Disclosing Board Diversity: Discriminatory or Not?

A legal challenge to Nasdaq’s new board-diversity rules suggests some directors still aren’t comfortable with transparency.  

The rule didn’t seem particularly controversial. A major stock exchange wanted to ask its listed companies to disclose the demographics of their boards. The rule, proposed by Nasdaq, was approved by the Securities and Exchange Commission.

But just before the New Year, 17 states joined an existing lawsuit against Nasdaq, arguing that its rule—which is intended to promote diversity on corporate boards— instead establishes illegal “quotas” that discriminate against men and white people. The suit didn’t entirely surprise Ayana Parsons, leader of Board and CEO Inclusion at Korn Ferry, who says that change begets pushback, particularly when it comes to the corporate boardroom. As she sees it, some boards still aren’t comfortable with the level of transparency that employees, customers, and shareholders now expect and demand. “The legal pushback probably stems from the fact that the data is embarrassing, and no one wants to be embarrassed,” says Parsons.

Experts say that corporate diversity efforts could well face more resistance, whether it’s a high-profile move like Nasdaq’s or an individual company’s efforts to attract talent from underrepresented groups. Just recently, the United States Supreme Court agreed to hear arguments about race-conscious admissions policies at Harvard University and the University of North Carolina. “Trying to eradicate all forms of resistance is like trying to eradicate all forms of COVID,” says Andrés Tapia, Korn Ferry’s global strategist for diversity, equity, and inclusion (DE&I).

Indeed, 2022 could be a year in which many assumptions about how to create diverse institutions will be challenged. Since George Floyd’s murder in 2020, institutions and companies around the world have launched efforts to find and develop diverse talent from underrepresented groups. Many of these efforts have been applauded; many do increase representation. But critics say some of the moves have been both costly and ineffective—and worse, that in some cases they have merely replaced the poor treatment of one group with the poor treatment of another.

Experts say that leaders probably shouldn’t focus on winning over people who are diametrically opposed to diversity, equity, and inclusion programs. “The 15 percent of resisters could wind up taking 85 percent of your time,” Tapia says. He advises leaders to energize the people who support the initiatives instead, while also targeting people who may be unsure of the program’s benefits.

Nasdaq requires that boards provide an explanation if they don’t include at least one self-identified woman and one person who self-identifies as a member of a minority group or the LGBTQ community. This effort comes amid steps that other groups in the financial industry have taken to promote board diversity. For example, since 2020, Goldman Sachs has refused to underwrite initial public offerings for companies with boards that are all white, all male, and have no LGBTQ representation. And starting this year, the shareholder-proxy advisory firm Institutional Shareholder Services will recommend voting against directors of all Russell 3000 or S&P 1500 companies whose boards it deems not diverse enough.

Alina Polonskaia, Korn Ferry’s global leader of diversity, equity, and inclusion solutions, says there is evidence from multiple studies that increasing diversity throughout a company can improve its business performance. The studies indicate further that leaders who share such data may help bring people together. “Put facts on the table,” she says. “If you don’t, it becomes a war of opinions.”