Nasdaq is taking up the challenge to diversify its corporate boards by mandate. This dynamic shift may seem to follow trends of social justice, but is in fact due to economic projections. Studies show that companies with diverse board members, such as women, outperform their less diverse competitors by as much as 48 percent.
“Corporate diversity, at all levels, opens up a clear path to innovation and growth,” said Nelson Griggs, president of the Nasdaq Stock Exchange, in a company statement issued on Monday, December 1, regarding the proposed changes.
The stock exchange announced it filed new rules governing board diversity for the approval of the U.S. Securities and Exchange Commission (SEC). The exchange’s proposal states that, pending SEC approval, U.S. companies listed on its platform will be required to disclose to the public the diversity data regarding the composition of their corporate boards of directors. The rules also demand the companies provide justifications if they fall short of the mandate. Otherwise, each company would be required to have at least two directors who represent separate underrepresented groups including: women, ethnic minorities and LGBTQ+ people.
Diversity: It’s Just Good Business
Nasdaq’s justification for the proposed rule changes is based on solid economics.
“Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies,” said Adena Friedman, President and CEO, Nasdaq in the press release, explaining the goal of the proposal.
According to The New York Times DealBook, the 3,249 companies listed on Nasdaq’s main U.S. stock exchange could “face consequences” if they do not comply with the pending rules which include being delisted. The action follows the exchange’s research that found 75% of its listed companies lacked diversity, which is at odds with the positive impact diversity can have on future earnings.
The stock exchange stated its analysts sourced more than two dozen studies that found an association between diverse boards and better financial performance and corporate governance. This echoes what diversity advocates, including Robert F. Smith, have been saying for years.
Nasdaq Squares with Robert F. Smith’s Sustainability Platform
When Smith spoke with Rhonda Mims, RVP, Strategic Alliances and Community Affairs for Centene Corporation and Chairwoman of the Thirty Percent Coalition, at the nonprofit coalition’s annual summit, the two agreed that outreach from the corporate sector regarding board diversity this year has been genuine.
“I think it is, as people say, more than a moment. It’s a movement,” Mims said, describing what she saw in the field as a slow but growing recognition that African American and women executives can lead and are valuable contributors in the workplace.
Indeed, The Business Roundtable, an organization of more than 200 business leaders, which includes Walmart and Microsoft executives, as well as Smith, announced in October the launch of broad diversity initiatives. These included changing hiring policies and transparency with workforce data regarding demographics and salaries.
This cultural shift squares with ideas with Smith has been not only advocating for, but also helping to implement with what he calls the talent pipeline.
Smith’s strategy is a long game of sustainable meritocratic practices that enrich communities as they build infrastructure that leads to the boardroom, beginning with classroom learning in STEM, followed by internships and career mentoring. This type of infrastructure is needed to create a pool of appropriate candidates to compete at the highest levels of business. With fresh talent, innovation and success follow. His reasoning has always been: these practices make good economic sense for investors.
“You have to think about what makes it a sustainable business,” Smith said. “What is a business that is not based on trading quarter to quarter, but will be here for decades? And you have to think about inclusion as an important part of that.”
Read more about some of Smith’s key ideas for a sustainable diverse workforce: