The U.S. Securities and Exchange Commission (SEC) has approved a proposal from stock exchange operator Nasdaq Inc. (NDAQ.O) requiring its listed companies have diverse boards in a bid to set a new standard for corporate governance.
The proposal requires that companies have a director who identifies as female and another who identifies as an underrepresented minority such as BIPOC (Black, Indigenous, or person of color) or is LGBTQ+. Companies must also publicly disclose the diversity of their boards — or explain why their boards are not diverse.
"These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity," SEC Chair Gary Gensler said in a statement released to press.
Historically, the upper echelons of top companies have been closed to women, people of color, and out members of the LGBTQ community. Investor efforts to examine diversity on boards have been blocked by a systemic and culturally enforced expectation that companies do not need to reveal the gender, race, or sexual orientation of their directors. But things are changing.
Some investment companies like BlackRock are asking companies they invest in to report their board diversity and improve upon it. California has passed a law requiring businesses based in the State to have at least one board member from an underrepresented demographic by the end of the year.
Related: How Wall Street embraced the first successful LGBT index
Republican politicians have criticized Nasdaq's proposal and urged the SEC to reject it, saying it will threaten profitability and interfere with boards' duties to shareholders.
Nasdaq said that companies may disclose additional diverse attributes of directors including disability, veteran status, and so on, but those attributes would not replace specified diversity requirements of either female, BIPOC, or LGBTQ+.