In recent years, a push for diversity on corporate boards gained momentum, culminating in NASDAQ’s new listing rules that require companies to disclose the composition of their boards in terms of certain forms of diversity—gender, race and sexual orientation—and disclose whether they have one or more such directors or explain why not.

In line with other social trends, boards have been diversifying and most have had no trouble checking the NASDAQ rule’s box. The interesting cases are the small number that have instead opted to explain why they do not meet NASDAQ’s diversity matrix.

Bloomberg’s Andrew Ramonas scoured the current 2024 proxy statements of numerous companies and found several that provide a glimpse into the complexities companies face in this area that are often unappreciated and are worthy of consideration.

A Diversity Dilemma: A Multifaceted Challenge

The concept of diversity on boards is often championed for its potential to bring varied perspectives and experiences to the table, which can enhance decision-making and corporate governance. However, the process of achieving diversity is not always obvious or easy, as evidenced by the statements from these companies.

Groupon’s Transitional Phase. Groupon’s situation highlights a common issue where a company may temporarily fall short of diversity goals due to turnover. It “acknowledges and supports the general principles behind the diversity objectives,” but lost its one diverse board member this year. The company’s acknowledgment of the principles behind diversity objectives suggests a willingness to align with NASDAQ’s vision, yet it underscores the reality that board composition is dynamic and subject to change.

American Coastal’s Quest for Qualified Candidates.  American Coastal says it is “unable to identify Board nominees that qualify as Diverse, who possessed the skillset and qualifications the Board seeks, and who had an interest in serving on the Board.” American Coastal’s statement points to the difficulty in finding diverse candidates who not only meet the specific skillset and qualifications required by the board but are also interested in serving. This reflects a broader issue in the corporate world where the pool of diverse candidates with the desired expertise can be limited, particularly in specialized industries.

Atlantic Real Estate Finance’s Simple Statement.  The company said it “did not have at least one diverse director because we have not yet identified a suitable candidate.” That straightforward acknowledgment implies an ongoing search for diversity and reveals the challenges in conducting effective search processes and the applicable criteria to evaluate candidates.

Oxford Square Capital’s Privacy Concerns.  The company wrote that it is:

unable to determine if the Board consists of at least one person that satisfies the Rule because members of the Company’s Board were selected for service without consideration given to their gender, race, ethnicity, or LGBTQ+ status. Consistent with our belief that an inquiry into those areas would represent a violation of those prospective Board members’ privacy, questions regarding those subjects were not asked during the recruitment or interview process and did not form a basis for the selection of the Company’s Board members.

Oxford Square Capital’s approach to board selection, which deliberately omits considerations of gender, race or sexuality lays bare the tension between diversity initiatives and individual privacy. The stance suggests a philosophical commitment to meritocracy and non-discrimination, even if it results in a lack of diversity as defined by NASDAQ.

Red Rock Resorts’ Particular Constraints.  The company says there is a:

relatively limited pool of potential directors who are willing to subject themselves, as well as their families, to the rigorous and intrusive process necessary to obtain a gaming license and the demand for qualified diverse candidates will continue to impact our ability to attract certain categories of diverse directors to serve on our Board.

Red Rock Resorts’ explanation illustrates challenges faced by companies in certain industries, such as gaming, where the process of obtaining a license can be a deterrent for potential directors. This highlights how external factors and industry-specific demands can significantly impact the ability to attract certain kinds of board members.

A Balanced Perspective on Board Diversity

The responses from these companies illustrate that the concept and routes to a diverse board are not a one-size-fits-all matters. Each company operates within its own context, with distinct challenges and considerations. It is essential to recognize that while diversity can bring valuable benefits, its pursuit must be balanced with respect for individual privacy, the need for specialized skills, and the operational realities of the industry.

Moreover, it is important to consider that diversity, in its essence, goes beyond mere representation, especially in terms of gender, race and sexuality. It is about the inclusion of different viewpoints, life experiences, and expertise that can contribute to a company’s success. As such, companies should be encouraged to strive for diversity in a manner that aligns with their strategic objectives and corporate culture, rather than as a mere compliance exercise.

While NASDAQ’s rules set a direction, it is up to individual companies to navigate their course and each board to discharge its fiduciary and statutory duties as faithful stewards rather than rule.