Nasdaq wants companies to have more diverse boards — or get kicked out.

Nasdaq asked the Securities and Exchange Commission on Tuesday for permission to adopt a new requirement for the companies listed on its main U.S. stock exchange: have at least one woman and one “diverse” director, and report data on boardroom diversity. If companies don’t comply they would face potential delisting, reports the DealBook newsletter.

If approved, Nasdaq will require boards to have at least one woman and one director who self-identifies as an underrepresented minority or L.G.B.T.Q. (Those categories are not, of course, mutually exclusive.)

It would be the first time a major stock exchange demanded more disclosure than the law requires, which Nasdaq’s chief executive, Adena Friedman, described as “an unusual step.” It raises questions about whether exchanges could use their listing rules to force action on other hot-button issues, like climate change.

To give Nasdaq-listed companies time to comply, they will need to publicly disclose their diversity data within a year of S.E.C. approval, and have at least one woman or diverse director within two years. Bigger companies will be expected to have one of each type of director within four years.

Companies that report their data but don’t meet the diversity standards would have to publicly explain why. Over the past six months, Nasdaq found that more than 75 percent of its listed companies did not meet its proposed diversity requirements.

Any potential rule changes would take months to come into effect: After Nasdaq files its request, the S.E.C. will solicit public comments. That typically lasts several weeks, and then the commission will decide how to proceed.

Nasdaq had lobbied the S.E.C. to make diversity disclosure a rule for all companies. “The ideal outcome would be for the S.E.C. to take a role here,” Ms. Friedman said. “They could actually apply it to public and private companies because they oversee the private equity industry as well.”

Nasdaq cites research showing the benefits of board diversity, from higher-quality financial disclosures to the lower likelihood of audit problems. “Diversity of the board is an important element of giving investors confidence in the future sustainability of the company,” Ms. Friedman said. “It’s not like we’re saying this is an optimal composition of a board, but it’s a minimum level of diversity that we think every board should have.”

Source: Read Full Article