NASDAQ Promotes Diversity Through New Listing Requirements

On December 1st, 2020, Nasdaq filed a proposal with the Securities and Exchange Commission to adopt additional listing rules requiring enhanced board diversity and disclosure of firm diversity efforts.  The new listing rules require Nasdaq-listed companies to have on their board of directors, at least two diverse directors, including one who self-identifies as female and one who self-identifies as an underrepresented minority or LGBTQ+.  If the firm does not meet this listing requirement, it must explain why they do not have at least two diverse directors sitting on their board.  Additionally, the new listing rules require Nasdaq-listed companies to publicly disclose consistent, transparent diversity statistics regarding its board of directors.  Nasdaq defines underrepresented minorities to include Black or African America, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities.  Smaller reporting companies and foreign companies have additional flexibility in satisfying these new listing requirements by seating at least two female directors.  These new listing rules require approval from the SEC.

NASDAQ’s stated goal for requiring diversity among its listed companies board makeups is to provide the investing public with a “better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity in the context of selecting directors, either by including at least two diverse directors on their boards or explaining their rationale for not meeting that objective.” To support this new listing requirement, Nasdaq pointed to over 24 studies that found a link between diverse board and more robust financial performance with better corporate governance.  Under this proposal, Nasdaq-listed companies are required to publicly disclose board-level diversity statistics within one year of the SEC’s approval of the rule.

CNN reports that Nasdaq CEO Adena Friedman stated, “Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies.” Non compliance by Nasdaq-listed companies could lead to delisting.  

Nasdaq’s move is part of a growing momentum to see that corporate board diversity is taken seriously across the United States.  California has for two years been requiring gender diversity on corporate boards and has recently begun requiring racial and ethnic diversity on California boards as well.  Goldman Sachs has recently announced that it will require any company that it assists in taking public must include at least one diverse board member. 

The Corporate Justice Blog has long advocated for board diversity as a priority for expanding human capital and realizing greater financial benefits for the firms and its shareholders. We argue that a commitment to diversifying the board, both in gender and racial diversity as well as worldview diversity enhances the performance of the corporations that so commit.  See here, here, here and here.

hat tip:  Deepali Lal, 3L, Arkansas at Little Rock William H. Bowen School of Law 

photo: courtesy of Wikimedia Commons