Media Contact
Adam Allington
In a narrow 9-8 decision, a federal appeals court has ruled that Nasdaq can’t require diversity on the boards of companies that list on the exchange. Nasdaq had issued a rule requiring most Nasdaq-listed companies to have at least one female director and one non-white or LGBTQ+ person on their corporate boards by the end of 2025.
Scott Yonker
Associate Professor of Finance
Scott Yonker, professor of finance at Cornell University, has researched the effects of corporate board diversity on company performance, innovation, stock price volatility and other dimensions.
Yonker says:
“A tenant of conservative thinking is that markets work best in the absence of regulation, and that regulation should only be imposed when a market failure exists. However, based on my research into the racial dynamics of the corporate director labor market, it is evident that a market failure exists. Although racial minorities made up over 40% of the U.S. workforce in 2019, they held only about 12% of directorships.
“Another common criticism is that such mandates will force companies to prioritize demographic characteristics over qualifications, thereby harming firm performance. Our findings suggest that while such mandates do not necessarily boost overall performance, they also do not harm it, likely because the racial minorities appointed to boards under these mandates possess qualifications comparable to those of existing directors.
“From an economic standpoint, requiring some minimum level of racial diversity can enhance the functioning of the director labor market without imposing costs on companies or shareholders. Viewed through this lens, the Fifth Circuit’s decision may represent a missed opportunity to address a clear market inefficiency and foster a more inclusive corporate governance landscape without imposing a cost on shareholders.”
