SEC Approves Nasdaq’s Plan to Require Board Diversity | Economic news

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By ALEXANDRA OLSON, AP Business Writer

ARLINGTON, Va. (AP) – The Securities and Exchange Commission on Friday approved Nasdaq’s groundbreaking proposal to increase the number of women, racial minorities and LGBTQ people on U.S. corporate boards.

The new policy – the first of its kind for a U.S. stock exchange – requires that most of the nearly 3,000 companies listed on the Nasdaq have at least one woman on their board of directors, as well as one person from a racial minority background. or who identifies as homosexual. , lesbian, bisexual, transgender or queer. It also requires companies to publicly disclose statistics on the demographics of their boards of directors.

“These rules will allow investors to better understand the approach of Nasdaq-listed companies to board diversity, while ensuring that these companies have the flexibility to make decisions that best serve their shareholders,” SEC Chairman Gary Gensler said in a statement accompanying the decision.

However, companies listed on the Nasdaq with five or fewer board members will only have one diverse member. The exchange relaxed the requirement for little advice after considering comments from investors, asset managers, lawmakers and advocacy groups on whether its proposal went too far or not enough.

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Companies that do not meet the diversity criteria will not be delisted but will have to explain publicly why they were not able to comply.

The deadline set by the Nasdaq for companies to include various directors differs depending on how companies are listed on the stock exchange, but all companies must have at least one board member within a year.

“We are delighted that the SEC has approved Nasdaq’s proposal to improve board diversity disclosure and encourage the creation of more diverse boards through a market-driven solution,” Nasdaq said . The exchange is in partnership with Equilar, an organization that advocates for more diverse boards, to help companies recruit board candidates.

American companies have stepped up efforts to appoint more women and racial minorities to their boards, responding to pressure from investors and elected officials.

California passed a law in 2017 requiring publicly traded companies headquartered in the state to have at least two or three female directors, depending on the size of their board. Last year, the state passed a similar law requiring at least one board member from an ethnic community that is under-represented or who identifies as LGBTQ.

The Nasdaq requirement carries significant weight because of its ability to define rules for its listed companies.

While the number of female directors has increased dramatically in recent years, studies suggest that companies were slower in bringing more racial minorities onto boards of directors until the murder of George Floyd by police in May 2020 sparks nationwide protests and a nationwide reckoning on racism.

According to a study by the Alliance of Board Diversity and consultancy firm Deloitte, 82.5% of directors on boards of directors of Fortune 500 companies were white in June 2020. The number of racial minorities on boards of directors of the Fortune 500 only grew by 1% between 2018 and June 2020. However, the number of women increased by 4 percentage points over two years to reach 26.5%.

More recently, there has been a wave of black board appointments. Between July 2020 and May 2021, some 32% of new S&P 500 board members were black, up from 11% the year before, according to an ISS Corporate Solutions analysis.

The Nasdaq said in a public record that it had received more than 200 letters of comment on its proposal, most of them positive.

While some advocacy groups have said the requirements are too modest, the Nasdaq has said it seeks to provide “businesses with a flexible and achievable approach to achieving a reasonable goal that is not too burdensome or coercive.”

Some conservative advocacy groups have argued that the proposal risks forcing companies to choose less qualified candidates. In its public record, the Nasdaq said it “categorically rejects the assumption that there is a lack of available and qualified candidates who are women, under-represented minorities or individuals who identify as LGBTQ +” .

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