Are Companies Taking Board Diversity Seriously After Nasdaq Decision?

Diversity in management and the boardroom is a much-discussed subject.

But it’s a universally acknowledged truth that executive management and company boards remain overwhelmingly white and male.

The Nasdaq Stock Exchange wants to do something about it and will become the first U.S. exchange to codify rules for disclosure of diversity. The New York Stock Exchange addressed the issue by forming diversity committees but hasn’t codified the rules.

Beginning in August, companies listed on the Nasdaq before Aug. 6, 2021, must provide details of their board makeup, including members’ gender, racial identity and sexual orientation.

From August next year, listed companies must have one diverse director or explain why they don’t. In future years, the requirement will expand to two diverse directors.

For companies listing on the exchange after Aug. 6 2021, the deadlines are slightly different but the requirements are the same.

Surpassing Expectations?

Exchange rules or not, some organizations are more than compliant, and one California-based company as an example might be already ahead of the game.

Knightscope, Inc. KSCP, a Silicon Valley manufacturer of crime-fighting security robots, has six females on its seven-member board — Chairman and CEO William Santana Li, who describes himself as half Asian and half Latin, is the sole male director The Board of Directors of Knightscope is comprised is 88% female and 43% minority. 

Li said he was frustrated with the expectation to give board seats to investors — mainly white men - who were also not independent directors.

“I was under severe pressure for 8+ years to give in to the standard approach of selling board seats to a bunch of guys that wrote the largest check in a round of financing,” he said.  “Board members should properly represent the entire cap table, not a select class of stock,” continued Li.

Many view the new Nasdaq board diversity rules as a starting point. For example, a company’s explanation of why its board isn’t diverse is not expected to be audited.

And because a majority of listed companies already have women directors, the rules on having at least one female are viewed as solving yesterday’s problem. As of January, only about 2% of Nasdaq-listed companies don’t have at least one female director, according to investment research group MSCI.

“Why does a Founder have the right to pick the brand, hire the team, develop the product, select the vendors, pick the facility, close investors - basically make all the decisions about the business - but somehow is not allowed to pick the right independent board at the right time, with the right skill mix?  The capital formation and associated governance process is broken and I hope our approach will inspire another Founder to drive the required changes.  It is unfortunate that exchanges are having to mandate changes - leaders should lead,” Li said.

Knightscope offers its Autonomous Security Robots (ASRs) as a complement to other human-based security services offered by companies like The Brink’s Co. BCO and Allied Universal, owned by Blackstone Inc. BX.

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