The Securities and Exchange Commission on Friday approved a Nasdaq proposal that will require listed companies to publicly disclose the gender and racial makeup of their board of directors.
The proposal also would require Nasdaq-listed companies to provide explanations if their boards do not have at least one female director and at least one director who self-identifies as an underrepresented minority or LGBTQ+.
To help companies achieve compliance, the proposal would provide certain Nasdaq-listed companies with an optional one-year complimentary access to a board recruiting service that would provide entry to a network of board-ready diverse candidates for companies to identify and evaluate.
Nasdaq said its proposal was the result of discussions with leaders representing a broad spectrum of market participants and stakeholders, including business, investor, governance, legal and civil rights communities. Nasdaq also said investors are unable to compare board diversity statistics across companies because data is not provided in a consistent manner or on a sufficiently widespread basis.
The lack of transparency, Nasdaq said, “creates barriers to investment analysis, due diligence, and academic study, and affects investors who are increasingly basing public advocacy, proxy voting, and direct shareholder-company engagement decisions on board diversity considerations.”
The SEC said the proposal would define “diverse” for purposes of the proposed disclosures and would require consistent format and timing of the disclosures and said it would make it more efficient and less costly for investors to collect, use, and compare information on board diversity. “The reduced cost and improved efficiency in collecting, using, and comparing such information could enhance investors’ investment and voting decision-making processes, and enhance investors’ ability to make informed investment and voting decisions,” the SEC said.
The SEC added that making such information widely available on the same basis to all investors, “would also mitigate any concerns regarding unequal access to information that may currently exist between certain (likely larger and more resourceful) investors who could obtain the information and other (likely smaller) investors who may not be able to do so.”
Nasdaq waited almost eight months for a decision from the SEC’s Division of Trading and Markets. The division had as long as 240 days to approve or turn down the plan on behalf of the agency’s commissioners.
“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.
With the step, Nasdaq will require companies to meet its diversity rules within four years of the SEC’s endorsement. Exceptions would apply to small or foreign boards, but they will still have to show some diversity. When the proposal was first announced in December, only about a quarter of Nasdaq-listed companies met the proposed standard.
Bloomberg News contributed to this story.