The Nasdaq asked US securities regulators to approve a requirement that listed companies have at least two diverse board members. ©AFP/File Don EMMERT

 

New York (AFP) – Citing sluggish progress in appointing non-white directors, the Nasdaq announced Tuesday it was seeking US regulatory approval to enact diversity requirements on listed companies.

The exchange filed a request with the Securities and Exchange Commission to require listed companies to have, or explain why they do not have, at least one female board member and one board member who identifies as either an underrepresented minority or LGBTQ.

The move comes amid a broader US reckoning on both gender and race in the wake of the “me too” movement and mass protests on racial justice following the police killing of George Floyd.

The 271-page proposal to the SEC emphasizes greater transparency of board diversity, pointing to lack of consistency that means “investors are not able to readily compare board diversity statistics across companies.”

The SEC initiative notes that companies can be delisted for failure to meet disclosure requirements.

Nasdaq Chief Executive Adena Friedman said she also wanted to accelerate progress on diversity in the United States, citing greater progress in other countries.

“We are taking the leadership here because there has been so little action on this front, and we do think it’s an important thing for us to do, to create a more inclusive capitalist society,” Friedman said in an interview on CNBC.

Friedman said she would “welcome” a decision by the rival New York Stock Exchange to enact equivalent requirements. The exchange cited academic research showing the benefits of board diversity to company performance.

The NYSE did not immediately respond to requests for comment.

The Nasdaq proposal will be open for public comment for about 21 days, a Nasdaq spokesman said. The exchange has about 3,300 companies listed.

Outgoing SEC Chair Jay Clayton said the agency has an “unwavering” commitment to diversity and welcomes “dialogue on how to improve diversity, inclusion and opportunity in the financial services sector and our economy more broadly,” according to an email from an agency spokeswoman.

– Better performance? –

The proposal requires at least one board director who identifies as female and one or more who self-identifies as one of the following: “Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander.”

The board member could also qualify if they are “LGBTQ+,” which “means an individual who self-identifies as any of the following: lesbian, gay, bisexual, transgender or a member of the queer community.”

Nasdaq’s filing cited a World Economic Forum study that rated the US 53rd in board gender diversity. The exchange said Nasdaq-listed companies are already subject to European Union requirements on board diversity in some countries.

The proposal also points to academic research that shows “diverse boards are positively associated with improved corporate governance and financial performance.” These include studies that show gender-diverse boards or audit committees are better about disclosing financial information and have lower likelihood of manipulated earnings or earnings fraud.

Friedman told CNBC that she believes the “vast majority” of Nasdaq’s companies already have at least one female director but that the boards are far less representative in terms of other diversity.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.