A new proposal from the Nasdaq would push the roughly 3,300 companies listed on its U.S. stock exchange to diversify their boards or face the possibility of being delisted.
In new listing rules proposed to the Securities and Exchange Commission Monday, the Nasdaq would require most listed companies to have at least one “diverse” director within two years and at least two within four to five years, depending on the listing. These would include one who identifies as female and one who identifies as either LGBTQ or as an “underrepresented” minority—Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, or Native Hawaiian or Pacific Islander. Companies could alternatively submit a public rationale for not meeting this objective.
Nasdaq said its goal is to improve investor confidence in companies by forcing them to be more transparent about their diversity philosophy. It assessed more than two dozen studies correlating diversity with better financial performance and corporate governance. As part of its proposal, all listed companies would be required to consistently report on the demographics of their boards.
“We believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America,” Adena Friedman, the chief executive officer of Nasdaq, said in a statement.
The exchange found that more than 75% of its listed companies wouldn’t have met these requirements over the past six months, the New York Times reported, without saying where it got the information. A spokesman for Nasdaq declined to comment on the report.
The SEC has up to 240 days to approve the proposal after it’s published in the Federal Register. Investors, companies, and other members of the public will have 21 days to comment on it.