The Securities and Exchange Commission on Friday approved new Nasdaq rules that will require companies that list shares on its exchanges to meet certain race and gender targets.
The announcement by Wall Street’s top regulator marks the end of a monthslong debate at the SEC on whether to approve novel changes at one of the globe’s largest market exchange operators.
The rules will ensure company boards meet gender and racial diversity requirements or force firms to explain in writing why they have failed to do so.
Nasdaq’s goal for most U.S. companies is to have at least one woman director in addition to another board member who self-identifies as a member of a racial minority or the LGBTQ community.
“These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have the flexibility to make decisions that best serve their shareholders,” SEC Chair Gary Gensler said in a statement.
“These rules reflect calls from investors for greater transparency about the people who lead public companies, and a broad cross-section of commenters supported the proposed board diversity disclosure rule,” he added.
The rule changes also require firms to release diversity statistics about their boards. Nasdaq found in a study conducted in 2020 that more than 75% of its listed companies wouldn’t have met its proposed requirements.
The exchange operator applauded the SEC’s order in a press release.
“We are pleased that the SEC has approved Nasdaq’s proposal to enhance board diversity disclosures and encourage the creation of more diverse boards through a market-led solution,” Nasdaq said. “We look forward to working with our companies to implement this new listing rule and set a new standard for corporate governance.”
Republicans on the Senate Banking Committee blasted the plan when Nasdaq first released it in December. The group categorized Nasdaq’s move as excessive and an example of a company inappropriately advocating a political agenda.
Sen. Pat Toomey, the top Republican on the committee, on Friday panned the SEC’s decision and Nasdaq’s effort.
“Corporate board rooms, like all organizations, can benefit from a diversity of perspectives, but NASDAQ’s one-size-fits-all quota misses the mark,” he said in an emailed statement. “By defining diversity by race, gender, and sexual orientation, NASDAQ’s mandate will inevitably pressure companies to subordinate crucial factors such as knowledge, experience, and expertise when selecting board members.”
“I’m disappointed Chairman Gensler is turning a financial regulator into a laboratory for progressive social engineering,” he added.
Toomey asked then-nominee Gensler in March if he believed boards should be “forced or pressured to comply with some sort of quota with respect to race, gender or sexual orientation.”
Gensler replied by touting the benefits of diversity more broadly and among the ranks at the commission. Democrats and some companies, including Goldman Sachs, have supported Nasdaq’s initiative.