Nasdaq said on Tuesday that companies listed on its main US stock exchange should have “at least two diverse directors” on their boards or face being delisted. Currently, three in four companies listed do not meet these requirements.
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This story originally appeared on Business Insider
If companies don’t meet the diversity requirements, they could be delisted.
Under the proposal, the 3,249 companies listed on Nasdaq’s main US stock exchange would have to have at least one female director and at least one director who identifies as an underrepresented minority or LGBTQ+, The New York Times’ DealBook first reported.
If they don’t, they would have to publicly explain why they have not met the requirement or face being delisted, Nasdaq said.
Currently, three in four companies listed on Nasdaq don’t meet these diversity requirements, DealBook reported.
Nasdaq defined an “underrepresented minority” as “an individual who self-identifies in one or more of the following groups: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander or two or more races or ethnicities.”
“It’s not like we’re saying this is an optimal composition of a board, but it’s a minimum level of diversity that we think every board should have,” Nasdaq CEO Adena Friedman told DealBook.
Nasdaq will ask the Securities and Exchange Commission on Tuesday for permission to adopt the policy. It will likely be weeks before the SEC reaches a verdict, DealBook said.
Under Nasdaq’s proposal, all listed companies would be expected to have at least one of the diverse directors within two years of the SEC’s approval, while the biggest companies would need at least two of the directors within four years.
The companies would also have to report data on their board’s diversity within a year of the SEC’s approval.
The benefits of a diverse board include higher-quality financial disclosures and fewer audit problems, Friedman told DealBook.
Other large companies have also pushed for greater boardroom diversity. In July, Goldman Sachs stopped doing initial public offerings for companies without at least one diverse board member, with a focus on women.
“We might miss some business,” Goldman Sachs CEO David Solomon told CNBC in January after announcing the change. “But in the long run, this I think is the best advice for companies that want to drive premium returns for their shareholders.”
BlackRock has also said it’s trying to build a pipeline of female and Black leaders.