Last Friday the SEC approved changes to the NASDAQ Rules designed to push NASDAQ-listed companies down the DEI path to more diverse boards of directors. (Sorry about the headline above, by the way; I could not resist.)
The Rule changes are simple: companies must disclose self-identified gender, racial and LGBTQ+ board data, and to explain why, if true, a given company does not have at least two “Diverse” board members (meaning at least one female and one minority or LGBTQ+ person). The Rules also make available a complimentary recruiting service to assist members with hiring compliance.
Two aspects of this action are interesting.
Although the intent of the Rule is admirable, how did the SEC parse approval within the context of the Commission’s obligation to monitor rules of SROs (self-regulatory organizations, such as exchanges) as part of regulating securities market operations.? Without express statutory mandate, the Commission reverted to a list of consistent, if not specific, analogies: prevent fraud, prevent manipulation, promote just trade, perfect a free and open market, protect investors and the public interest, encourage equitable fees for members and issuer companies and investors. Such tenuous bases indicate the degree to which the SEC over the years has broadly interpreted its regulatory mandate within the content of social trends and pressure.
Second, without negative implication, I am intrigued with the conflation and designation of desired board member categories; the designation assumes sufficient management value and contribution from only two members off a robust list of those societal populations under greatest mistreatment, an assumption which must be questionable. Indeed, a better argument could be made, by asking why every category is not in fact included, as each category is disadvantaged but in different ways for different reasons. Is it assumed that each woman, together with a given member from a very diverse list of other disadvantaged populations, will inject sufficient sensitivity as to be beneficial in board management. Perhaps pressing for a greater number of new board members was thought to be a bridge too far?
Since I adopt the view that the desire for the perfect should not prevent achieving the good, I have no quarrel with the SEC from a policy standpoint. But it is interesting that we reached this point based on unclear statutory authority and with a very generalized assumption about human behavior.