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Robbins LLP News  /  12.07.2020

Nasdaq – Diverse Board Members

Nasdaq Acknowledges Value of Diverse Board

On December 1, 2020, Nasdaq asked the U.S. Securities and Exchange Commission for permission to require that all companies listed on its U.S. stock exchange have at least one woman and one “diverse” director who self-identifies as an underrepresented minority or LGBTQ+. An underrepresented minority includes an individual who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities. In addition, companies will be required to report data on board diversity. Companies that do not disclose diversity information will face delisting, and those companies that report their data but do not meet the standards will have to publicly explain why.

This will likely not be an easy task for companies on Nasdaq, as Nasdaq found that more than 75% of its listed companies did not meet its proposed diversity requirement. 

“Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies,” said Adena Friedman, Nasdaq president and CEO. “Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders; we believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.” Further, research shows that diverse boards lead to better financial performance and corporate governance. In drafting its proposal, Nasdaq analyzed more than two dozen studies, which it contends found that gender-diverse boards in particular are associated with more transparent public disclosures; better reporting discipline; a lower likelihood of manipulated earnings; a lower likelihood of non-compliance or omission of information; and a lower likelihood of securities fraud. In addition, studies found that having at least one woman on a board is associated with a lower likelihood of material weaknesses in internal control over financial reporting and a lower likelihood of material financial restatements. As explained by Friedman, “[d]iversity of the board is an important element of giving investors confidence in the future sustainability of the company.”

Nasdaq is not the only one pushing the needle. In January, Goldman Sachs announced that it would not take a company public unless it has at least one diverse board member, and two in 2021. And, a new California law imposes a minimum number of minority directors on companies headquartered in the state. Investors are also seeking change – by voicing demands for more transparency on diversity and filing lawsuits against corporations that lack diversity on their boards.

The SEC has 45-90 days to approve or disapprove the rule after receiving public comments.

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