How The NASDAQ Could Look Different

Stock exchange operator NASDAQ on Tuesday petitioned the Securities and Exchange Commission to adopt rules that would mandate corporate diversity, according to its president and CEO.

NASDAQ’s proposal would require a company to have a diverse board, with women, LGBTQ or other underrepresented groups in office, to be listed on the exchange. If it cannot fill the requirement, it would need to explain why. If it does not provide transparency about the board make-up, it could result in delisting.

“We are taking the leadership here because there has been so little action on this front and we do think it’s an important thing for us to do — to create a more inclusive capitalist society and we think this is a step forward,” Nasdaq President and CEO Adena Friedman told CNBC’s "Squawk Box."

There are some 3,200 companies listed on the NASDAQ. In a separate report on the SEC filing, the New York Times reported Tuesday that more than 75% of the companies listed on the exchange do not meet its proposed requirements.

The move comes during a wave of progress on diversity issues. President-elect Joe Biden has introduced an all-female communications team and has drawn on members of the minority community to fill some of his cabinet positions. Vice President-elect Kamala Harris is the first woman, the first African-American and the first person of India descent to hold the office.

NASDAQ, meanwhile, is not alone in the corporate world. In January, investment bank Goldman Sachs said it would only underwrite initial public offerings in the U.S. and Europe for companies that have at least “one diverse” board member. That threshold increases to two next year for would-be IPO clients.

“This decision is rooted first and foremost in our conviction that companies with diverse leadership perform better,” CEO David Solomon said at the time.

In September, California Gov. Gavin Newsom signed a law requiring companies that have headquarters in the state include members from underrepresented communities on its board.

The push is not without controversy, however. NASDAQ’s CEO was quoted in The New York Times as acknowledging the SEC proposal was “an unusual step.” It would also raise issues about the power of exchange operators to influence climate change and other high-profile issues. Charles Gasparino, a commentator for Fox Business news, said on Twitter the proposal “seems unconstitutional.”

According to Reuters, foreign and smaller companies could get some leeway on the diversity requirements.

NASDAQ’s proposal is the first for an exchange operator. After the position is filed, the SEC would open it up to public comment and proceed from there on the decision-making process, which could take weeks.