Wednesday, November 29, 2023

Does Board Diversity Lead to a Fairer Workplace?

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Since 2015, Silicon Reporting on the diversity of the valley has become a ritual. Every year, companies like Facebook and Google update elaborate cover pages with missives about inclusion, crisp visuals featuring smiling confident women and non-white employees, and promises of a more diverse future. . They did not deliver again.

Soon, Silicon Valley may be forced to take a different approach: diversifying its conference rooms or facing public criticism, escalated fines and, the latest threat, delisting from the Nasdaq. Earlier this week, the Nasdaq proposed requiring each of its 3,300 listed companies to have at least one director who is women and one who is either an “under-represented” minority (defined as black, Latin or indigenous) or a member of the LGBTQ + community.

The proposal must be approved by the U.S. Securities and Exchange Commission, presumably headed by a person appointed by President-elect Joe Biden, after public comment.

According to the Nasdaq plan, listed companies would have one year after SEC approval to disclose the diversity of their boards. Within two years, companies should have at least one “diverse” director. Large companies would have four years to have at least two diverse directors; smaller, non-US companies will be five years old.

Companies that do not meet the requirements should publicly explain why they did not. Otherwise, they will face delisting.

According to the Nasdaq, an internal review found that about 80% of its companies have at least one woman on the board, but only about a quarter of companies have a second board member who would be considered an under-represented or LGBT minority.

The experience of some top tech companies calls into question whether a diverse board of directors leads to a more diverse workforce. Straight white men are a minority on boards of directors Apple, Microsoft, Facebookand Google parent Alphabet. None of the four would have to make any changes to comply with the Nasdaq rule. But none has made great strides in diversifying its workforce. White and Asian employees make up 76 percent of Apple’s workforce, for example. Facebook employees are 82 percent white or asian.

California already has two laws that require diversity on the boards of publicly traded companies headquartered in the state. AB979, adopted earlier this year, will require companies to have one or more people of color on their boards, depending on their size. A Law 2018 required at least one woman in most boards. The latter has been remarkably effective – the number of all-male advice declined at 17, 93, in less than two years.

The pressure comes from elsewhere too. Goldman Sachs recently said it would require companies to have at least one diverse board member before helping them go public. For Goldman, “diverse” means women or people of color.

Quota-style diversity initiatives are increasingly popular, but generally focus on gender.

The consulting firm Institutional Shareholder Services found that in 2019, 27% of directors of S&P 500 companies were women, up from 16% in 2008. Boards are adding women about three times faster than they are adding people of color, according to ISS.

Representation of women and people of color different goals create complexities. AB979’s definition of ‘minority’ is self-declared, based on how members identify themselves, and includes East Asians, who are often well represented in tech companies as grassroots employees, but less well in the direction. Many companies could “increase diversity” without ever recruiting under-represented minorities.

The Nasdaq rule is both a play on the role of public perception for any business that ignores its demands and an investment in a ripple effect for diversity. It might help in the short term, but in five years it might not seem like a lot.

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