Nasdaq Inc.’s
NDAQ 0.02%
push for greater diversity in corporate boards cleared a key hurdle, as regulators approved the exchange operator’s proposal to include gender and race in its listing rules.
In an order released Friday afternoon, staffers at the Securities and Exchange Commission agreed to Nasdaq’s proposed rule changes. Under the proposal, Nasdaq-listed companies would need to meet certain minimum targets for the gender and ethnic diversity of their boards or explain in writing why they aren’t doing so.
For most U.S. companies, the target would be to have at least one woman director, as well as a director who self-identifies as a racial minority or as lesbian, gay, bisexual, transgender or queer. Companies would also be required to disclose diversity statistics about their boards. Nasdaq found in a review conducted before submitting its plan late last year that more than three-quarters of its listed companies wouldn’t have met its proposed requirements.
“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,” SEC Chairman
Gary Gensler
said in a statement.
Republicans on the Senate Banking Committee and some conservative groups have criticized the plan, saying Nasdaq is overreaching and pursuing a political agenda. Democrats on Capitol Hill and corporations such as
Goldman Sachs Group Inc.
and
Microsoft Corp.
have voiced support for the proposal.
Friday’s decision may not be the final word on the plan. Under agency procedures, one of the SEC’s five commissioners can call for a review of the staff’s decision or an outside group can petition for such a review. That would require the commissioners to approve or reject Nasdaq’s diversity proposal in a majority vote, following an additional review that could take months.
Critics of Nasdaq’s plan have warned that it could be challenged in court. Some conservative groups have argued that the exchange’s diversity rule, if implemented, would violate the U.S. Constitution and civil rights laws.
“The proposed rule is racist and sexist in that it mandates that firms establish quotas and discriminate based on sex, skin color, ethnicity or sexual orientation,”
David Burton,
a senior fellow at the Heritage Foundation, told the SEC in a January letter.
Lawyers for Nasdaq say the rule wouldn’t violate any laws. Nasdaq has rejected characterizations of its proposed rule as a mandatory quota system, since companies would have the option of filing a written explanation for why they weren’t meeting the diversity targets.
The exchange operator also amended its initial proposal to make it easier for small companies to comply. One of the changes, for instance, allows companies that have five or fewer directors to meet the targets with just one board member from a designated diverse background, rather than two.
Nasdaq argued that its proposed rule change would benefit investors. The exchange operator cited studies that found companies with more diverse boards tended to have stronger corporate governance and financial performance.
Nasdaq’s Diversity Push
“We are pleased that the SEC has approved Nasdaq’s proposal to enhance board diversity disclosures and encourage the creation of more diverse boards through a market-led solution,” Nasdaq said in a statement Friday.
A variety of Wall Street initiatives have sought to bring more diversity to U.S. corporate boards, which remain heavily white and male.
Asset managers such as
BlackRock Inc.
and State Street Global Advisers have pushed their portfolio companies to appoint more women as directors. Last year, Goldman said it would no longer underwrite initial public offerings of companies in the U.S. and Europe unless they had at least one “diverse” board member. The bank recently raised that target to two diverse directors.
An analysis released in June found that big U.S. companies significantly boosted the share of new directors who are Black or Latino this year, and have added more women to their boards in recent years.
Nearly 75% of new independent directors at companies in the S&P 500 are women or belong to a racial or ethnic minority, up from about 60% last year and 31% a decade ago, according to the analysis by board and executive recruiting firm Spencer Stuart.
Still, the shift left around 80% of board seats occupied by white directors and about 70% by men. About 11% of S&P 500 board members are Black, 4% are Latino and 6% are Asian, Spencer Stuart found.
—Theo Francis contributed to this article.
Write to Alexander Osipovich at alexander.osipovich@dowjones.com
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