SEC Approves Nasdaq Board Diversity Plan

The Securities and Exchange Commission has approved Nasdaq’s proposed rule changes related to board diversity and disclosure.

Nasdaq’s proposed rule changes, SEC Chairman Gary Gensler said in a statement Friday, require issuers to disclose certain information about the diversity of the company’s board and to offer certain companies access to a complimentary board recruiting service.

“These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have the flexibility to make decisions that best serve their shareholders,” Gensler said.

The proposal directs companies to have at least one female board member and at least one who identifies as an underrepresented minority or LGBTQ — or explain why they don’t.

While Gensler stated that the rules ”are consistent” with the requirements of the Exchange Act, Republican Commissioner Hester Peirce dissented, stating the rules are “in fact outside the scope of the Act and contrary to fundamental Constitutional principles.”

The rules, according to Gensler, “reflect calls from investors for greater transparency about the people who lead public companies, and a broad cross-section of commenters supported the proposed board diversity disclosure rule. Investors are looking for consistent and comparable data when making decisions about their investments. I believe that our markets work best when investors have access to such information.”

The two Democratic commissioners, Allison Herren Lee and Caroline Crenshaw, said in a joint statement that the new listing standards “will require each Nasdaq-listed company, subject to certain exceptions, to have at least two diverse board members or explain why it does not.”

The new listing standards “also will require disclosure, in an aggregated form, of information on the voluntary self-identified gender, racial characteristics, and LGBTQ+ status of the company’s board,” Lee and Crenshaw said. “We support the proposal because it represents a step forward for investors on board diversity.”

They continued: “As we have noted in the past, investors are increasingly demanding diverse boards and diversity-related information about public companies. Nasdaq’s proposal should improve the quality of information available to investors for making investment and voting decisions by providing consistent and comparable diversity metrics.”