Nasdaq’s Plan for Diversity on Corporate Boards Is Decried by Senate Republicans

A group of senate Republicans decried Nasdaq’s push for greater diversity on corporate boards, saying it interfered with board members’ duty to govern in the best interests of shareholders and could harm financial performance.

In a letter on Friday, all 12 Republicans on the Senate Banking Committee called on the Securities and Exchange Commission to reject Nasdaq’s proposal to require the thousands of companies listed on its stock exchange to include women, racial minorities and LGBT individuals on their boards.

“We commend individual firms for the proactive efforts they have already made in recruiting, promoting, and maintaining diverse talent,” the senators, led by Pennsylvania’s Pat Toomey, wrote. “However, it is not the role of Nasdaq…to act as an arbitrator of social policy or force a prescriptive one-size-fits-all solution upon markets and investors.”

Nasdaq’s proposal, submitted to the SEC in December, would require listed companies to have at least one woman on their boards, in addition to a director who is a racial minority or one who self-identifies as lesbian, gay, bisexual, transgender or queer. Companies that don’t meet the standard would be required to justify their decision to remain listed on Nasdaq.

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The SEC will rule on the proposal later this year, likely after Gary Gensler, President Biden’s pick to head the commission, is confirmed by the Senate.

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The Senate Banking Committee, which oversees the SEC and will vote on Mr. Gensler’s nomination, is evenly split between Democrats and Republicans. Its chairman is Ohio Democrat Sherrod Brown.

A spokeswoman for Mr. Brown referred to a letter the Ohio lawmaker and 15 other Senate Democrats signed last month welcoming the Nasdaq proposal. {snip}

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In a review last year, Nasdaq found that more than three-quarters of its listed companies would have fallen short of the proposed requirements. {snip}

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The Senate Republicans said Nasdaq’s alternative to satisfying the quota requirement—disclosure explaining noncompliance—could still hurt companies.

“Activist groups could use the information to start costly pressure campaigns against corporations with allegedly nondiverse boards,” the lawmakers said, adding that such risks “could cause some private corporations to avoid going public at all.”