Last week, the Securities and Exchange Commission approved Nasdaq’s board diversity proposal. As the Associated Press reports:
The new policy — the first of its kind for a U.S. securities exchange — requires most of the nearly 3,000 companies listed on Nasdaq to have at least one woman on their board of directors, along with one person from a racial minority or who identifies as gay, lesbian, bisexual, transgender or queer. It also requires companies to publicly disclose statistics on the demographic composition of their boards.
Companies that don’t meet the diversity criteria will not be delisted but must publicly explain why they could not comply.
As I’ve written previously, quotas such as this, while well-intentioned, ultimately undermine the work of women and minorities. Instead of rewarding hard work and dedication, board quotas cheapen the achievement of reaching a corporate board and can make such individuals be viewed as token members to fulfill the quota.
The old boys club boardrooms of yesterday are quickly disappearing as more women and minorities are reaching the corporate suites and leading companies on their own. Just this year, the number of women running businesses in the Fortune 500 reached an all-time high of 41. While gender quota proponents will point out that 41 is still a small minority of these companies, they should note that female leadership is on the rise, without gender quotas.
Having a diversity of viewpoints will strengthen boardrooms and companies but it shouldn’t be forced upon them as Nasdaq’s new rule will do. Being forced to “publicly explain why they could not comply” with the rule will shame companies into meeting the diversity requirements, even if they do not have qualified candidates for the roles. And putting individuals in leadership roles when they are not prepared or qualified is not good for their welfare or that of the company.
Republicans on the U.S. Senate’s Banking Committee sent a letter stating:
While we think America’s corporations benefit from boards that avoid groupthink and offer a diversity of perspectives and commend firms that look to increase diversity among their boards, we do not think NASDAQ should be using its quasi-regulatory authority to impose social policies.
The Republican SEC Commissioner voted against Nasdaq’s proposal and the other Republican commissioner offered a partial dissent where he “praised the goal of greater boardroom diversity, but said the SEC’s approval order fails to make the case for why the agency should agree to the rule. He also warned that the rule could drag the SEC into thorning legal disputes over discrimination.”
Nasdaq, and the SEC by approving this rule, is diving into dangerous waters, where companies must first fulfill quotas before considering what is best for them and their employees.