Starting 2021 with Good News on Diversity

Nasdaq`s proposal to SEC on diversity requirement on company boards and disclosures on that

On 1 December 2020 Nasdaq submitted its proposal with the U.S. Securities and Exchange Commission (SEC) requiring all companies listed on Nasdaq`s U.S. exchange to publicly disclose diversity statistics and to have at least two diverse directors on a comply or explain basis. These two directors are expected to be one female and the other either an underrepresented minority or LGBTQ. Foreign companies and smaller size companies are granted the flexibility to meet this requirement by having two female directors.

If SEC approves disclosure is required within one year after the approval date. In any case, all companies will be expected to have one diverse director within two years of the SEC approval of the listing rule. The deadline of compliance with the second diverse person requirement is based on tier of the market listed with a deadline of four years for Nasdaq Global Select Market and Nasdaq Global Market and 5 years for Nasdaq Capital Market. Companies, which are not able to meet the deadlines, will not be delisted unless they explain their reasons publicly.

The aim is to enable stakeholders to make well-informed decisions with a better understanding of board compositions, ensuring confidence in an inclusive approach of the listed companies and if they do not comply, to understand why. 

Recently, observers pointed out that board composition has evolved in many successful companies. Moving away from the approach of appointing directors with functional backgrounds, such as mainly audit and finance, boards now tend to hire people with broader backgrounds and who understand and can manage the interrelationships of current challenges such as climate change, loss of biodiversity, health and social crisis, technology disruptions, geopolitical considerations.

It is encouraging to see Nasdaq championing gender diversity and inclusion. This could turn out to become a driving force for other companies, thus creating a positive impact in the global community through leveraging the scale of their operations and client network.

The call and challenge of companies for the 21st century is to transform on a systemic level to overcome unconscious bias and ultimately to thrive in today’s era of ongoing environmental, social and economic change. This would come only with the board of companies owning diversity as a cause, train themselves and foster behavioural change both on an individual and corporate level. Nasdaq`s step is taking the heed of many scientific studies with empirical evidence establishing the link between diversity on boards and innovation, better performance and better risk management in companies as it is the result of an analysis of more than two dozen of studies on that.

Nasdaq’s leading-edge step forces admiration, as they did not let this topic be overpassed during Covid 19 as a great leadership test for all companies. We will be following up on further developments on the subject, as we believe that diversity on board can be a powerful engine for out-performance as well as for progress in corporate inclusion policies.

Reyhan Gulec

ILA Board Composition Committee