The U.S. Securities and Exchange Commission (SEC) voted on Friday to approve proposed rules by capital markets technology and exchange company Nasdaq, that would require disclosure by Nasdaq-listed companies regarding the gender and ethnic composition of their boards.

Nasdaq initially filed the proposed rules with the SEC in December 2020. Under the proposals, companies listed on Nasdaq’s U.S. exchange would be required to publicly disclose consistent, transparent diversity statistics regarding their board of directors. The rules would also require companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+.

In a statement following the ruling, SEC Chair Gary Gensler said:

“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.”

The proposals received pushback from Republican lawmakers, with U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) and all Banking Committee Republicans sending a letter in February urging the SEC to reject the diversity disclosure rules, arguing that Nasdaq’s role was not “to act as an arbitrator of social policy or force a prescriptive one-size-fits-all solution upon markets and investors.” Following the ruling, Toomey said:

“Corporate board rooms, like all organizations, can benefit from a diversity of perspectives, but NASDAQ’s one-size-fits-all quota misses the mark. 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. These prescriptive requirements may ultimately harm economic growth and investors by pressuring companies to select directors from a narrower pool of candidates and discouraging others from going public. I’m disappointed Chairman Gensler is turning a financial regulator into a laboratory for progressive social engineering.”

At the time of filing, Nasdaq explained that the proposals aim to provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity in the context of selecting directors, and cited over two dozen studies that found an association between diverse boards and better financial performance and corporate governance.

Following the SEC ruling, Nasdaq issued a statement:

“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. We look forward to working with our companies to implement this new listing rule and set a new standard for corporate governance.”

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