Businesses are told to have at least one diverse board member or risk being kicked off the exchange.
Companies can be divided into two categories: private and public. The difference is to do with ownership. A private company is owned by either an individual or a small group of people who are closely connected to the actual company: the founder(s), the managers, a specific investor(s).
Public companies, however, can be owned by anyone because they sell off their ownership rights in small parts called shares. Most public companies have lots of shareholders and shareholders may have few or no connections to the company itself. Shares are bought and sold in marketplaces called stock exchanges.
One such stock exchange is Nasdaq. Nasdaq deals with American companies such as Alphabet (parent company of Google) and Microsoft. It is also the second biggest stock exchange in the world. That means Nasdaq has a lot of clout and companies are generally keen to be listed on its exchange. Which is why lots of people are interested in its recent announcement that it is considering mandating that every company on its exchange has at least one ‘diverse’ board member: a woman, someone from an ethnic minority or someone who identifies as LGBT+.
There are several reasons why this could be seen as a positive thing. For a start, straight white men are currently overrepresented in American businesses. The USA population is about half female and about 40 percent non-white or Hispanic. But the number of board seats at top companies which are held by woman and ethnic minorities is just 22.5 percent and 16 percent respectively (women of colour hold less than 5 percent). There's plenty of evidence that this disparity can be at least partly attributed to racist or sexist biases, so trying to correct the imbalance is often seen as important from a fairness or moral standpoint. And from an economic standpoint, many studies have suggested that diversity is linked to positive business outcomes, including more innovation, growth and general money making.
However, not everyone is happy with the Nasdaq proposal. For some, the main problem is that it doesn’t go far enough. A single diverse board member will not have the numbers to effect change by themselves, so in many cases white straight men would still hold all the voting power. Plus, even getting to that single diverse board member may be easier said that done, because it's not clear how severe the consequences would be for ignoring the directive. Nasdaq says non-complying companies ‘could’ be delisted, but also that they would be able to dodge this fate if they can ‘explain’ why they couldn’t hire a diverse board member, which some will see as a cop out.
Read our explainer on: power in the workplace.
