Scoop: Nasdaq facing pressure to expand board diversity mandate

The Nasdaq’s historic diversity proposal is being called too narrow by activists who say it was a “colossal mistake” to exclude disability from the list, Axios has learned.

Why it matters: The tension highlights a key challenge in the unprecedented push to diversify corporate America's top decision-makers: There's no universal rule on what — or how many underrepresented minorities — makes a boardroom inclusive.

What's going on: Activist groups are lobbying the exchange to include disability as one of the defining factors of a diverse corporate board.

• Two disability rights groups sent a letter to Nasdaq CEO Adena Friedman last week calling for a change to the mandate to include corporate directors who self-identify as disabled.
• "The events of 2020 have also shown the ways that racism, ableism, and sexism are all connected and reinforced by one another,” the letter, which was reviewed by Axios, states.

Details: As it stands, the proposal says the more than 3,000 Nasdaq-listed companies will have to disclose the makeup of their corporate boards by gender, race and sexual orientation. The groups want that list to also include disability.

• Companies will eventually be required to have at least one director who identifies as a woman, plus another who identifies as a woman, minority or member of the LGBTQ community — or someone with a self-disclosed disability, if the activist groups get their way.
• If the board doesn't meet the standards, the company has to explain why, according to the proposal that's still awaiting SEC approval. If companies refuse to disclose, they could be delisted from the exchange.

What they're saying: The disability omission is a "colossal mistake" on the part of the Nasdaq, says Ted Kennedy, Jr., chair of the American Association of People with Disabilities, who co-signed the letter with business disability inclusion group Disability:IN.

• Most comments submitted to the SEC praise the proposal, but there are some that also call on the exchange to expand its mandate to include disability — including one from New York's Comptroller, who manages the third-largest pension fund in the country.

Of note: A Nasdaq spokesperson tells Axios it received the letter.

• "We welcome all views regarding our proposal and are listening to all perspectives," the company said in a statement.
• In its proposal, the Nasdaq said most stakeholders supported this "narrower definition of diversity," but the ruling would not prevent companies from disclosing other board member attributes — including veteran status or disabilities.

The backdrop: Republican senators on a powerful banking panel are calling on the SEC to reject the proposal, according to a comment letter.

• Their main argument is that the Nasdaq should not "force a prescriptive one-size-fits-all solution upon markets and investors."
• They also say the Nasdaq's definition of diversity is too narrow as one reason why the rule should be rejected.

What to watch: A final SEC ruling could be a long way out. The comment period was extended to March 11, the earliest that there could be any action on this front.

Read the letter.