Nasdaq’s Wish Is the U.K.’s Command

Close by the editorial staff

The editorial office

March 19, 2021, 6:39 p.m. ET

Nikhil Rathi in 2018.


Stephen Chung / Zuma Press

Readers will recall the many problems associated with Nasdaq’s recent proposal to add board diversity to corporate listing rules. Now the UK is coming to see Nasdaq and increase its wake-up obligations.

The Nasdaq plan would encourage publicly traded companies to maintain a quota of board members who are women or ethnic or sexual minorities. The US stock market is trying to sweeten this unpopular pill by promising it would be optional. A company would either hit the quota or explain to shareholders why it didn’t.

The UK’s Financial Conduct Authority is now looking to make it worse. “As part of our regulatory work on diversity and inclusion as well as the listing framework, we will examine whether we should include similar requirements in our premium listing rules,” said FCA chief Nikhil Rathi on Wednesday about the Nasdaq plan.

The FCA primarily regulates financial companies, so any new rule would apply to banks, insurers, asset managers and the like. Mr. Rathi suggests integrating a diversity mandate into existing rules, according to which the FCA reviews the suitability of executives in regulated companies. He says this would be appropriate based on research to show that various bodies are better at managing risk, although such research is highly controversial.

Mr. Rathi also argues that more diverse leadership would somehow help financial institutions better serve minority communities. Expect this point to resonate in Washington, where the Biden Administration and Jerome Powells Federal Reserve say they want to use their regulatory powers over the financial system to achieve diversity goals.

Investors and corporate managers in the US and UK are likely to soon discover that there is no such thing as a “voluntary” mandate. Nasdaq says it will allow companies to opt out of their plan – at least until regulators decide to opt for everyone anyway.

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Published in the print edition on March 20, 2021.

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