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Nasdaq diversity proposal puts thousands of company boards on notice

 


S&P Global | December 10, 2020



The S&P Global article, "Nasdaq diversity proposal puts thousands of company boards on notice," quoted Russell Reynolds Associates Consultant Rusty O'Kelley​ on why this proposal is so significant in progressing the board diversity initiative. The article is excerpted below.

A Wall Street gatekeeper is challenging corporate America to diversify its boardrooms in a proposal that could have profound implications for leadership at thousands of U.S. companies.

In the wake of a racial reckoning in the U.S. sparked by the death of George Floyd, Nasdaq Inc. is wading into the yearslong conversation about diversity in corporate America and the benefits of increasing gender and racial diversity in boardrooms and C-suites.

The stock exchange giant has introduced what could prove to be the strongest measure yet from a financial heavyweight to promote board diversity in the U.S.: a new rule proposal that will force most of its more than 2,500 listed companies to have at least one director in the coming years who identifies as a woman and another who is Black, Hispanic, Native American, LGBTQ+ or part of another underrepresented community. Companies that do not meet the requirements will have to explain why, according to the exchange's proposal, which the U.S. Securities and Exchange Commission needs to approve before it can go into effect.
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"This is a very important moment in driving board diversity," said Rusty O'Kelley III, co-leader of board and CEO advisory partners at leadership search company Ru​ssell Reynolds Associates, in an interview. "It will force boards to have conversations and to publicly disclose why they have not met these diversity requirements. When you combine that with the emphasis on gender and ethnic diversity by Vanguard, BlackRock and State Street, it is going to be hard for any significant public company with large investors not to comply and increase board diversity."

Under the rule's current structure, companies listed on Nasdaq's exchange would need to publicly detail within one year of the SEC's blessing of the proposal how much of their boards are made up by members who identify as women, part of the LGBTQ+ community or as an underrepresented minority as defined by the U.S. Equal Employment Opportunity Commission. The SEC's review of the proposal is expected to last well into 2021.

Most of the companies will then need to have at least one diverse director on their boards or explain why they do not within two years of the approval. In total, companies will have between four and five years after the approval date to have two diverse directors. Foreign and smaller companies listed at Nasdaq have more flexibility in those rules.

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Nasdaq diversity proposal puts thousands of company boards on notice