Will Nasdaq's board diversity push work?

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December 2, 2020

Good morning, Broadsheet readers! Sephora ditches J.C. Penney for Kohl’s, Unilever tries out the four-day workweek, and we parse the latest board diversity news. Have a wonderful Wednesday.
– All about board diversity. Call it the board diversity news dump. The last few days have featured big announcements on new initiatives and research about gender diversity in the boardroom.
First and most noteworthy was Nasdaq’s announcement yesterday that it will ask the Securities and Exchange Commission for permission to implement a new rule requiring the 3,249 companies listed on its main U.S. exchange to have at least one female director and one “diverse” director, meaning a person who “self-identifies as either an underrepresented minority or LGBTQ+,” according to the Nasdaq statement.
Companies that fail to meet the requirements risk being delisted unless “they provide a public explanation of their reasons for not meeting the objectives,” the statement says.
Nasdaq President and CEO Adena Friedman said the purpose of the initiative is “to champion inclusive growth and prosperity to power stronger economies.” In the last six months, 75% of Nasdaq-listed companies did not meet the diversity requirements Nasdaq proposed Tuesday, according to The New York Times.
The move is a first for a major U.S. stock exchange, but it comes as players in the public and private sectors introduce new efforts to diversify boardrooms. Goldman Sachs earlier this year said it wouldn’t take firms public unless they had one diverse board member, and in 2018 California passed a law requiring public companies to have at least one female director, following up with a similar mandate on racial diversity this fall.
Will the initiative work? A study released the day before Nasdaq’s announcement provided some clues.
Starting in 2014, companies on the Toronto Stock Exchange had to disclose the number of women in senior roles and their plans to improve diversity. After introduction of the so-called “comply or explain” approach, women’s presence on public boards increased considerably. At the time the regulation went into effect, 67% of the 100 largest public companies in Canada had at least one female director. As of May this year, 96% had such representation, with about half of those companies seating three or more women in director roles.
The study, conducted by KPMG, did unearth some lingering shortcomings. There are still two men for every woman among corporate directors and three men for every woman at the executive level. Half of the men who snagged senior executives roles landed in the C-suite, compared to 39% of women.
Still, one of the biggest worries about board quotas—that directorships will go to “token” women who are under-qualified—didn’t materialize.
In Nasdaq’s announcement, it said it included in its proposal more than two dozen studies that found an association between diverse boards and better financial performance and corporate governance.
On Tuesday, there was another study to add to the list.
Energy research organization BloombergNEF and the Sasakawa Peace Foundation found that companies with at least 30% female boards have a better track record of developing policies and methods to address climate change.
Claire Zillman
claire.zillman@fortune.com
@clairezillman
Today’s Broadsheet was curated by Emma Hinchliffe.

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