Nasdaq on Tuesday filed a proposal asking the Security and Exchange Commission (SEC) for authority to require diversity on the boards of listed companies.
The exchange said the goal of the proposal was to provide a better understanding of a company’s board composition and “enhance investor confidence” that listed companies are considering diversity when selecting directors.
Under the proposal, Nasdaq-listed companies would be required to publicly disclose “consistent, transparent diversity statistics” about their board of directors, the exchange said in a statement. In addition, most Nasdaq-listed companies would be required to explain why they do not have at least two diverse directors.
The proposal would require listed companies to have one director who identifies as female and one who identifies as an underrepresented minority or LGBTQ+. Foreign companies and smaller reporting companies would be given more flexibility, and would be able to meet the requirement by having two female directors.
Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market will be expected to have at least two diverse directors within four years of the SEC approving the listing rule. Those listed on the Nasdaq Capital Market will be expected to have two diverse directors with five years of the rule’s approval.
All listed companies will have to publicly disclose its diversity statistics within one year of the SEC approving the rule. Companies that do not meet the requirements will not be subjected to delisting if they provide a public explanation of why they cannot meet those objectives.
Tom Quaadman, executive vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said in a statement that the proposal will “help accelerate the developments that are already underway and is a positive and balanced way to get to the end result of allowing boards to be more representative of a business’s consumer and employee base.”
The proposal makes Nasdaq the first exchange to pursue such a requirement, according CNBC. A report from The New York Times found that more than 75 percent of listed companies do not meet the proposed requirements.
Nasdaq’s proposal comes amid an increase in “ESG investing” — when a company’s environmental, social and governance factors are taken into account. Companies are noticing the boom.
Goldman Sachs said in January that it would only finance initial public offerings for companies that have at least one nonwhite board member.
–Updated at 2:30 p.m.