In a recent editorial titled The Woke Nasdaq, the Wall Street Journal’s opinion desk criticizes the stock exchange for its proposal to institute boardroom diversity quotas, arguing that by requiring listed companies to seat one woman and a member of an underrepresented group on the board of directors, the Nasdaq diversity requirements would “meddle in corporate management and harm economic growth and job creation.”
As the co-founder and CEO of a company that went public in October 2020 (on the NYSE), I believe the Nasdaq’s proposal to the Securities and Exchange Commission will serve as a much-needed push for executives to prioritize a long-overlooked initiative that will only make companies stronger and more competitive.
Before my company, MediaAlpha, went public, we had to come into compliance with a California law that requires a minimum level of female board representation for publicly traded companies based in the state. Prior to our IPO, our board had been composed of 6 men; now it is composed of 4 women and 5 men.
Given that multiple studies link greater diversity with improved corporate governance, WSJ suggests that companies driven by the profit motive “hardly need the Nasdaq to mandate the board’s makeup.” So, by this logic, if we really thought that having a diverse board would improve our corporate governance, we wouldn’t have needed a nudge (in our case, a California law) to make this change.
But in our case, a mandate similar to the Nasdaq diversity rule was exactly what we needed to get us to where we always wanted to go. While I had long ago accepted that diverse leadership was both the right thing to do and a real competitive advantage, it wasn’t something I’d ever gotten around to prioritizing. When you’re running a fast-growing company, it’s easy to get caught up in the daily grind of addressing urgent business problems. The problem of a lack of board diversity is not one that presents itself in an urgent or even apparent way – it’s hard to miss what you never had. Given that 75% of Nasdaq companies do not yet meet its proposed quotas, it certainly seems that we’re not alone in this regard.
But now it’s readily apparent that having a diverse board is a real game-changer for us. In a short time, I’ve seen our new board members become strong role models for the rising women leaders in our company and bring an important new perspective to our team. Studies have shown that women exhibit a more collaborative and participatory style of leadership than men, making them a perfect fit for the board of directors, a body that is best run by consensus. Already, my new colleagues have taught me a great deal about building buy-in among our board and moving forward with a shared vision for our company.
Indeed, our experience at MediaAlpha couldn’t be more divergent from WSJ’s perspective that a diversity quota hinders companies’ ability to deliver for their shareholders. In their view, imposing quotas gets in the way of a company’s interest in forming a board based purely on the “skill and talent of individuals, not their physical appearances.”
In truth, the worst-kept secret of corporate governance is that CEOs typically value in their board members loyalty, collegiality, and malleability over professional competence. To be sure, board members who cross the line from providing guidance, feedback, and oversight to becoming overly “meddlesome” with operational details can be value destructive. But too often, the conventional wisdom to “find a friend” or “someone who will have your back” leads CEOs to select a homogenous group of board members who look and sound like the people who are already in charge. A diversity requirement, instead of restricting companies from finding the most qualified board members possible, will bring a much needed check to a CEO’s natural desire to remain, well, unchecked.
The Journal also contends that a diversity requirement adds to the already high costs of going public. Yes, going public is a costly proposition, and one that every founder should think carefully about. But the “cost” to add diversity to our board never registered as a concern prior to our IPO. I instead worried about the millions of dollars we would have to spend as a public company to insure our directors and officers against potential shareholder lawsuits, the costly personnel we would need to maintain compliance with arcane public company accounting rules, and the millions of dollars in legal and accounting fees we would incur to produce a 200-page S-1 registration document that I doubt anyone will ever fully read.
Far from being unduly burdensome, Nasdaq’s proposed diversity quota is a small ask. Women make up half the population, and tens of millions of American adults identify as LGBTQ or a member of an underrepresented racial or ethnic minority group. It’s incomprehensible to think that large, public companies won’t be able to find a qualified candidate from these massive talent pools. For us, in three months, we were able to identify and recruit four ridiculously qualified women to whom I remain immensely grateful for agreeing to help us navigate the next phase in my company’s journey.
Based on my recent experience, I now know that in a perfect world, we absolutely would not need a rule mandating board diversity; companies on their own would greatly exceed the minimal diversity requirements proposed by the Nasdaq. But in the world we live in now, I also know that these requirements will undoubtedly help our economy by making Nasdaq-listed companies become more competitive, grow more quickly, and create additional jobs.
Steve Yi is the Co-Founder and CEO of MediaAlpha.