Tuesday, December 8, 2020

Epstein on "Nasdaq’s Diversity Distraction"

Over at Defining Ideas, Richard Epstein notes:

This past week, Nasdaq announced that it had applied to the Securities and Exchange Commission for authorization to impose diversity requirements on the boards of directors of its listed companies. The substantive proposal requires that each company include on its board at least two diverse directors, one of whom must be a woman (or, more precisely, one who self-identifies as female) and one who self-identifies as a member of an underrepresented minority, including “Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities,” or as “LGBTQ+.” Whenever these targets are not met, the listed company must offer a public explanation as to why that is the case.... In defense of its diversity mandate, Nasdaq tries to bring itself within ... traditional rationales by claiming that increasingly diverse boards will help “prevent fraudulent and manipulative acts and practices.” Such avoidance of fraud and manipulation purportedly follows from a decrease in groupthink that comes from airing diverse perspectives.

This made me wonder whether we'll soon be seeing a similarly structured viewpoint diversity proposal from Nasdaq, given that according to the Free Enterprise Project:

The vast majority of members of the boards of directors of the largest companies in the United States are, where their viewpoints are discernable, demonstrably left of center. As Baron Political Affairs, LLC revealed in 2019, every single director of a Fortune 1-10 company who had been elected to political office or who had worked for an administration was (or had worked for) a Democrat. The ratio shifted to 2 Democrats for every Republican in the Fortune 100 generally, but only to 5:1 for financial or tech firms within that group. FEP’s own research, as part of a proposal-review proceeding this past winter, confirmed this trend at AT&T, where every member of the board of directors who had held elective or appointed office had done so as a Democrat or with a Democratic administration.

Turning back to the Defining Ideas piece, Epstein further notes that:

it is appropriate to ask whether the SEC, as a government agency, should give its explicit approval to a policy that introduces explicit racial and gender classifications.... Government imprimatur might give rise to serious constitutional challenges that the Nasdaq report never addresses, let alone resolves.

https://lawprofessors.typepad.com/business_law/2020/12/epstein-on-nasdaqs-diversity-distraction.html

Stefan J. Padfield | Permalink

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