Nasdaq’s initiative on corporate boards approved by SEC

New Nasdaq regulations were adopted by the Securities and Exchange Commission on Friday, requiring firms that issue shares on its exchanges to achieve specific racial and gender objectives.

Robinhood NASDAQ
Robinhood on NASDAQ

The SEC’s announcement brings an end to a months-long discussion over whether or not to accept new changes at one of the world’s major market exchange operators.

The guidelines will either ensure that business boards satisfy gender and racial diversity standards or force companies to explain why they did not. Nasdaq’s aim for most U.S. businesses is to have at least one female director, as well as another board member who self-identifies as a member of a racial minority or a member of the LGBTQ community.

In a statement, SEC Chair Gary Gensler stated, “These regulations will allow investors to obtain a better understanding of Nasdaq-listed firms’ approach to board diversity while ensuring that those companies have the ability to make decisions that best serve their shareholders.”

“These requirements respond to investor demands for more openness about the individuals who manage public businesses, and a large number of respondents backed the proposed board diversity disclosure rule,” he said.

Firms must also provide diversity statistics regarding their boards of directors as a result of the regulatory revisions. In research done in 2020, Nasdaq discovered that more than 75% of its listed firms would not have fulfilled the proposed standards.

In a news release, the exchange operator praised the SEC’s decision.

Nasdaq stated, “We are happy that the SEC has accepted Nasdaq’s proposal to improve board diversity disclosures and stimulate the establishment of more diverse boards through a market-led approach.” “We are excited to work with our firms to adopt this new listing regulation and establish a new corporate governance standard.”

When Nasdaq originally announced the proposal in December, Republicans on the Senate Banking Committee slammed it. Nasdaq’s move, according to the organization, was disproportionate and an example of a corporation unfairly promoting a political agenda. Sen. Pat Toomey, the committee’s senior Republican, slammed the SEC’s decision and Nasdaq’s attempt on Friday.

In an emailed statement, he added, “Corporate board rooms, like all organizations, benefit from a diversity of viewpoints, but NASDAQ’s one-size-fits-all requirement misses the mark.” “By defining diversity in terms of color, gender, and sexual orientation, NASDAQ’s rule will undoubtedly force firms to put knowledge, experience, and expertise on the back burner when selecting board members.”

He said, “I’m upset Chairman Gensler is turning a finance regulator into a lab for progressive social engineering.” In March, Toomey questioned Gensler, then a candidate, if he thought boards should be “pressed or coerced to conform with some type of quota with respect to race, gender, or sexual orientation.” Gensler responded by praising the benefits of diversity in general and within the commission’s ranks. Nasdaq’s plan has received backing from Democrats and several businesses, including Goldman Sachs.