Risk & Compliance

SEC Backs Nasdaq’s Boardroom Diversity Plan

The decision "marks a historic moment for advocates and investors who have been pushing for [more diversity] in corporate America’s higher ranks."
Matthew HellerAugust 10, 2021

In a landmark decision, the U.S. Securities and Exchange Commission has approved Nasdaq’s proposal to increase diversity in the boardrooms of companies listed on its exchange.

Fortune said the decision “marks a historic moment for advocates and investors who have been pushing for more women, people of color, and members of the LGBTQ+ community to have a seat in corporate America’s higher ranks, something that Nasdaq has continually touted as being paramount to better financial returns and risk controls.”

Under Nasdaq’s plan, most listed companies would be required to have at least one female director and one from an “underrepresented” minority group, including Black people, Latinos, or members of the LGBTQ+ community, or explain in writing why they do not.

“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.

But Republican Commissioner Hester Peirce voted against the proposal, while the other GOP commissioner, Elad Roisman, offered a partial dissent.

The proposal “relies on crude categorizations of people into racial, gender, ethnic, and LGBTQ+ status boxes that deprive the people being categorized of their individuality and their professional, educational, experiential, and personal complexity,” Peirce said.

A recent study from Deloitte in partnership with the Alliance for Board Diversity found that men occupied nearly 75% of board seats among Fortune 500 companies in 2020 while white directors represented 82.5% of the Fortune 500’s board seats.

Nasdaq first outlined its rules to improve diversity in December as part of its effort to “champion inclusive growth and prosperity to power stronger economies.” It amended its initial proposal to make it easier for small companies to comply, allowing them to meet the diversity target with just one board member from a designated diverse background.

“Because enhanced diversity is critically important for investors, the markets, and our economy, we hope this is a starting point for initiatives related to diversity, not the finish line,” SEC Commissioners Allison Herren Lee and Caroline Crenshaw said.