Companies listed on Nasdaq should have at least two “diverse” board directors under new rules proposed by the exchange on Tuesday, in a potentially significant expansion of a global movement to force companies to shed white, all-male leadership teams.
The move comes after the state of California introduced mandatory gender quotas this year, and Germany moved to do the same.
In a filing on Tuesday with the US stock market regulator, Nasdaq also proposed new listing rules that would require companies to disclose consistent diversity statistics for board directors, and set a standard for companies to have two diverse directors — including one who self identifies as female and one who self-identifies as an under-represented minority or lesbian, gay, bisexual, transgender or queer.
The standard stops short of being a requirement, however. Companies that do not comply will have to explain why not. There will also be some flexibility for foreign groups and small organisations, which can satisfy the diversity standard with two female directors.
The proposed listing changes were driven in part by increasing demands from investors for board diversity data, said Nelson Griggs, president of the Nasdaq Stock Exchange. But the global demonstrations for racial equality this year also played a role in the decision, he said.
“It is hard to not be aware of the additional light that has been shown on social diversity and inclusion this year,” Mr Griggs said. “This has been a seminal year for that.”
Additionally, Nasdaq said its proposal was “designed to reduce groupthink” that can occur with homogeneous boards, and to prevent “fraudulent and manipulative acts and practices”.
Nasdaq said only about a quarter of the 3,330 companies listed on the exchange today meet the proposed standard of having one woman and one under-represented group represented on the board, meaning it could trigger a significant shift in board appointments in the coming years.
All companies would be expected to have one diverse director within two years, if the Securities and Exchange Commission approves the listing changes, and the demand for two would come into force within four to five years.
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Some governments have started mandating quotas for women on company boards. In November, German chancellor Angela Merkel’s coalition government agreed to introduce a requirement that company boards with more than three members must include at least one woman.
In September, California adopted a requirement that companies headquartered in the state have at least one female director and one from an under-represented community.
In January, Goldman Sachs became the first Wall Street bank to declare it will not take companies public in the US and Europe unless they have at least one “diverse” candidate on their board, meaning either a woman or someone from an under-represented group. It notably declined to extend the mandate to Asia, which has the worst record on gender diversity.
Company board data on race and ethnicity is inconsistent and “extremely limited”, the stock exchange said, explaining the new reporting requirement. All Nasdaq-listed companies will be required to publicly disclose board-level diversity statistics within one year of the new rules being approved.
The proposal from Nasdaq will be open to public comment, as is usual, and must be approved by the SEC.