By Carol Platt Liebau and Frank Ricci
Nasdaq’s board diversity rule has sparked litigation and a robust policy debate about compelled speech, the equal protection clause, and the intrusion of social agendas into corporate governance. At the heart of this debate lies a fundamental question: Should profit-driven free market enterprises be forced to prioritize social engineering over their bottom lines?
That’s the issue in a case pending before the Fifth Circuit, Alliance for Fair Board Recruitment v. SEC. It will have national implications that could impact profits and returns, ranging from public pension funds to Americans’ IRAs or 401(k)s.
Nasdaq’s diversity rule mandates that listed companies disclose the diversity statistics of their boards. Every company is required to have at least one woman and one underrepresented minority or LGBTQ+ individual on its board, or else explain why it has failed to do so.
The rule’s obvious intent is to pressure boards to diversify by sex, race, or sexuality, based on specific targeted numeric outcomes. It’s a thinly veiled quota system.
Achievement is neither limited nor determined by one’s race or sex but rather by skills, knowledge, and abilities — along with demonstrated dedication, pure grit, and character. If anyone puts his (or her) hand on the scale in the form of intentional discrimination, it should be routed out and punished.
But it’s likewise obvious that equal opportunity cannot always yield equal outcomes. Imposing quotas undermines the achievements of women and minorities who have risen to board positions based merit and achievement, rather than because of their immutable characteristics. Mandating set-asides for them perpetuates harmful stereotypes that certain races or sexes are incapable of securing certain positions without special help.
At present, the factors corporate directors are supposed to consider in choosing their counterparts are qualities directly relevant to a company’s financial well-being. Nasdaq’s diversity rule may advance a particular social agenda, but it has nothing to do with the fiscal health of the company — of which all its directors are fiduciaries. The rule has potential to create conflicting responsibilities that don’t exist when diversity is achieved organically and boards can function with a shared purpose of promoting the financial interest of the shareholders.
Stock exchange rules require approval from the U. S Securities and Exchange Commission (SEC). This squarely places the government at the table, effectively discriminating on the basis of race or gender.
Such discrimination is un-American and wrong, no matter who engages in it or for what purposes. And despite what the ironically monikered “anti-racists” insist, past discrimination cannot be remedied by continued discrimination.
That is why Yankee Institute has joined as an interested party on an amicus brief filed by Advancing American Freedom (AAF) to challenge this unconstitutional intrusion on the free market. J. Marc Wheat, AAF General Counsel stated, “The Fifth Circuit should reverse the panel’s decision. Corporate boards should be selected based on competence in their one job, generating a return for investors, not irrelevant demographic characteristics.”
Free market capitalism is the lodestar that has proven not only to benefit shareholders but to have lifted more people out of poverty than any other system. Although diversity and inclusion are worthy goals, the key to achieving true diversity lies not in handouts or quotas at the hands of the government, but in ensuring meaningful equality of opportunity throughout our educational system so those of all races, genders and backgrounds can compete and succeed in merit-based selection processes for corporate leadership roles.
We need to reject discriminatory quotas that reduce Americans to nothing more than their immutable characteristics and stop sending the implicit message that certain races and genders can’t succeed without special help. The goal is to achieve diversity and inclusion without sacrificing excellence. And the only way to do it is through education, mentorship, and outreach.
Let’s instead embrace meaningful equality of opportunity that will achieve diversity through organic means, to ensure corporate governance remains grounded in principles of meritocracy, profit, free expression and free markets.
That’s the American way.
Carol Platt Liebau is president of Yankee Institute.
Frank Ricci is a fellow at Yankee Institute. He was the lead plaintiff in the landmark Supreme Court case Ricci v. DeStefano and the author of the book Command Presence.
