SEC approves Nasdaq’s board diversity proposal: a turning point for LGBTQ+ board representation

After several months of consultation, the Securities Exchange Commission (SEC) today approved Nasdaq’s proposal requiring LGBTQ+ inclusive diversity on the boards of its listed companies. This has been described as the SEC’s “most substantial action to encourage diversity and inclusion.”

Out Leadership celebrates today’s announcement by the SEC and applauds the leadership shown by Nasdaq as the first exchange to make board diversity a requirement for its listed companies. Out Leadership was proud to support Nasdaq in its proposal to the SEC, with strategic counsel as well as the use of Out Leadership’s Quorum board research and data. This historic decision will be remembered as a watershed moment in the fight for full LGBTQ+ inclusion at all levels of business.

This decision is a clear turning point for LGBTQ+ representation on corporate boards. For the last seven years, Out Leadership has called attention to the almost complete absence of out LGBTQ+ people serving on corporate boards, as well as the omission of LGBTQ+ from board diversity statements. Since Out Leadership began tracking LGBTQ+ board representation, just 17 Fortune 500 companies have expanded their diversity parameters to include LGBTQ+ people. With today’s ruling, LGBTQ+ inclusive board diversity policies will become a requirement for over 3,000 listed companies.

Todd Sears, Out Leadership’s Founder and CEO, said,

“The new Nasdaq board diversity requirement is a major leap forward towards finally acknowledging the talent, innovation, and experience that comes from LGBTQ+-inclusive diversity on boards. More than two decades of research have shown that companies with diverse boards outperform the market. Despite this, for far too long, as our research shows LGBTQ+ people have been excluded from board opportunities in both policy and action. The resulting data speaks for itself, with just 0.4% of board seats in the Fortune 500 occupied by openly LGBTQ+ people. Out Leadership stands ready to support all Nasdaq listed companies, to comply with these new requirements and join the many Out Leadership member companies that have already added LGBTQ+ talent to their boards.”

Sears added, Out Leadership’s research demonstrates that LGBTQ+-inclusive board diversity leads to improved decision-making, greater risk mitigation, better talent attraction, and increased shareholder return–to name just a few benefits. Unfortunately, the myths that LGBTQ+ leaders will not self-identify, or fear for their privacy–or simply can’t be found, are still used as excuses for excluding LGBTQ+ talent. The tide is changing, however, and the smartest companies and leaders in the world–Out Leadership’s member companies and our global network of CEOs–are leading the way.”

What today’s ruling means.
By approving this proposal the SEC will now require Nasdaq listed companies (~3,300) to meet or explain why they do not meet

  • An objective of at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or lesbian, gay, bisexual or transgender (LGBTQ+). There are some exceptions for foreign companies or companies below a certain size (but they still must have some diversity).
  • Companies will be required to disclose diversity statistics about their boards, including the sexual orientation and gender identity of board members. These new rules will be phased in over the next four years, giving companies ample time and no excuses to get their boards to comply.

Out Leadership’s proprietary board diversity research was used extensively by Nasdaq in crafting its initial submission to the SEC. In addition, Out Leadership, in partnership with our member firms KPMG and Ropes & Gray submitted a letter of support to the SEC that called for the addition of a requirement for Nasdaq listed companies to disclose sexual orientation and gender identity of their boards each year. We are delighted to see this important element included in the new rules.

In a review completed late last year prior to submitting this proposal, Nasdaq found that more than three-quarters of its listed companies would not meet the requirements included in its board diversity proposal. This illustrates the deep issues facing US companies when it comes to the diversity of their boards. This is something Out Leadership highlighted in its LGBTQ+ Board report published in February 2021. Out Leadership found that only 25 of the current 5,670 board seats, or 0.45%, in Fortune 500 companies are occupied by LGBTQ+ people: a far cry from the widely accepted estimate that LGBTQ+ people make up approximately 7% of the general population.

Some groups have criticized the plan, saying Nasdaq is overreaching and even accusing its CEO, Adena Friedman of “wokeism”. Part of this opposition is rooted in the mistaken belief that minorities have a fair shot at joining corporate boards despite data showing annual board turnover of less than 8%. Our Managing Director, Global Equality Initiatives, Fabrice Houdart addressed this in Out Leadership’s response to opponents of the proposal: “What’s next? Redhead quotas on Corporate Boards?

Major corporations like Goldman Sachs, have been leading this charge for many years, as they have simply followed the data. As Goldman’s CEO Gary Cohn commented that board diversity “is the best advice for companies that want to drive premium returns for their shareholders over time.” To that end, Goldman Sachs announced in early 2019 that every IPO from the company would be required to have LGBTQ+ inclusive board diversity–and has partnered with Out Leadership to achieve this.

The Democrat-led LGBT Equality Caucus in the US House of Representatives is simultaneously pushing a piece of legislation (H.R. 1187 – Corporate Governance Improvement and Investor Protection Act), that includes substantial contributions from Out Leadership and our full support. Should this bill become law, it would expand similar reporting requirements to all companies under the jurisdiction of the SEC. Much like so many corporate board diversity policies, the bill in its original form did not include LGBTQ+ leaders–something Out Leadership is proud to have helped change.

As the oldest and largest global coalition of private companies working to advance LGBTQ+ equality at all levels of employment, Out Leadership is best positioned to support companies in their journey to improve LGBTQ+ representation on corporate boards and comply with new requirements. Out Leadership’s Quorum initiative has developed comprehensive tools to collect and report on the sexual orientation and gender identity of board directors. In addition, Quorum is the only existing database of LGBTQ+ professionals who are current or prospective board members with more than 1,200 vetted candidates.

While Out Leadership’s Quorum has made the most progress towards LGBTQ+ board diversity in the United States and Australia, it is pushing for similar regulation in Europe and Asia.

Last month, the FCA – the SEC’s counterpart in the United Kingdom, made a similar proposal (see CP 21/24) focused exclusively on ethnicity and gender diversity. Out Leadership is working to ensure the new FCA listing rules also include sexual orientation and gender identity.

The approval of the Nasdaq proposal is indeed a global signal that the time has come to ensure LGBTQ+ people get a voice in the Boardroom. Out Leadership stands ready to help ensure it happens.