(Photo courtesy Flickr user nakashi / cc2.0)

The Nasdaq stock exchange this month received approval for new rules that encourage companies to appoint more diverse boards of directors. Companies listed on the U.S. exchange will be required to have two diverse directors: one who identifies as female and one who identifies as a racial or ethnic minority or as LGBTQ+. If it doesn’t meet that benchmark, a company will have to publicly disclose why not.

While the regulations don’t kick in for at least a year, a lot of corporations may have some explaining to do.

A recent analysis of 2,284 Nasdaq-listed companies suggests that many of them could fail to meet the new criteria. Some 37% of companies have no racially or ethnically diverse members, while 12% don’t have any female directors, according to ISS Corporate Solutions.

So how do Washington state’s technology and biotechnology companies measure up? Seemingly better.

A GeekWire survey of 34 Nasdaq companies in these sectors found that 18% are without racially or ethnically diverse directors and 9% lack a female member. (Neither ISS Corporate Solutions nor GeekWire reported the number of LGBTQ+ directors.)

But even with limited diversity at multiple companies, flexibility in the Nasdaq rules mean that most Washington companies make the cut well before compliance deadlines kick in.

Boards with five or fewer directors need only one diverse member, by gender, race or LGBTQ+ status. Additionally, businesses defined as “smaller reporting companies” can fulfill the Nasdaq requirement with two female directors. At least six of the Washington tech and biotech companies fit either or both of those criteria and meet their less stringent standards.

That leaves three companies, all in the biotechnology space, that are currently potentially falling short (with the caveat that LGBTQ+ status are unknown):

  • Adaptive Biotechnologies has eight directors, including three women (two added this year) and no racially or ethnically diverse director.
  • Omeros has nine directors, including zero women and one racially diverse member.
  • CTI BioPharma is a smaller reporting company with zero women and one racially diverse member among its six-person board.

However, Adaptive Biotechnologies went public only two years ago, and it appears the rule does not apply for the first four to five years after an IPO. Six more recent Nasdaq additions from Washington — Absci, Icosovax, Impel, NeuroPharma, Nautilus Biotechnology and Rover — all appear to be in compliance.

Companies in general will have between one and five years to meet the new objectives, depending on their Nasdaq market tier.

The state’s largest technology companies, including Microsoft, Amazon and T-Mobile, all clear the bar set by Nasdaq. Accolade, Expedia and Microsoft greatly exceed the gender goals, nearly reaching parity between the number of women and men on their boards.

For many companies there are challenges to de-homogenizing boards. Change comes slowly as directors are rarely removed from their roles. Strategies for increasing diversity include creating term limits or adding seats. The candidate pool is limited, which is exacerbated when companies allow only their highest ranking employees to serve on corporate boards. Sometimes a board needs a candidate with specific, uncommon expertise that’s difficult to find.

In addition to the Nasdaq rules, states and other organizations are pursuing efforts to bolster board diversity. That includes Washington’s requirement that most companies appoint boards with 25% female membership and Perkins Coie’s Black Boardroom Initiative.

Research is limited as to the benefits of board diversity, but there are indications that it can boost a company’s bottom line.

BoardReady provides board diversity analytics and helps match companies with diverse directors. In July, the Seattle-based nonprofit released a report examining the relationship between diversity on S&P 500 company boards and revenue growth.

Rajalakshmi Subramanian, a BoardReady advisor and chief operating officer at Pro.com, authored the study. Subramanian found that boards with greater gender, race and age diversity correlated with larger revenue growth in recent years.

“Nasdaq’s recent rule is a good first step toward improving diversity,” she said. “The data will be vital in coming years to prove the causation between diversity and company performance as well as impact.”

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