News Analysis

The Nasdaq wants top US firms to show boardroom diversity or explain themselves

by Stephen Conmy on Aug 10, 2021


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The U.S. Securities and Exchange Commission (SEC) has approved a Nasdaq proposal to require listed companies on the stock exchange to show they have diverse boards or explain why they do not.

What’s happened?

One of the most significant campaigns for greater boardroom diversity in the United States has been launched.

The U.S. Securities and Exchange Commission (SEC) has approved a Nasdaq proposal to require listed companies on the stock exchange to show they have diverse boards or explain why they do not.

Is this big news?

For advocates of workplace and boardroom diversity, yes, this is a huge move.

What would it mean?

As part of the proposal, companies must have two diverse directors on their boards, including one female and an underrepresented minority or LGBTQ+. If they don’t, they must provide a reason.

Companies will also be required to disclose the diversity of their boards.

Why do the SEC and Nasdaq want to see more diversity on boards of big companies?

Mainly because women and minorities are underrepresented in the top ranks of U.S. firms, there is very little racial and gender diversity in corporate America.

Investors want to see more diverse boards, boards that represent the communities and customers they serve. Many companies currently don’t reveal the gender and race, or ethnicity of directors.

Is this a new standard for corporate governance?

In a statement, Nasdaq said it wants to “work with our companies to implement this new listing rule and set a new standard for corporate governance.”

“These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity,” said SEC chair Gary Gensler in a statement.

Has there been any resistance to the proposal?

Oh yes. Some firms and some Republican politicians and lawmakers have urged the SEC to ditch the Nasdaq proposal saying it would interfere with boards’ responsibilities to shareholders and could impose new costs on top firms.

Why is diversity in the boardroom important? Why is the Nasdaq pushing so hard for this?

There’s lots of good research to show that diverse boards lead to better outcomes for their companies, the communities they serve, and the organisations’ culture.

According to Mike Myatt, a leadership advisor to Fortune 500 CEOs and boards, the best boards are also the most diverse. “They can offer a depth and breadth of insight, perspective and experience to CEOs that non-diverse boards simply cannot. When I mention diversity, I’m addressing more than age, ethnic and gender diversity, but also diversity is skills, competencies, philosophies and life experiences as well,” he writes.

Myatt has written extensively on the importance of diverse boards and has listed his top ten reasons why diversity is good for boards and the companies they serve.

Top 10 reasons why diversity is good for the boardroom

1. It reflects the real world – something every company should be sensitive to.

2. Healthy debate can lead to better decisions.

3. Divergent backgrounds mean tackling the same idea in differing ways.

4. Great ideas come from disruption of the status quo.

5. Your clients and customers are diverse.

6. This can make your company knowledgeable and sensitive to a wider variety of groups.

7. Counsel from a variety of authorities is sensible.

8. Setting an example at the top will hopefully have a trickle-down effect within the organisation.

9. Improved reputation and brand.

10. A variety of backgrounds can make the company more adaptable to its ever-changing environment.

Will Nasdaq’s proposal be taken seriously by its listed companies?

Diversity at the top of corporate America is a big topic. California and Illinois have laws on board diversity for companies headquartered in their states.

Advocates for people with disabilities had pushed both Nasdaq and the SEC to include disability in the proposal but were unsuccessful, so we can expect to see a lot of shareholders and investors demanding that big firms make a genuine commitment to diversity, especially at the board level.

The Nasdaq proposal is significant and has the potential to drive real change in the top floors of corporate America.


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