The SEC officially approved NASDAQ’s plan to force all companies on their exchange to publish the race, gender, and sexual orientation of all board members in public filings. It is called Rule 5605(f). If companies fail to meet minimum quotas, they will be required to file a public explanation.
One Board member must “self-identify as female.”
One Board member must “self-identify” as either homosexual, transsexual, or an “underrepresented racial minority”
These people will be referred to as “diverse board members.” 5605(f) says all companies have two years until they will be penalized for not having one “diverse board member” and four years until they will be punished for not having one from each category. The average size of the board of directors for companies on the NASDAQ exchange is 9.2 members.
All companies that fail to meet the two or four-year goal will be publicly shamed on the exchange. They will have to file public statements groveling and explain why they have failed to become more diverse.
SEC Chair Gary Gensler endorsed the new rule saying “These rules will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have the flexibility to make decisions that best serve their shareholders.” Gensler did not explain how forcing companies to hire people based on arbitrary attributes, rather than merit, serves the shareholders in any way.
Gensler was appointed as SEC Chairman by Joe Biden.
The 217 Chinese companies on the NASDAQ and other non-Western nations are given easier rules. They are only required to have one female board member and one person who is an “underrepresented individual.” The second spot can be filled by an ethnic or linguistic minority of the same race.
NASDAQ first announced that they were pursuing this policy during the violent Black Lives Matter riots of 2020. However, they had to get SEC approval first. Black activists groups have praised the plan. According to ISS Corporate Solutions, since the start of the BLM riots in 2020, roughly one-third of new board members hired by S&P 500 companies have been Black.
The most overrepresented groups on NASDAQ boards are Jewish, East Asian, and Central Asian. Jewish people will not count as a minority, but despite the term “underrepresented,” Asians do count. Since race is “self-identified,” it seems like Elizabeth Warren-style American Indians would also count.
