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In brief: SEC makes board diversity a must for IPOs

Private companies preparing to go public must now include diverse board members before listing on the US’s Nasdaq exchange.

What happened: The US Securities and Exchange Commission furthered its involvement in ESG regulatory matters on Friday by approving a diversity proposal from the US stock exchange Nasdaq.

The new rule: Nasdaq now requires most of the nearly 3,000 listed companies traded on its exchange to have boards of directors including at least one woman and one person from a racial minority or who identifies as gay, lesbian, bisexual, transgender or queer. Companies with five or fewer board seats only need one diverse member. If a company doesn’t meet the quota, it won’t be delisted, but must explain why it cannot comply.

Impact on private markets: Privately held companies have thus far avoided ESG-related regulations from the SEC. However, initial public offerings are a key exit ramp for private equity firms. Nasdaq’s new rule makes it so that any company planning an IPO must be in compliance with the diversity mandate.