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Why Nasdaq’s latest diversity plan is hypocritical

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It takes a preposterous leap of faith to argue that adding more women or minorities to corporate boards will miraculously lead to the end of illegal insider trading. 

But that’s exactly what the Nasdaq stock market has asserted in a proposal submitted to the government last week. It’s just one of the many ludicrous rationales for its plan to force companies to change the composition of their boards to meet the latest standards of inclusion. 

Nasdaq isn’t alone in this type of absurd and hypocritical corporate wokeism, of course. BlackRock, the world’s largest money manager, now says it wants companies it invests in to have diversity in their board membership, even if it finds loopholes to doing it anyway when it has to. 

Goldman Sachs says it won’t underwrite initial public offerings except for similarly diverse company boards in the US and Europe but has no such rules when it helps find financing for Chinese companies that are virtual wards of the communist state. Ditto for its role underwriting securities during the 1MDB Malaysian sovereign-wealth fund scandal. 

Under Nasdaq’s plan, all listed companies must make their disclosures through a “board-diversity matrix,” which requires some 3,300 companies in the coming years “to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as ­either an underrepresented minority or LGBTQ.” 

The price for companies failing to meet these “goals” is a possible delisting of their shares — a penalty usually meted out for frauds and bankruptcies — that can be avoided only by providing a “disclosure” on why they’re not complying. 

Public shaming, anybody? 

Let’s all agree that diversity is a good thing. We want our newsrooms, executive suites and our public officials to reflect the dynamic of America. But the old boys club isn’t such a boy’s club anymore. Last I checked, Nasdaq CEO Adena Friedman is a woman. Does Adena want to be known as someone who got her job because of her gender, and not her skills? 

Let’s also agree that companies or governments that push this type of stuff also come dangerously close to violating the US Constitution, not to mention the foundations of capitalism where individual merit determines success. 

And where do you draw the line on the type of diversity that must be met? 

According to Nasdaq’s proposal, Chinese companies that are controlled by the country’s oppressive Communist Party will have to make efforts to name board directors considered “underrepresented individual(s)” based on “national, racial, ethnic, indigenous, cultural, religious or linguistic identity in a Foreign Issuer’s home country jurisdiction.” 

NASDAQ CEO Adena Friedman
NASDAQ CEO Adena Friedman
Getty Images

Sorry, I just can’t see Adena Friedman delisting a major Chinese company for failing to put on its board a representative from an oppressed Chinese Muslim minority, such as the ­Uighurs. Maybe that’s why the proposal gives foreign companies a loophole, merely requiring them to have two female directors. 

But the biggest problem with the Nasdaq proposal is that it’s built on a mountain of pseudo-scientific BS that would make for a great comic skit. 

“Increased board diversity also may reduce the likelihood of insider trading and other fraudulent and manipulative acts and practices,” Nasdaq asserts in its official filing with the Securities and Exchange Commission, which must ultimately approve the measure. 

Nasdaq says it reached this conclusion “by reviewing public statements by investors and organizations regarding the impact of groupthink on decision making processes, as well as academic studies on the relationship between diversity, groupthink and fraud.” 

I’m sure by searching Google you can come up with any odd academic study to show anything. (I found one on the health benefits of cannibalism.) But does anyone really believe a diverse board would have prevented Ivan Boesky from trading on illegal inside information? And would the next Bernie Madoff think twice about a Ponzi scheme because “the proposed diversity requirement could help to reduce information asymmetry”? 

There is one bright spot to all this heavy-handed virtue signaling: Capitalism has made exchanges like Nasdaq, and underwriters like Goldman, and even big investors like BlackRock, less relevant. 

Companies can list on other exchanges, or choose not to list at all. No one really needs Goldman to do an IPO; in fact, companies can choose to IPO without a banker thanks to financial innovation. And BlackRock is big, but it’s not the only shop in town. 

Nasdaq, BlackRock and Goldman declined to comment.

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