Nasdaq's board diversity approval could diversify hundreds of companies

Good morning, Broadsheet readers! U.S. women won a record number of medals at the Olympics, the Business Roundtable commitment may have been “mostly for show,” and Nasdaq gets the go-ahead on board diversity. Have a great Monday.

– On board. Last week, the Broadsheet shared a recent sit-down interview with Nasdaq CEO Adena Friedman, in which she put forth one final pitch for the stock exchange’s proposal to diversify boards of directors.

It was perfect timing, because just a few days later, Nasdaq’s proposal received approval from the Securities and Exchange Commission. It wasn’t a unanimous decision—GOP SEC commissioners including Hester Peirce voted against the proposal. But passing that final hurdle will allow Nasdaq to now enact “comply or explain” board diversity requirements for its listed companies. Read more from Fortune‘s Declan Harty here.

“We are pleased that the SEC has approved Nasdaq’s proposal to enhance board diversity disclosures and encourage the creation of more diverse boards through a market-led solution,” Nasdaq said in a statement Friday. “We look forward to working with our companies to implement this new listing rule and set a new standard for corporate governance.”

For months, Nasdaq’s party line on its board proposal has been that it’s awaiting the SEC’s decision. So now, what comes next?

The stock exchange has an unprecedented opportunity to push companies that have been holdouts on diversifying their own boards. More than a tenth of the 3,000 companies listed on Nasdaq have no women on their boards, and more than one-third of listed companies lack racial diversity, reports Bloomberg. That means that Nasdaq’s requirements could potentially improve the diversity of hundreds of corporate boards. (Not all boards will likely change right away; if a board does not meet Nasdaq’s standards to include at least one woman and one board member with other diverse characteristics, including racial diversity and sexual orientation or gender identity, the company must explain to investors why it falls short.)

Friedman says that Nasdaq chose to become a force for change in this arena because of its role in corporate governance—of which the makeup of boards is a big part. “Diversity on boards is correlated with improved outcomes in two areas: risk controls—that’s important to us because investor protection is critical—and financial performance,” she explains.

The companies that make changes to comply with Nasdaq’s new standards will help test that hypothesis. We’ll stay tuned in the months—and years—ahead.

Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe

The Broadsheet, Fortune’s newsletter for and about the world’s most powerful women, is coauthored by Kristen Bellstrom, Emma Hinchliffe, and Claire Zillman. Today’s edition was curated by Emma Hinchliffe.

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