Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), listens during a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Monday, Dec. 9, 2013.
Andrew Harrer | Bloomberg | Getty Images
The Securities and Exchange Commission on Friday approved Nasdaq’s push to require race and gender disclosures in its listing rules.
The announcement from Wall Street’s top regulator marks the conclusion of a monthslong debate at the SEC on whether to approve or reject Nasdaq’s proposed changes.
“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 Chairman Gary Gensler said in a statement accompanying the formal order.
“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 first-of-its-kind proposal requires companies listed on the Nasdaq to meet certain minimum targets for gender and racial diversity of their boards or explain in writing why they have failed to do so.
The 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. The exchange operator applauded the SEC’s order in a press release shortly after the announcement.
“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.”
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.
Nasdaq’s plan, first submitted to the SEC in December, met fierce criticism from Republicans on the Senate Banking Committee and other conservative groups. 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, offered fresh thoughts on Nasdaq’s plan and the SEC’s deliberations.
“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, who has since become chair of the SEC, 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.
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