Should NASDAQ require disclosure of diversity on boards, or require such diversity? Board diversity is mandated under California law in many instances, and same is true in several European countries.
Last December, NASDAQ asked the SEC to approve a rule requiring public disclosure for their listed companies, and requiring subsequent designation of up to two directors (one woman, one otherwise diverse). Such proposal, somewhat softened as to timing by a February modification, reflects much current thinking about both how our society works, and the benefit of diversity in governance.
This morning’s lawyer press reports the SEC has tabled for now any action on the NASDQ proposal. This follows a letter sent to the SEC by twelve Republican members of the Senate Banking Committee, stating that the obligation of a company is to appoint the best board members and not be bound by a “narrowly defined” definition of diversity.
Here is the list of definitions of diverse candidates from the NASDAQ proposal; you be the judge if this list is “narrowly defined”: a person who identifies as female; plus one person who self-identifies as either an underrepresented minority of LGBTQ+.” Underrepresented= “Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander or two or more races or ethnicities.”
Even if diverse boards were proven to provide better governance (there is such research available although to my mind it is not adjusted for certain variables, including that boards with diversity may simply have better non-diverse directors; intuitively, it does seem to me likely correct), should a governmentally constituted self-regulatory organization enforce that viewpoint based on current evidence? Any evidence? If a board is under-performing this can be judged by corporate performance, without inquiring as to why the board is not delivering best leadership.
Of course, securities markets are all about information, and the disclosure of diversity clearly is valued data on the part of some investors, who can reach their own judgment as to impact of diversity on board quality.
Are the regulated securities markets the proper arena in which National government should address societal prejudice? While I sympathize with the NASDAQ, and may harbor unkind suspicions about the Republican letter, this question seems to me legitimately open to debate.