Nasdaq Companies Subject to a “Comply or Explain” Basis with Board Diversity Rule

While the impact of this rule is still to be seen, investors can keep track of women’s representation in their portfolio companies to align with investment policies, report to stakeholders or use for corporate engagement

Nasdaq’s board diversity rule mandates that most Nasdaq-listed companies have at least one woman on their board of directors or explain why they do not meet this requirement as of the end of 2023. By 2025 most Nasdaq companies will be required to have at least two board members who are women or who are part of an underrepresented minority or LGBTQ+.

With this rule, Nasdaq joins a growing number of stock exchanges that have board gender diversity minimums for their companies. A study by the Sustainable Stock Exchanges (SSE) initiative, a UN-linked global platform that encourages sustainable investment, states that as of February 2024, of 122 exchanges monitored by the SSE, 19 have board gender diversity requirements.

The value of these rules is supported by research published by Harvard Business Review, which indicates that women bring valuable perspectives and cognitive diversity to boardrooms, leading to more effective decision-making. The studies show that the presence of women on boards contributes to better governance performance as women directors tend to bring different valuable viewpoints and approaches to problem-solving. This diversity of perspectives can help boards make more informed decisions, mitigate risks, and identify opportunities that may have been overlooked in homogenous boardrooms. Consequently, companies with diverse boards are better positioned to adapt to changing market conditions and drive sustainable growth.

However, it’s unclear if the rule goes far enough. Analyzing the data on board diversity, Clarity AI has found that most Nasdaq companies already had at least one woman on their board by the time the rule was proposed. Out of the 18 companies that did not have any women on their board at the time two have since added women board members to comply. Given the value of board diversity, it will be interesting to see whether companies change their board composition ahead of the 2025 deadline proposed by Nasdaq. 

Institutional investors who wish to monitor the progress of gender diversity in their portfolio companies and communicate to their stakeholders can use tools like our Impact Highlights solution. Through nine metrics, including women on the board and women in senior positions, investors can easily demonstrate the footprint of their portfolios against selected benchmarks. Contact us to learn more about our offering.