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| DATE | 2021-01-20 |
| FROM | Ruben Safir
|
| SUBJECT | Subject: [Hangout - NYLXS] Lies our fathers (and President) tell us
|
From hangout-bounces-at-nylxs.com Wed Jan 20 23:47:49 2021
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Subject: [Hangout - NYLXS] Lies our fathers (and President) tell us
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Opinion | If Corporate Diversity Works, Show Me the Money
Arthur Levitt Jr.
5-7 minutes
Corporate directors are called on to do a few important things: Hire a
CEO and oversee management, provide strategic direction, protect and
promote the interests of investors, and ensure the company=92s books are
honest. Now, many claim, directors should also represent the country=92s
demographics.
That is the upshot of a requirement by one of America=92s largest
financial markets. Nasdaq is calling for all its listed companies to
appoint within the next four years no fewer than two =93diverse=94
directors: at least one woman, and one person from an underrepresented
racial or ethnic group or someone who identifies as LGBTQ. Any company
failing this requirement would be obligated to explain why. This new
standard now faces approval from the Securities and Exchange Commission.
It would be tempting for the SEC, soon to be led by a Biden appointee,
to approve the proposal. Many of the calls for diversity requirements on
board membership and recruitment are being made by large asset managers
and institutional investors. The SEC could conceivably approve it in the
name of investor-led democracy.
But that would be shortsighted. For one thing, diversity requirements
are political at their core and, in my experience, any securities
regulation that feeds the base instincts of political partisanship will
inevitably be undone by the opposing party when it has the chance, or
face challenges in the courts. Regulation that is enduring and
sustainable=97on any issue=97requires the SEC=92s expert analysis,
professional moderation and careful review.
The issue of diversity on boards is also emotional, and it often creates
more heat than light. Both sides have plenty of anecdotes to draw from.
I have stacks of annual reports from boards with members who are all
white, all male, all over 50=97and quite mediocre. At the same time, I
have seen women or minorities whose membership on corporate boards was
forgettable at best. There is no guarantee of competence in a director
based on sex or skin color.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Many studies purport to show benefits from board diversity; one
published last year in the MIT Sloan Management Review found that
companies with diverse boards were =93more innovative.=94 But further review
of these studies, which often focus on sex and not race or ethnicity,
demonstrates no clear link to actual performance.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The most powerful argument for board diversity is that diversity is a
social good. The most powerful argument against a board diversity
requirement is that if it were manifestly good for companies, there
would be no need for it in the first place. Successful companies can=92t
keep secrets quiet for long; if one could reliably increase its market
capitalization by, say, 5% through the appointment of a diverse board,
every company on Nasdaq would already meet that standard.
The problem of board diversity is compounded by the nomination process.
Searches for directors are formally structured, but in the end they
depend on informal social networks where friends recommend each other.
In my experience, many such searches are closer to a social-club
recruitment process than a serious contemplation of someone=92s
task-specific skills. And as has been shown by the National Football
League=92s Rooney Rule, which since 2003 has required that teams interview
at least one ethnic-minority candidate for all head-coaching positions,
formal requirements for effort don=92t necessarily lead to results.
Since neither Nasdaq nor the SEC can reliably say that more diverse
boards produce better results than homogeneous ones, the SEC should
lead. The agency should charge its staff to review rigorous studies of
the impact of directors on corporate performance, and if necessary it
should commission new ones.
The agency=92s Office of Economic Analysis should isolate the effect of
board diversity on critical features of corporate performance and board
responsibility. That isn=92t only share price and market capitalization,
but also executive compensation, transaction success, audit performance,
financial transparency and accuracy, strategic transactions, succession
planning and other talent issues, including diversity among senior
executives and middle managers.
Meanwhile, the SEC shouldn=92t be drawn into politics. It should permit
Nasdaq to put into place its diversity standard as a voluntary measure
for now, and then the agency should publish its own research in a timely
manner. That would provide verifiable evidence as to whether diversity
requirements are good for investors. After all, that=92s the SEC=92s charge.
-- =
So many immigrant groups have swept through our town
that Brooklyn, like Atlantis, reaches mythological
proportions in the mind of the world - RI Safir 1998
http://www.mrbrklyn.com
DRM is THEFT - We are the STAKEHOLDERS - RI Safir 2002
http://www.nylxs.com - Leadership Development in Free Software
http://www.brooklyn-living.com
Being so tracked is for FARM ANIMALS and extermination camps,
but incompatible with living as a free human being. -RI Safir 2013
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