Nasdaq adopts new diversity guidelines for its board — some Companies may need some explanation

Redfin CEO Glenn Kelman rings the Nasdaq opening bell in 2017 with members of the Seattle company. (Nasdaq Photo)

The Nasdaq stock exchange this month received approval for new rules that encourage companies to appoint more diverse boards of directors. Two directors will be needed for companies that are listed on the U.S. stock exchange: one must identify as female, and one must identify as LGBTQ+ or a racial/ethnic minority. A company must publicly declare why it does not meet this benchmark if they fail to do so.

Although the regulations won’t take effect for more than a year (at least), many corporations might need to explain.

A recent analysis of 2,284 Nasdaq-listed companies suggests that many of them could fail to meet the new criteria. Some 37% of companies have no racially or ethnically diverse members, while 12% don’t have any female directors, according to ISS Corporate Solutions.

How does Washington’s biotech and technology companies compare? It seems like it could be even better.

GeekWire surveyed 34 Nasdaq businesses in these industries and found that 18% have no racially- or ethnically diverse directors, while 9% do not have a female director. GeekWire and ISS Corporate Solutions did not report the numbers of LGBTQ+ directors.

But even with limited diversity at multiple companies, flexibility in the Nasdaq rules mean that most Washington companies make the cut well before compliance deadlines kick in.

A board with five directors or less must have one member who is a diverse gender, race, or LGBTQ+. Businesses that are “smaller reporting” companies can meet the Nasdaq requirements with at least two women directors. Six of the Washington biotech and tech companies must meet either one or both of these criteria.

Three companies are left in this space:

  • Adaptive Biotechnologies currently has eight directors. Two of these were added in this year. There is no racial or ethnic minority director.
  • Omeros currently has nine directors.
  • CTI BioPharma, a small reporting company, has no women on its board and only one member who is not racially mixed.

Adaptive Biotechnologies was not publicized until two years ago. The rule doesn’t apply to the company for four-five years following an IPO. Six other recent Nasdaq additions — Absci. Impel. NeuroPharma. Nautilus Biotechnology. and Rover — are all in compliance.

Companies will generally have one to five years for the achievement of these new goals, depending upon their Nasdaq market level.

T-Mobile and Amazon, the state’s biggest technology companies, have all met or exceeded the Nasdaq standards. Expedia, Microsoft, Accolade and Microsoft all surpass the gender targets, almost reaching parity in terms of the numbers of women on their boards.

Many companies face challenges in dehomogenizing their boards. As directors rarely step down from their positions, change is slow and difficult. Adding seats or imposing term limits are two ways to increase diversity. Companies that allow their top-ranking employees to sit on company boards can make it more difficult for the candidate pool. A board may need a person with a unique, rare expertise that is difficult to find.

States and organizations, in addition to Nasdaq’s rules for board diversity, are also making efforts to increase it. Washington has made it mandatory that companies have at least 25% of their boards be comprised of women. Perkins Coie also created the Black Boardroom Initiative.

Although research is not conclusive on the effects of diversity in boards, there are some indications that they can increase a company’s bottom line.

BoardReady provides board diversity analytics and helps match companies with diverse directors. In July, the Seattle-based nonprofit released a report examining the relationship between diversity on S&P 500 company boards and revenue growth.

Rajalakshmi Subramanian, a BoardReady advisor and chief operating officer at Pro.com, authored the study. Subramanian discovered that more diverse boards are associated with higher revenue growth over the past few years.

She stated that “Nasdaq’s most recent ruling is an important first step towards improving diversity.” The data that will prove causation between diversity, company performance and impact over the next years is vital.

Publiated at Wed. 11 August 2021, 18:40:47 +0000

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