SEC Approves NASDAQ Board Diversity Proposal Over Significant Dissent
The SEC recently approved two proposals by NASDAQ concerning board diversity. Specifically, the proposals would "require each Nasdaq listed company, subject to certain exceptions, to publicly disclose . . . information on the voluntary self-identified gender and racial characteristics and LGTQ+ status . . . of the company's board" and to "require each Nasdaq-listed company, subject to certain exceptions, to have, or explain why it does not have, at least two members of its board of directors who are Diverse." The proposal would also "provide certain Nasdaq-listed companies with one year of complimentary access for two users to a board recruiting service, which would provide access to a network of board-ready diverse candidates for companies to identify and evaluate." (https://www.sec.gov/rules/sro/nasdaq/2021/34-92590.pdf)
The three Democratic-appointed SEC commissioners approved of these proposals (https://www.sec.gov/news/public-statement/statement-nasdaq-diversity-080... https://www.sec.gov/news/public-statement/gensler-statement-nasdaq-propo...), while the two Republican-appoint SEC commissioners opposed the requirement for board diversity (https://www.sec.gov/news/public-statement/peirce-nasdaq-diversity-statem... https://www.sec.gov/news/public-statement/roisman-board-diversity).
This 3-2 split on the SEC reflects a broad and deepening divide concerning recent SEC moves in the ESG space, including disclosures related to climate risk. The significant dissent among the SEC commissioners suggests there will be substantial opposition to any new disclosure requirements focusing on ESG, and that efforts may be made by the regulated industries to delay any rule-making in the expectation of a different political balance on the SEC within a few years.
Today, the Commission voted to approve Nasdaq’s proposed rule changes requiring issuers to disclose certain information about the diversity of the company’s board and to offer certain companies access to a complimentary board recruiting service. 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.
As the order discusses, the rules are consistent with the requirements of the Exchange Act. 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. Investors are looking for consistent and comparable data when making decisions about their investments. I believe that our markets work best when investors have access to such information.
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