Nasdaq diversity requirements an ESG-driven sign of the times
DealBook has an exclusive this morning detailing Nasdaq’s request for permission from the SEC to institute diversity requirements for the companies that list on its exchange. Nasdaq’s proposal would require that listed companies’ boards of directors include at least one woman and one director who “self-identifies as an underrepresented minority or LGBTQ,” per the reporting of Andrew Ross Sorkin and company. Additionally, Nasdaq would require listed companies to disclose data on the diversity of their board members.
We’re talking about sweeping changes in corporate governance on multiple levels in this case. First – and most immediately – there are the practical considerations for the 3,200 companies listed on the exchange. According to Nasdaq, three-quarters of them wouldn’t reach the proposed thresholds. They would be well-advised to start evaluating new board candidates now, assuming they haven’t already done so.
More importantly, Nasdaq’s move presents yet another signpost pointing in the direction of a new corporate future. It’s one in which environmental, social and governance concerns, more commonly referred to as ESG, hold greater sway over business around the globe.
Nasdaq CEO Adena Frieman said the exchange actually pressed the SEC to institute the proposed disclosure requirements for all companies under the agency’s jurisdiction, both public and private. Such a decision by the securities regulator would fit with some of the more formal efforts to weave ESG into corporate culture at large. California-based companies, for example, now must comply with a new state law regarding minority board directors. Meanwhile, the Biden administration is poised to impose new reporting requirements for companies to document the climate risks involved in their businesses.
Even if the authorities weren’t inclined to codify ESG rules, though, the Nasdaq news illustrates the growing power of de facto regulators to force companies to get with the program. A public exchange offers access to massive capital pools, so playing by its rules is a must for many corporations. Likewise, influential investment bank Goldman Sachs is using its muscle to push for ESG considerations at the companies it helps take public. Institutional investors – most notably BlackRock – are giving more weight to ESG factors in their investment decisions. There are also legions of corporate activists, public-interest groups and employee coalitions calling for more accountability from companies on the ESG front.
So it’s not a stretch to say ESG is turning into an existential matter for businesses operating in the United States and abroad. Companies that ignore the new mandate do so at their own peril.
