Nasdaq's 'Diversity' Objective Vandalizes Basic Common Sense
Evan Agostini/Invision/AP
Nasdaq's 'Diversity' Objective Vandalizes Basic Common Sense
Evan Agostini/Invision/AP
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These days, “diversity” is an altar before which all are compelled to genuflect, if not abjectly grovel. One of the latest and loudest converts to the cause is Nasdaq. Last December, the stock market index began pressing the Securities and Exchange Commission for permission to require companies listed on its exchange to demonstrate board diversity by having at least one woman and one person who self-identifies as underrepresented or LGBTQ and to publish board diversity reports. Nasdaq would be the first major exchange to demand companies meet such non-financial benchmarks.

As originally envisioned, companies that didn’t publicly disclose this new demand for data could be removed from the stock exchange and ones that failed to meet the diversity requirements would need to publish a reason. But, this February, 12 Republican members of the Senate Banking Committee sent a letter to Acting SEC Chair Allison Herren Lee objecting to the change and urging the SEC to reject the proposal. A chastened Nasdaq submitted a revised plan, claiming that companies now have more flexibility in achieving compliance, and making diversity “requirements” diversity “objectives” instead. To be sure, the word, “objective” has a softer, more aspirational tone than “requirement” but the ultimate intent is the same: coercing businesses to conform their boards to an ideal of political correctness that Nasdaq finds appealing. 

Nasdaq’s new-found desire for diversity is a classic example of lazy thinking. But I repeat myself. It begins with a questionable observation: “diverse boards perform better” and then leaps to a universal prescription: “a board that combines The Village People with The Dixie Chicks will see company profits soar!” This is like observing that dogs wag their tails when they are happy – and then creating a government program to vigorously wag dog’s tails in an effort to promote canine cheerfulness.

Do boards “diverse” in gender outperform those that are not? Spoiler Alert: No, they don’t. In recent years, more than 100 peer-reviewed studies of board gender diversity and company performance, with a combined sample of more than 90,000 firms in more than 30 countries have been done. Two meta-analyses of this research find that there is no evidence to suggest that the presence, or addition, of women on a board actually causes a change in company performance – for better or worse.

If there is merit in diversifying the composition of America’s corporate boards, it’s highly doubtful that Nasdaq’s imperious, paint-by-numbers approach is the best way to achieve it. That’s because, for all of their frantic virtue-signaling on the subject, when Nasdaq speaks of “diversity” what they obviously envision is a group of people with essentially cosmetic differences in race, gender and sexual orientation who will, nonetheless, all think and act in the same way.

Truth be told, there are many more dimensions to diversity than are dreamt of in Nasdaq’s philosophy. Diversity is a word used to escape the limitations of old-style affirmative action quotas, which were long since met. Like the strategic substitution of climate change for global warming, diversity can be virtually anything the speaker considers useful at the moment, regardless of its internal inconsistencies. The suspicion lingers that Peter Thiel, a gay libertarian entrepreneur, or South Carolina Sen. Tim Scott, a black Republican, or former Alaska Governor, Sarah Palin, a female conservative, are not what Nasdaq’s overlords had in mind when they wrote their new rule book for “woke” corporate boards.

When it comes to discussions about diversity, gender and race are always front and center. But Paul Ingram a professor from Columbia Business School, has found that social class is a greater impediment to workplace advancement than either of those factors. According to Ingram’s research, workers who come from lower social-class origins in the United States are 32% less likely to become managers than those who come from higher social-class origins. That represents a disadvantage even greater than the one experienced by women compared with men (27%) or Blacks compared with whites (25%).

If the folks at Nasdaq -- or for that matter, in media or academia -- are really interested in diversifying their respective prevailing cultures, I recommend they ask themselves a couple questions such as: how many of your elite members are the sons or daughters of working class parents? How many come from economically stressed regions like Appalachia? If the lack of diversity they discover doesn’t disturb them, it should.

Peter Flaherty is Chairman and Chief Executive Officer of the National Legal and Policy Center (NLPC), which he co-founded with Ken Boehm in 1991.

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