White Male Boards Explain to Investors Why Diversity Is Elusive

(Bloomberg Law) -- One Nasdaq-listed company blames its lack of board diversity on an inability to find a “suitable” contender. Another says a “rigorous and intrusive” licensing process has hampered its efforts to add a diverse board member. A third says it doesn’t know whether it has a woman, minority or LGBTQ director because it didn’t want to ask for privacy reasons.

These are among the reasons companies are giving for why they don’t have—or even know if they have—a diverse board under Nasdaq rules that required thousands of firms to have at least one woman, minority or LGBTQ director by the end of 2023 or to explain their situations. Nasdaq Inc. can delist companies that fail to comply with the requirements endorsed by the Democratic-led Securities and Exchange Commission and facing a conservative court challenge.

More than a dozen companies so far this year have reported why their boards aren’t diverse or don’t collect diversity data, according to a Bloomberg Law review of public company filings. Discount provider Groupon Inc., casino owner Red Rock Resorts Inc., cannabis business investor Chicago Atlantic Real Estate Finance Inc. and underwriter American Coastal Insurance Corp. made the disclosures in their proxy statements, which investors receive before companies’ annual meetings.

Companies without diverse boards generally expressed support for the idea, but said they were unable to find the right candidates or were unprepared to add new seats to shake up their White male boardrooms. One company, Oxford Square Capital Corp., which invests in corporate debt securities, said it didn’t ask whether its five directors were diverse because it wanted to protect their privacy.

The disclosures come as a case before a right-leaning federal appeals court could close the burgeoning window into corporate board diversity in the coming months, letting companies decide whether they continue to share the information.

Nasdaq’s rules violate the First Amendment by unnecessarily forcing companies to say something that could lead to boycotts, divestment and other fallout, said Peggy Little, a lawyer representing the National Center for Public Policy Research, a conservative think tank challenging the regulations in the US Court of Appeals for the Fifth Circuit. The court is expected to rule as soon as this year.

“What we are talking about here is compelled speech,” said Little, a senior litigation counsel at the New Civil Liberties Alliance legal group. Companies “have concern about what the consequences of that are.”

No Judgment

The disclosures reviewed by Bloomberg Law provide only a snapshot into reporting by Nasdaq-listed companies without diverse boards. Nasdaq doesn’t release data on compliance, and Bloomberg Law was unable to analyze how every company was handling the rules, which permit widely varied reporting approaches.

Companies are free to disclose why they don’t have diverse boards however they wish on their proxy statements or websites, under the rules. Nasdaq doesn’t judge companies’ reasons for having boards without diverse members, only checks whether they provide explanations, according to guidance from the stock exchange.

The “disclosures provide stakeholders with a better understanding of the company’s current board composition and its philosophy regarding diversity,” according to Nasdaq’s guidance.

The diversity disclosure rules aren’t subject to the First Amendment because Nasdaq is a private entity, a lawyer for the exchange said last year. The statement came in response to National Center for Public Policy Research claims that Nasdaq is a government actor, prohibiting it from compelling speech under the First Amendment.

A Nasdaq spokesperson declined to comment for this story.

Company Disclosures

Groupon, American Coastal, Red Rock Resorts and Chicago Atlantic Real Estate Finance all said they are open to adding a diverse director in the future, but face obstacles to moving beyond White male boards, according to their 2024 proxy statements.

Groupon last year lost its only diverse director—Helen Vaid—who did not stand for re-election, and has no current plans to fill her seat or change the board’s composition, the e-commerce platform said. Chicago Atlantic Real Estate Finance, American Coastal and Red Rock Resorts all said they faced difficulties finding qualified, diverse candidates for their boards.

American Coastal said it was “unsuccessful in attracting viable candidates” in part due to its former subsidiary, United Property and Casualty Insurance Co. The subsidiary, which underwrote insurance policies in Florida, became insolvent last year from losses it sustained after Hurricane Ian hit the state in 2022.

Red Rock Resorts, which owns Las Vegas casinos, said its ability to attract competent, diverse candidates is hindered by the “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,” which some gaming regulators require board members to have.

Chicago Atlantic Real Estate Finance, which lends to state-licensed cannabis operators, doesn’t have a diverse director because it has “not yet identified a suitable candidate,” according to its 2024 proxy statement. But the company is “vetting candidates, and we fully intend to add a diverse member in the foreseeable future,” CFO Phil Silverman said in an email to Bloomberg Law.

Spokespeople for Groupon and Red Rock Resorts declined to comment. An American Coastal representative didn’t respond to requests for comment.

Privacy Concerns

Groupon and the three other companies all provided charts showing the composition of their boards in terms of diversity. Nasdaq requires all companies to publish such charts, even if they only have White men as directors. But companies aren’t required to disclose the gender or demographic background of individual board members; they can just report the number of directors who didn’t provide the information.

Oxford Square Capital put in its 2024 proxy statement a chart showing that none of its five directors disclosed their gender or demographic background. But the company used the male honorific of mister in background information it provides about each of its board members in its proxy statement. Bloomberg Law was unable to confirm their demographic backgrounds.

“We are 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,” the company said in its proxy statement. “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.”

An Oxford Square Capital representative didn’t respond to requests for comment.

Companies may prefer to avoid putting a spotlight on how they handle board diversity, but it doesn’t make the rules illegal, said Lawrence Cunningham, a George Washington University Law School professor emeritus who studies corporate governance. Board diversity is on the rise, and Nasdaq tried to find a useful way to gauge it, he said.

“Nasdaq is trying to be realistic about what has happened, rather than prescriptive or normative in its own worldview,” Cunningham said.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Amelia Gruber Cohn at agrubercohn@bloombergindustry.com

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