Earlier this month (August 2021), the SEC approved a Board Diversity Rule proposal from NASDAQ. By this time next year (August 2022) all companies listed on the NASDAQ exchange must publicly (either on annual SEC filings or on their website) share the diversity makeup of their board of directors. The objective, according to NASDAQ, is to encourage board diversity and to provide stakeholders with consistent and comparable disclosures. Read the SEC’s August 6th 82 page Release here.
Why is this a big deal to us here at Allen + Koe? Because equal access to economic opportunity is an obvious requisite to reducing the wealth disparity in our country. Diversity policies affect everyone.
The current SEC Chair, Gary Gensler, says that these new diversity disclosure rules will allow investors to better understand how NASDAQ-listed companies make decisions that best serve their shareholders. This philosophy is in-line with two of the core principals we value in our firm.
1-Better information leads to better decision-making.
2-Transparency improves reliability.
We believe that not only are investors more accurately represented by a diverse board that impacts policies informed by their own unique experiences and perspectives, but also there is a measurable improvement in a company’s profit margin that correlates with having diverse leadership when compared to non-diverse leadership teams, according to a growing body of studies and literature on the subject. A diverse board can lead to improved investor relations, corporate growth and a healthy corporate culture that enhances the employee and customer experience.
How does the SEC measure diversity? They have identified two categories: Gender Diversity and Demographic Background. They have published a recommended format for this—a Board Diversity Disclosure Matrix.
In addition to requiring annual disclosures of board diversity, the new SEC rule also requires an explanation if a company does not have at least two board members from underrepresented groups. This explanation must also be disclosed publicly on an annual basis.
This is a progressive move toward creating a more sustainable and equitable economy. It may be a small step, but we’re excited to see how privately held companies and other organizations and institutions react and which ones follow suit. We vote with our dollars! When more information is available to us as consumers and investors, our choices can make a tremendous impact.