(CFO Dive) The Securities and Exchange Commission (SEC) on Aug. 6 endorsed a rule proposed by Nasdaq that would require listed companies to include on their boards at least one woman director and someone who is a racial minority or who self-identifies as lesbian, gay, bisexual, transgender or queer.
Companies would be required to regularly report on the demographics of their boards, and those that fail to justify non-adherence to the standard in writing would risk de-listing.
“The SEC’s approval of Nasdaq’s listing rules is credit positive for Nasdaq and its listed firms because the rules will improve transparency and disclosure, as well as encourage board-level diversity and inclusive representation,” Moody’s Investors Service said.
Republican lawmakers and advocates for limited government have leveled several criticisms against the Nasdaq rule, including the assertion that it will saddle companies with additional costs and slow economic growth.
The proposed rule “harms economic growth by imposing costs on public corporations and discouraging private corporations from going public,” the 12 Republicans on the Senate Banking Committee said in a February letter to the SEC’s acting chair. The “arbitrary diversity requirement does not demonstrably improve corporate performance, and could sometimes harm it.”
Nasdaq’s assertion that diversity improves company performance is questionable at best, according to David Burton, a senior fellow at the Heritage Foundation.
“The actual empirical, peer-reviewed economics literature is highly inconclusive — with most studies showing little or no discernible effect on financial performance due to the sexual, racial, or ethnic composition of corporate boards, Burton said in a paper. “All serious surveys of the literature reach this conclusion.”
Under a campaign to remake the purpose of business to promote social justice, “businesses would become less productive and less competitive,” Burton said. “Jobs would be lost, and wages would grow more slowly.”
Sen. Pat Toomey (R-PA), ranking member of the Senate Banking Committee, said in a statement:
Corporate board rooms, like all organizations, can benefit from a diversity of perspectives, but NASDAQ’s one-size-fits-all quota misses the mark. By defining diversity by race, gender, and sexual orientation, NASDAQ’s mandate will inevitably pressure companies to subordinate crucial factors such as knowledge, experience, and expertise when selecting board members…
I’m disappointed Chairman Gensler is turning a financial regulator into a laboratory for progressive social engineering.
Joe Shoen, chairman of Nasdaq-listed AMERCO, the parent company of U-Haul, commented:
If AMERCO were to select Board Members based TO ANY DEGREE on race, gender identification or sexual orientation, as an investor, I would be greatly distressed. The proposed rule would clearly encourage such behavior although it would be well masked.
I have witnessed the country struggle for decades to not sort people by race, gender, and sexual orientation. This has become the law of the land. Why now under the guise of social good should the SEC participate in stepping backwards?
