Nasdaq Inc. aims to require listed companies to include women and people of diverse racial identities or sexual orientation on their boards, a move that could prompt change at hundreds of companies.
The exchange operator filed a proposal with the Securities and Exchange Commission that would require listed companies to have at least one woman on their boards, in addition to a director from an underrepresented minority or one who is lesbian, gay, bisexual or transgender. Companies that don’t meet the standard would be required to explain why not.
The plan is Wall Street’s latest effort to diversify the heavily white and male boardrooms of corporate America. But it could have more impact than previous attempts because of Nasdaq’s ability to set rules for the more than 3,000 companies listed on its stock exchange. Potentially, companies that fail to meet the requirements could be delisted.
In a review carried out over the past six months, Nasdaq found that more than three-quarters of its listed companies would have fallen short of the proposed requirements. A supermajority of companies had at least one female director, but most didn’t have a second board member that would meet the diversity requirements. The exchange operator said it was difficult to measure precisely because of inconsistencies in the way companies report such data.
The review found smaller companies tended to have less diverse boards and would need to do more to respond to the proposed rule, said Nelson Griggs, an executive vice president at Nasdaq who leads its listing business. “With smaller issuers, there will be greater impact,” he said in an interview.