Alphabet and Microsoft investors learn about the tech companies’ board diversity through dots and check marks in tables. Tesla and Amazon shareholders get diverse director numbers in charts.
Nasdaq requirements for companies listed on the stock exchange to report board diversity information annually have brought varied disclosures in varied formats since taking effect in 2022. Most Nasdaq 100 companies stick relatively close to the exchange’s diversity reporting templates which show the total number of women and minorities on boards, according to a Bloomberg Law review of 2023 disclosures. But a minority forgo the guidance, opting to report their board diversity through rows and columns of iconography, instead of lines of numbers.
The regulations, which also require Nasdaq-listed companies to have diverse boards or explain why they don’t, survived a lawsuit from conservative groups last year, though the organizations are asking an appeals court to take another look.
Each reporting method has tradeoffs for shareholders making voting and investment decisions based on board diversity, said Amy Augustine, director of environmental, social, and governance investing at Boston Trust Walden Co. Alphabet and Microsoft provide more detailed information, while the numerical data from Tesla and Amazon is easier to compare to other companies, she said. But the reporting overall is helpful for investors in companies that had no requirements for disclosing board diversity before Nasdaq’s rules, Augustine said.
“It’s so far from where we were when there was no listing standard that it really does feel like progress,” said Augustine, whose investment firm advocated for Nasdaq’s regulations.
Representatives of Nasdaq, Alphabet, Microsoft and Amazon declined to comment. A Tesla spokesperson didn’t respond to requests for comment.
‘Language Differences’
Nasdaq offered multiple examples of acceptable matrices companies can use to report their board diversity statistics on websites or in proxy statements that shareholders read before voting in annual meetings. All of the examples featured numbers; none deployed dots and check marks.
But the stock exchange permitted companies to “create their own template if the format is substantially similar to the standardized template,” according to its board diversity matrix instructions. It was up to companies to decide whether they provide aggregate board diversity data or director-by-director demographics, Nasdaq said.
Microsoft used check marks in a table in its 2023 proxy statement to identify whether a particular director is a “representation of gender, ethnic, or other perspectives that expand the Board’s understanding of the needs and viewpoint of our customers, partners, employees, governments, and other stakeholders worldwide.”
Of the company’s 12 board members, eight received a board diversity check mark. A pie chart below the table showed Microsoft’s board nominees were 67% diverse and said they included one African American nominee, one Asian candidate, one Hispanic or Latinx nominee and four born outside the US.
Alphabet used dots in a table in its 2023 proxy statement to mark whether each of its directors identified as male or female, as well as Black, White or LGBTQ+, among other demographics. Of the company’s 11 board members, three were women and five identified as a race other than White, according to the dots.
But Tesla and Amazon took a different path in their 2023 proxy statements, aligning more closely with Nasdaq’s board diversity reporting templates.
The companies disclosed totals for the men and women on their boards, as well as the race with which they identified. Overall, Telsa reported having two women and two directors who weren’t White on its eight-member board, while Amazon said it had five women and two non-White directors on its 11-member board. But the disclosures didn’t make clear which directors identified as such.
A company can use dots, check marks or other symbols to disclose board diversity information in tables to comply with Nasdaq’s rules, said Kenneth Silverman, an Olshan Frome Wolosky LLP partner, who advises companies on their proxy statements. But the company should have “good reasons” for doing so, like providing investors with more information than they would get under Nasdaq’s suggested templates, he said.
“Different companies have different perspectives on every element of their business,” Silverman said. “There will be language differences.”
Computer Challenges
The board diversity disclosures come as the Securities and Exchange Commission has moved to make data in proxy statements easier for computers to read.
The SEC in 2022—in action unrelated to Nasdaq’s regulations—required companies’ proxy statements to have machine-readable pay-versus-performance data about the ties between their financial showing and executive compensation. Companies must use eXtensible Business Reporting Language, also known as XBRL, to report this information as interactive data. XBRL data also is found in companies’ annual 10-K reports, quarterly 10-Q filings and other documents filed with the SEC.
Neither Nasdaq nor the SEC requires companies to report their board diversity information using XBRL, complicating efforts for computers to read the data, especially if it’s conveyed in images instead of numbers, said Campbell Pryde, CEO of XBRL US, which advocates for machine-readable business information.
Companies still could use symbols to disclose board diversity with XBRL, which could read the underlying data and make it available for analysis, Pryde said.
“A lot of this data should be put in a standardized format,” he said of corporate disclosures. “I think forcing people to write crazy algorithms to pull all this data in is not a good use of anyone’s time.”
SEC Disclosures
The SEC would have the opportunity to refine Nasdaq’s requirements under a board diversity disclosure proposal it’s aiming to release for all public companies in April.
The agency has looked to mandate corporate reporting on board member and nominee diversity since at least 2016, according to SEC rulemaking agendas. The SEC under Democratic Chair Gary Gensler took its first step in the space by formally approving Nasdaq’s board diversity rules in 2021, a year before companies had to start making board diversity disclosures in 2022.
The SEC and Nasdaq have since been fighting conservative groups seeking to block the regulations in the US Court of Appeals for the Fifth Circuit. A three-judge panel on the court backed the rules in 2023, but the Alliance for Fair Board Recruitment and National Center for Public Policy Research have asked the full Fifth Circuit to review the decision. The court has yet to decide whether it will take another look.
Where the SEC will land on its board diversity proposal remains unclear. An agency spokesperson declined to comment.
Investors would benefit greatly from board diversity disclosure requirements for companies on all US exchanges, not just those trading on Nasdaq, Boston Trust Walden’s Augustine said. Nasdaq-listed companies now give credible board data that helps shareholders advance diversity efforts, she said.
“They’re showing us if and how robust board diversity is within that company,” Augustine said. “And I think that is important.”
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