Posted on August 9, 2021

SEC Approves Nasdaq’s Plan to Require Board Diversity

Alexandra Olson, Associated Press, August 6, 2021

The Securities and Exchange Commission on Friday approved Nasdaq’s groundbreaking proposal to boost the number of women, racial minorities and LGBTQ people on U.S. corporate boards.

The new policy — the first of its kind for a U.S. securities exchange — requires most of the nearly 3,000 companies listed on Nasdaq to have at least one woman on their board of directors, along with one person from a racial minority or who identifies as gay, lesbian, bisexual, transgender or queer. It also requires companies to publicly disclose statistics on the demographic composition of their boards.

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Nasdaq-listed companies with five or fewer board members, however, will only be required have one diverse member. {snip}

Companies that don’t meet the diversity criteria will not be delisted but must publicly explain why they could not comply.

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U.S. companies have accelerated efforts to appoint more women and racial minorities to their boards, responding to pressure from investors and elected officials. Nasdaq’s requirement carries significant weight because of its ability to set rules for its listed companies.

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An overwhelming 82.5% of directors among Fortune 500 company boards were white as of June 2020, according to a study from the Alliance of Board Diversity and the consulting firm Deloitte. The number of racial minorities on Fortune 500 boards rose just 1% between 2018 and June 2020. However, the number of women rose 4 percentage points over two years to 26.5%.

More recently, there has been a surge of appointments of Black board directors. Between July 2020 and May 2021, some 32% of newly appointed board members in the S&P 500 were Black, up from 11% the previous year, according to an analysis by ISS Corporate Solutions.

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