Nasdaq is pushing for the more than 3,000 companies listed on its U.S. stock exchange to make their boardrooms less overwhelmingly male and white by hiring directors that better reflect the country’s diverse population.
The company filed a proposal Tuesday with the Securities and Exchange Commission that, if approved, would require all companies on the exchange to disclose the breakdowns of their boards by race, gender and sexual orientation. Companies that do not comply could be delisted, or kicked off the exchange.
The proposal would also require most Nasdaq-listed companies to have at least two diverse directors or, if they cannot meet the mandate, to explain why not. That could include one board member who is female and one who is either an underrepresented racial minority or LGBTQ. Foreign companies and smaller companies would have additional flexibility in satisfying this requirement with two female directors.
Nasdaq’s plan ups the stakes in what was already a widening push by shareholders and governments around the world for more diversity on corporate boards, which often are composed of mostly white men.
“I find this to be a very heartening development,” said Rebecca Hawthorne, professor emerita at St. Catherine University in St. Paul, has conducted its Minnesota Census of Women in Corporate Leadership for a dozen years. “What gets measured gets done and gets valued.”
Hawthorne noted the glacial rate of change in the number of women directors over the last 12 years of their census. She noted the percentage of women directors locally has increased by just 8.5 percentage points in that time.
“This rule will be a game changer in many ways, Hawthorne said.
The proposed rule is not just a matter of fairness, proponents say. Greater board diversity can improve financial performance for companies — and ultimately their stock prices — by bringing in varying opinions and voices and fostering a better understanding of employee and customer bases.
In its proposal, Nasdaq cited a report from the Carlyle Group investment company, which found that companies it invested in that have at least two diverse board members have nearly 12% more earnings growth per year than the average of companies that lack diversity.
Companies have heard the criticism and made some moves toward increased diversity, but progress has been slow.
Women hold just 23.1% of board seats at companies in the Russell 3000, a broad index that includes most of the U.S. stock market. That’s up from about 15% in 2016, according to executive-data firm Equilar.
Progress in improving racial diversity on boards has been slower. One difficulty is that tracking racial and ethnic diversity has been tougher than measuring gender diversity, with companies often not disclosing such data, something that Nasdaq hopes its proposal can help ameliorate.
“Corporate diversity, at all levels, opens up a clear path to innovation and growth,” Nelson Griggs, president of the Nasdaq Stock Exchange, said in a prepared statement.
The SEC declined to comment on Nasdaq’s proposal specifically, but it has made diversity a greater emphasis and released its first diversity and inclusion strategic plan earlier this year.
At the U.S. Chamber of Commerce, officials were supportive of Nasdaq’s proposal on Tuesday. Tom Quaadman, executive vice president at the chamber’s center for capital markets competitiveness, called it a “business led solution to resolving diversity issues on corporate boards.”
“This proposal will help accelerate the developments that are already underway and is a positive and balanced way to get to the end result of allowing boards to be more representative of a business’s consumer and employee base,” he said in a statement.
The majority of the largest Minnesota public companies by revenue trade on the New York Stock Exchange, but there are about 48 public companies in the state that who primarily trade on Nasdaq exchanges.
One of the larger of those Nasdaq companies is Hawkins Inc., which earlier this year would not have met Nasdaq’s new proposed standards for board diversity. In October, though, the Roseville-based company named Yi “Faith” Tang to its board giving its eight-seat board two women members.
“We find that diversity in experiences and backgrounds is critical to good decisionmaking. We always look for the best qualified person for the job, and we were thrilled to get someone like Faith on our board,” said Patrick Hawkins, the company’s chief executive, in an e-mail. “As we enter new markets and continue our expansion, we believe that the varied perspectives brought by all of our board members will help us continue our growth.”
Includes reporting by staff writer Patrick Kennedy and the Associated Press