors.

-Written by Matt Grossman & Alexander Osipovich

Write to Matt Grossman at and Alexander Osipovich at

Comment As:

Comment (0)