Nasdaq suggests rules to force boards to diversify

Nasdaq proposed new rules that would require the boards of its listed companies to meet certain minimum diversity requirements, or explain in a public disclosure why they aren’t doing so. Nasdaq Chief Executive Adena Friedman discussed the exchange operator’s diversity plan with The Wall Street Journal. This interview has been edited for clarity.

WSJ: Why did Nasdaq decide to do this?

Friedman: The genesis of this…has actually been over many years. In addition to operating the markets here in the US, we also own and operate several of the markets in the Nordic countries in Europe.… Many countries in Europe have taken a leadership role in having different ways to establish standards, particularly around gender diversity.… They’ve been quite effective in improving the diversity of corporate boards in those countries.

But frankly, this year, and all of the experiences that we’ve all had this year, I think it’s really raised the awareness in corporate America around the benefits of diversity.

We do think that this effort here is one of those important steps that Nasdaq can take to help push the needle.

WSJ: What has the reaction been since Nasdaq’ proposal came out? Have there been complaints, or has the feedback been positive?

Friedman: The reaction so far has been overwhelmingly positive. We certainly have heard from certain individuals who have questions or have some concerns. And I think that we’ve been able to walk them through the details of the proposal to get them more comfortable that this is a good step forward, but it’s also not a hard mandate.

WSJ: Assuming this rule is approved by the Securities and Exchange Commission, do you expect that any companies might be delisted because of failing to meet Nasdaq’s diversity rules?

Friedman: We are going to make it so that every company has a very straightforward way to meet the standards. So I do not expect that companies will have to be delisted.

It’s really what we call a comply-or-explain rule. We find that when we do those types of rules, companies do really work hard to comply and when they … aren’t able to comply, they generally have good reasons. So they would be able to provide that explanation to investors.

Again, it’s all about disclosure. So investors then have a disclosed understanding of the diversity of the board and the efforts that [companies] have made to improve the diversity of their boards.

WSJ: Critics will likely say that the race and gender identity of a company’s board directors don’t matter as much as the company’s performance and the returns it delivers to investors. How do you respond to that?

Friedman: When we look at all of the elements of ESG—the environmental, social and governance elements of ESG—I’ve always said that it’s an “and” not an “or.” Of course, we’re here to provide the returns to our owners or shareholders. And that’s a big part of being a public company.

But at the same time, in addition to providing those returns, it matters how we do it. And I think what ESG really focuses on is how we achieve those returns.

In this particular case, the governance of a company is a critical component of how we achieve the returns. When we look at board diversity and the studies that have been done around board diversity, there are many studies that indicate that having a more diverse board, first of all, improves the financial performance of a company, as well as lowers the risk profile of companies and improves the risk management.

WSJ: There have been many efforts by Wall Street in recent years to push for greater boardroom diversity in US corporations, but boards are still heavily white and male. Why do you expect Nasdaq’s proposal would make a difference?

Friedman: We have very good relationships with our listed companies. We do also know that many of our listed companies are domiciled in California. They’re already facing a hard mandate. So we do know that many of our companies are already moving in this direction.

The intent of companies is generally very good. It’s a matter of giving them the resources and the wherewithal to understand how to achieve their goals of meeting more diversity.

Write to Alexander Osipovich at

This article was published by Dow Jones NEWSPLUS

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