I once had a boss who I know cared about diversity. He wanted his managers to do the right thing when it came to minority hiring. But the problem was he tried very hard to not be an autocratic leader. No matter how much he pushed and cajoled, his managers would not do the right thing. Nothing changed.
He left and a new boss came to town. Not only did he mandate diversity, he publicly called out his managers who didn’t meet his goals. Minority candidates had to be interviewed for each open position. The number of Black hires increased quickly and dramatically.
It was the same with Black coaches in the NFL and the Rooney rule, which required teams to interview one minority candidate for each opening. In 2020, the NFL has three Black coaches, the same number as in 2003 when the rule was adopted.
Black people had to die, and hundreds of thousands of Black Lives Matter supporters had to take to the streets before the Washington Football Team and the Cleveland baseball team would move to change their racist monikers – after years of gentle prodding by NFL and MLB.
Now, finally, it’s happening with big business. Corporations had to be threatened before they would open up their boards of directors to Black men and women.
The Nasdaq stock exchange is threatening to delist companies that don’t have minority representation on their boards. On Dec. 6, it filed a proposal with the Securities and Exchange Commission (SEC) seeking approval of new listing rules aimed to promote greater gender, racial and LGBTQ diversity among boards of directors of Nasdaq-listed companies. Nasdaq CEO Adena Friedman first proposed the rules changes in November.
The SEC will provide a minimum of 21 days from the time it publishes the proposed rule changes in the Federal Register for the public (including investors, companies, and their representatives) to have an opportunity to comment on the proposals. After publication in the Federal Register, the SEC has 30 to 240 calendar days to approve the proposal.
The move puts a scorching spotlight on the homogenous boys club that has dominated corporate and large nonprofit boards for decades. According to an article in the Harvard Business Review, 37% of S&P 500 firms did not have any Black board members in 2019 and Black directors made up just 4.1% of Russell 3000 board members. The article does, however, note that newly appointed directors are increasingly diverse.
“I think it’s a bold action by Nasdaq saying your boards have to be reflective of America, if not, we won’t play ball with you,” said Gary Cunningham, president and CEO of Prosperity Now, a nonprofit based in Washington that focuses on expanding economic opportunity for low-income families and communities. “That kind of stern message is what is needed.”
Nasdaq’s proposal would require that the companies it lists have at least one woman in addition to a person who is a racial minority or who self-identifies as LGBTQ on their boards. Companies that don’t meet the standard would have to justify their decision or possibly face delisting.
Nasdaq said over the past six months more than three quarters of the companies it lists do not meet those standards. Meanwhile, an analysis by Institutional Shareholder Services showed that Black directors make up just 4% of the total while Black women make up just 1.5%.
Delisting is a drastic punishment for any firm. Exchanges such as the Nasdaq and the NYSE set rules and regulations that companies have to meet. Failure to meet those standards may result in a delisting. The most common reason for a stock to be delisted is if its stock price falls below $ 1 for a sustained period.
Why is delisting punitive? Because stock shares that aren’t traded on one of the major stock exchanges are more difficult for investors to research and harder to buy. The company is thus unable to issue new shares.
Nasdaq is threatening to hit companies in the pocketbook, just like Goldman Sachs threatened to do earlier this year when its CEO, David Solomon, speaking at the World Economic Forum in Davos, Switzerland, said that the investment bank will refuse to take any company public if it didn’t have at least one diverse director on its board.
Taking a company public through an initial public offering not only makes shares available to the public for the first time, but that’s also how a company’s founders and employees can strike it big after long hours of low or no pay, sometimes for years, to get a company going. In some cases, it can mean hundreds of thousands to millions of dollars.
For example, employees who were fortunate enough to buy shares in the Airbnb at the initial public offering price saw their initial investment double on the first day of trading. Pinterest founder and CEO Ben Silbermann became an instant billionaire when his company went public earlier this year.
“For Nasdaq to step out there and say there needs to be accountability and you could face delisting if you don’t diversity, it is pretty serious,” said Maya Rockeymoore Cummings, CEO of Global Policy Solutions and widow of the late U.S. Rep. Elijah Cummings.
Like hiring, corporate board recruiting relies on networks. “For most boards, it’s a network of people that you know,” Cunningham said. “If you don’t have any people of color in your network, like a good old boys club, you probably won’t be reaching out to people of color.”
“They are used to reaching out to their friends and people they are very comfortable with,” said Guy Primus, CEO of Valence Enterprises and a proponent of board diversity. “And that’s who they want around the table. We’re not at those tables or in the corner offices. Historically we haven’t been there, so we’re making slow and steady progress.
“For African Americans to succeed, we have to be at the table, and right now the boardroom is the biggest and best table that you could be at,” he said. “It’s going to happen a lot more quickly. There’s a lot more visibility being paid to it, and you know people are being forced to step up in ways that may have been uncomfortable for them. But I think they are going to see that they’re going to reap the rewards as well.”
