Tip Sheets

Cornell expert on Nasdaq board diversity rule hearing

Media Contact

Lindsey Knewstub

Today, two conservative groups will argue in the 5th U.S. Circuit Court of Appeals that Nasdaq's board diversity rule violates the equal protection clause of the Fifth Amendment.

Scott Yonker, associate professor of finance at Cornell University’s SC Johnson College of Business, has researched the effects of corporate board diversity on company performance, innovation, stock price volatility and other dimensions. He’s previously commented on the board diversity rule and is a co-author on an amicus brief for this case.

Scott Yonker

Associate Professor of Finance

“The Alliance for Fair Board Recruitment argued in court against the Nasdaq’s board diversity rule on Monday. To put the rule in perspective, it is important to lay out a few facts. The Nasdaq board diversity rule is a disclosure rule that will make demographic information on directors of Nasdaq-listed firms publicly available. Nasdaq firms are not compelled to meet the diversity targets set by the Nasdaq. If they choose not to “comply,” then they need only to explain why. Prior to the announcement of the rule the majority of Nasdaq-listed firms already met the diversity targets, which for most firms was to have at least one women and one minority or LGBTQ+ person on the board. About 96% of U.S.-based, Nasdaq-listed firms had at least one female director and 75% had at least one racial minority on their board. To give these targets some context, consider that the median number of directors on these boards was ten prior to the rule announcement, suggesting a 10% target along both dimensions of diversity. Just prior to the rule, the average board of U.S.-based Nasdaq firms was composed of 25% women and 15% racial minorities. As of the end of the first quarter 2022, these numbers have risen to 28% and 19%, respectively.

“How do these numbers compare to those in the more general working population? According to reports from the U.S. Equal Employment Opportunity Commission, in 2018 minorities made up 41% of the workforce and women composed 48%. When focusing more narrowly on management positions in firms, minorities and women made up 25% and 39%, respectively. At the same time, white men made up 32% of the workforce, and 47% of managers. As of the end of the first quarter of 2022, white men constituted 63% of U.S. directors and 84% of CEOs. 

“These simple facts make me wonder who the Alliance for Fair Board Recruitment is protecting and whether these individuals need protection in the first place.”

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