This past week, Nasdaq announced that it had applied to the Securities and Exchange Commission for authorization to impose diversity requirements on the boards of directors of its listed companies. The substantive proposal requires that each company include on its board at least two diverse directors, one of whom must be a woman (or, more precisely, one who self-identifies as female) and one who self-identifies as a member of an underrepresented minority, including “Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities,” or as “LGBTQ+.” Whenever these targets are not met, the listed company must offer a public explanation as to why that is the case. At no point does Nasdaq offer specific instances of intentional discrimination against members of these preferred groups.

In its SEC application, Nasdaq writes as if the new policy is all gain and no pain. It reports that its proposal has strong support from many of its member companies, a large fraction of which have already adopted similar diversity policies. For instance, a Deloitte study cited in the application notes that a majority of public and private companies surveyed have either already reviewed “their board composition, recruiting, and succession practices” to fight “racial inequality and inequity,” or intend to do so. Nasdaq cites further studies that find that companies with diverse boards have consistently higher returns on investments than those companies that ignore diversity. It thus concludes that the “benefits to stakeholders of increased diversity are becoming more apparent and include an increased variety of fresh perspectives, improved decision making and oversight, and strengthened internal controls.”

Yet, Nasdaq simultaneously laments the relatively slow rate of increase in board diversity among its member companies, noting that “the US still lags behind other jurisdictions that have imposed requirements related to board diversity.” It also asserts, without demonstrating, that if “companies recruit by skill set and expertise rather than title, they will find there is more than enough diverse talent to satisfy demand.” Nasdaq then reverses field by allowing a listed company to disclose that it does not meet the rule because it is bound by some alternative legal standard under state or federal law, or because it “has a board philosophy regarding diversity that differs from the diversity objectives set forth” in the Nasdaq rule.