Nasdaq has just put its money where its mouth is by proposing to require its listed companies to have at least two “diverse” directors, including at least one woman and one minority or LGBTQ director, or face being kicked off the exchange.
What’s most interesting about the proposal, which was submitted Tuesday to the Securities and Exchange Commission, isn’t that it’s radical in its reach.
It’s that the proposal recognizes the emerging reality in American industry, which is that resistance to diversity has been evaporating for years.
Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies.
Nasdaq CEO Adena Friedman
Large consumer and technology companies have been among the leaders in the trend. CNN calculates that four of the five largest companies on Nasdaq, measured by market value “have boards on which straight white men are in the minority. They are Apple, Microsoft, Alphabet (the parent of Google) and Facebook.
Those companies plainly recognize that diverse boards are good for their bottom line, for their public image and for their standing in the investment community. In its proposal, Nasdaq observed that most large institutional investors have been pressuring corporate managements for more diverse boards.
Goldman Sachs, one of the leading underwriters of corporate stock offerings, said in January that it won’t take a company public unless it has at least one woman or minority director. By 2021, the minimum will be two directors.
And California has imposed mandatory diversity standards on companies headquartered within its borders. The state has required public companies based in the state to have at least one woman director as of the end of last year and as many as three by the end of 2021.
A new law signed by Gov. Newsom this year requires those companies to have at least one minority or LGBTQ director by the end of 2021 and as many as three by the end of 2022.
No other states have followed suit, possibly because they’re waiting for the outcomes of at least two lawsuits challenging California’s gender diversity law. But there are indications that the law has spurred California-based companies to step up their recruitment of women directors.
In its rule proposal, Nasdaq cited academic studies finding that gender-diverse boards are associated with lower likelihood of manipulated earnings or other corporate wrongdoing, including securities fraud.
Much of corporate America certainly seems to have moved past its traditional resistance to diversifying the boardroom.
That attitude was exemplified by T.J. Rodgers, the founder and then-chairman of Cypress Semiconductor, who in a famous 1996 missive rebuffed one Sister Doris Gormley, a shareholder advocate at a Franciscan order in Pennsylvania, who told him the diversity of Cypress’ all-male board had been found wanting.
Rodgers, whose stubbornness was legendary, told the nun to “get down from your moral high horse.” Cypress depended on its directors to contribute