Katharina Cavano l Palladium - Dec 18 2020
Are Nasdaq’s Diversity Requirements Enough to Enact Corporate Change?

Credit: Robert Bye

In a move to provide stakeholders with a better understanding of the makeup of company boards, Nasdaq has filed a proposal with the U.S. Securities and Exchange Commission (SEC) to adopt new listing rules related to board diversity and disclosures.

If approved by the SEC, the new rules would require all companies listed on Nasdaq’s U.S. exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors. Most Nasdaq-listed companies would also be required to have (or explain why they do not have) at least two “diverse” directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQI.

“Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies,” said Adena Friedman, President and CEO of Nasdaq in a statement. “Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders; we believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.”

For Palladium’s Christina Shim, this may be a step in the right direction, but it’s not enough – at least not yet.

“Increased diversity has been proven to increase the value of a business, and that’s diversity of both experience and perspective, not just of gender and ethnicity or sexuality,” she explains. “However, more often than not, those factors do force a diverse perspective, so it’s a good way to start.”

Shim notes that if companies are to truly be diverse, organisations need to extend initiatives beyond the board and to their employees. She concedes that starting at the board level is likely the easiest route for larger, publicly traded companies, but anticipates that “there will be many organisations who fulfil these requirements as a ‘check-in-the-box’ exercise.”

Shim is hopeful that while some may not move beyond box-checking, the proposed guidelines could inspire others to take diversity to heart (and to their strategies).

“The hope is that organisations will consider really qualified and diverse board members who can push the envelope. And those who do will increasingly be pushed to do it for material reasons as it becomes the norm.”

“Tokenising Board Members”

While Nasdaq’s proposal is a trend that Chief Diversity Officer Rosanna Duncan expects will gain momentum in the coming year, it’s not one she agrees with. “Just because you have two women doesn’t mean you have a diverse board,” Duncan notes. “Tokenising board members based on one factor such as gender does not mean that they bring a diverse perspective to the table.”

While Duncan agrees that true diversity of thought adds real value to the bottom line of a business (companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians), rushing to meet quotas risks lumping women or LGBTQI people into homogenous groups.

“Gender parity does not equal diversity or inclusion when women are only being recruited and promoted from the same privileged backgrounds as their existing male counterparts,” she explains. “The challenges are complex; diversity must be viewed in its widest context, with parity on boards as just one piece of the inclusion jigsaw.”

Though well-intentioned, Nasdaq’s proposal is a step in the right direction, but is lacking if they want their listed organisations to truly engender diversity from the top-down. Adding diversity will ‘champion inclusive growth’ as Nasdaq intends, but only if organisations are doing so by hiring diverse candidates across a spectrum of qualifications, not just by gender or sexual orientation.

For more information, contact info@thepalladiumgroup.com