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Why Nasdaq's Diversity Push Matters

Why Nasdaq's Diversity Push Matters

Boards are the check and balance of the C-suite. They set the long-term strategic agenda for their company, and set how each strategic priority is balanced against another. They review the CEO’s performance and compensation. They are accountable to shareholders and stakeholders alike.

Nasdaq, which with the New York Stock Exchange accounts for the vast majority of trading, has proposed new listing requirements for its US stock exchange and is awaiting approval from the SEC. It is seeking required disclosure of the diversity statistics of any board whose company is listed with them.

Any company with fewer than two diverse directors, including one who self-identifies as either an underrepresented minority or LGBTQ+, has to provide a reasonable explanation as to why or risk being delisted.

[Related: Eight Reasons it's Looking Good for Women on Boards]

Does this sound like an extreme measure? Of Nasdaq’s current companies, about 75% fall short of this proposed requirement. Critics have decried the move as anti-capitalistic and a woke, political agenda. I say it makes great business sense and is the responsible thing to do to drive much-needed change at the highest level of corporations.

Keep in mind: Nasdaq is not expecting this to go into effect overnight. They have established a tiered timeframe, giving companies two years following SEC approval to have at least one diverse director, and another two to three years to have two diverse directors, depending on their market. We are talking about adding ONE diverse director to a board in two years. This is completely reasonable and a process that should already be a priority, whether Nasdaq requires it or not.

Currently 40% of the US population identifies as a race other than white, and 50% as female. Yet, among the 3000 largest US companies, only 12.5% of board members identify as non-white and only 22.6% as female. In the last five years, this has only improved 2.5 and 3.8 percentage points respectively. This is why we need major market players to keep driving positive change.

Tech is a big component of Nasdaq’s stock mix - including Facebook, Amazon, Apple, Netflix, and Google - and as a sector it has been incredibly slow to improve its diversity, particularly at senior levels. When you think of the market size of these companies, and the number of employees they total, the impact that Nasdaq could have is tremendous.

[Related: When DE&I is an "Initiative," It's at High Risk for Being Cut]

Nasdaq follows in the footsteps of Vanguard, Black Rock, Goldman Sachs, State Street Global Advisors, and even the state of California, all of which have taken action to get companies to boost gender and racial diversity at the board level and below. For the first time in twenty years, all S&P 500 Boards have at least one woman. If the S&P 500 can get there, companies listed on Nasdaq can, too.

Diverse boards have been correlated with higher revenues, higher EBIT margins, better ROIC, and improved risk-management. In addition, having diverse voices at the top helps ensure the operations in those companies become more diverse, inclusive, and equitable.

And don’t discount the “see it to be it” effect. When under-represented minorities see someone they identify with at the top, they know there is a path for them to get there, too. This drives incredible engagement and up to a five times higher retention rate.

When all of this comes together, the potential gains for shareholders, company leaders, and employees are significant.

[Related: Six Reasons Why Talent Development is More Important Than Ever]


Michelle Bogan is the Founder and CEO of Equity At Work and on the Investment Committee for the RevTech Equity For Women fund. Follow her on LinkedIn and visit her website.

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