NASDAQ Requests Diversity In The Boardroom—Because Leadership Matters
Peanut butter and jelly. Spaghetti and meatballs. Sonny and Cher. Diversity and inclusion.
Each goes together, and tends to improve the whole.
NASDAQ seems to agree. Today, the Securities and Exchange Commission (SEC) will consider NASDAQ’s request to require all of its listed companies to have at least one woman and one “diverse” director, i.e., one who self-identifies as an underrepresented minority or LGBTQ, on their boards within two years. This will affect about 3,000 companies.
That’s not all. NASDAQ intends to allow companies one year to report data on board diversity, and bigger companies will need to have four diverse members on their boards.
Why is NASDAQ taking this step? It seems that a full three-fourths of its listed companies lack diverse boards. The penalty is not de-listing, but a full disclosure of steps taken to comply with the spectre of delisting hanging overhead.
While you can read this piece to get the full monty about NASDAQ’s plan, let’s take a minute to discuss what diverse leadership can do for a business entity and employer.
Board Demographics—The Diversity Piece
Diversity and inclusion are different animals entirely, though same species.
Diversity refers to the components of a workforce; inclusion measures how fair and inclusive the interactions and practices are within the workplace.
A diverse workplace has individuals who represent different races, national origins, ethnicities, genders, abilities, sexual preferences, ages, interests, backgrounds, levels of educational achievement, socioeconomic statuses — and the list goes on.
As we detailed two years ago on this blog here, workplaces that implement diversity initiatives do so by valuing and managing the whole idea of diversity (and its BFF, inclusion). There are no legal requirements, just the understanding that diversity is part of a company’s business plans.
Inclusion refers to how employees working in diverse workplaces feel that they are treated—do they feel respected? Do they have opportunities within the organization to grow and succeed?
A great example of a company that does both is Dow Chemical, which I wrote about in discussing their LGBT policies here. As I noted then, Dow fosters an inclusive work environment, which has translated to less attrition and increased profitability for the company. G.E. does the same, which we told you about here, as does Marriott International.
Diversity tends to foster inclusion. Inclusion is good for business.
A diverse workforce of women, people of color, and LGBTQ individuals confers a competitive edge when selling products or services to diverse end users.
Diverse leadership? Well, imagine what a company could do with that. Like the world in general, workplaces must continuously evolve—changing technology, updating practices, and determining which strategies will drive profits.
This study—“Do LGBT-supportive Corporate Policies Enhance Firm Performance?”—which we wrote about here, indicates that supportive LGBT polices not only seem to augment a company’s performance overall, but lead to increased profitability as well. The study found that R&D-focused companies that adopted LGBT-supportive policies had a 21.1% higher firm value, 3.41% increase in employee productivity, and a 12.5% bump in firm profitability.
In this 2019 study, McKinsey found that companies in the top quartile of gender diversity on executive teams were 25% more likely to experience above-average profitability compared with companies in the bottom quarter.
In fact, the study found that adding even one woman can make a material difference given the critical role top executives play in shaping the business and culture of their company.
Added Bonus: Diverse Leadership Might Decrease Sexual or Race-Based (or other) Harassment
Let’s take for a minute what we know about unlawful harassment.
We know that organizations that tolerate offensive behavior typically have far greater problems with sexual harassment.
Remember, I told you here that scientific studies show that organizational “tolerance” is the single most powerful factor in determining whether sexual harassment will occur.
One University of Michigan professor of psychology shared these studies:
[T]he scientific community widely recognizes that it is organizational conditions, rather than individual characteristics, that most powerfully predict sexual harassment. Organizations characterized by (1) a skewed gender ratio, such that most employees are male, (2) job duties and tasks that are historically masculine in nature, and (3) organizational tolerance of offensive behavior typically have far greater problems with sexual harassment.https://www.eeoc.gov/written-testimony-lilia-m-cortina-phd-professor-psychology-and-womens-studies-university-michigan
Additionally, my partner Rich Cohen wrote about the scientifically-proven significance of organizational climate noting that a major study from the National Academies of Sciences, Engineering said that “the strongest, most potent predictor of sexual harassment is essentially the culture of the company ― what the researchers call ‘organizational climate.’”
We’ll see what the SEC has to say about NASDAQ’s request. From an employment law POV, as we’ve said time and again: people follow the leader. Not all leaders look the same and bring the same backgrounds and experience to the job. Diversity in leadership just might unite the entire workforce as employees see folks who look like them, too, represented in leadership. They might just feel more included.
Plus, if the studies are right, companies stand to profit from making this change.
It seems NASDAQ may be onto something.