(Washington) Sen. John Kennedy (R-La.), a member of the Senate Banking Committee, joined Ranking Member Pat Toomey (R-Pa.) and Republican committee members in urging the Securities and Exchange Commission (SEC) to reject a proposed NASDAQ rule that would force publicly traded companies to adopt new racial and gender diversity standards for their boards of directors.
“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 senators wrote.
The proposed NASDAQ rule would require corporations to appoint some board directors on the basis of their self-identified race, gender and sexual orientation, or explain why the company has not done so. If the company does not provide a public explanation, it is subject to delisting.
The senators point out that requiring corporations to appoint board directors on the basis of diversity instead of merit would hurt their operational efficiency and cause economic damage.
“It interferes with a board’s duty to follow its legal obligations to govern in the best interest of the corporation and its shareholders. It violates central principles of materiality that govern securities disclosures, and finally, it harms economic growth by imposing costs on public corporations and discouraging private corporations from going public,” explained the senators.
Requiring disclosures on diversity information would also controvert the principle of materiality, which only requires public disclosures when they directly affect potential investment decisions in a corporation.
The letter is available here.