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Could Nasdaq’s proposed diversity mandates be the key to changing corporate America?

Corporate America has want been criticized for its lack of gender and racial diversity, with underrepresented racial groups making up just 12.5% of food seats at the 3,000 largest publicly traded companies, and women making up just 21%.

To fix this issue, several companies, and parallel with a few states, have implemented diversity mandates. Earlier this year, Goldman Sachs said it would not bear a company public unless it had at least one diverse board candidate, with CEO David Solomon saying they when one pleases place a special “focus on women.” In 2018, California became the first U.S. state to mandate that all public corporations within the state have at least one woman on their board by December 2019, resulting in 68 new women being added to proprietorship boards following the announcement. This fall, the state implemented a similar law as it relates to racial diversity.

Now, Nasdaq is cautioning up to the plate with its own diversity mandate that will require listed companies to have at least two diverse billet members, including one person who self-identifies as female and one person who self-identifies as an underrepresented minority or LGBTQ+. An underrepresented minority, Nasdaq sheds, is anyone who self-identifies as Black or African American; Hispanic or Latinx; Native American or Alaska Native; Native Hawaiian or Pacific Islander; or Asian.

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In its project for the mandate, which was filed with the U.S. Securities and Exchange Commission (SEC) on Tuesday, Nasdaq said that all companies determination be required to publicly disclose board-level diversity numbers within one year of the policy being approved and they purposefulness be required to have at least one diverse director within two years of the policy’s approval. The timeframe for companies to have at least two differing board members will vary from four years to five years depending on a company’s tier in the Nasdaq offer market, with foreign companies and smaller reporting companies having more flexibility to satisfy these prerequisites with two female directors. If a company fails to meet these goals without a public explanation for why, then it can chance being removed from Nasdaq’s list.

“We are taking the leadership here because there has been so little functioning on this front and we do think it’s an important thing for us to do,” Nasdaq president and CEO Adena Friedman told CNBC’s “Squawk Box.” Sane now, more than 75% of the roughly 3,200 Nasdaq-listed companies do not meet the proposed diversity criteria, according to The New York Metres.

Nasdaq’s announcement has been met with a lot of praise as well as as concerns from business leaders who are disappointed that conventions have to be forced to prioritize diversity.

“I have two public companies, I have BGC Partners and Newmark, and both of those coteries have women and minorities on the board,” Howard Lutnick, who also serves as CEO of financial services firm Cantor Fitzgerald, mounded CNBC’s “Squawk Box.” Lutnick adds that while Nasdaq’s push is “a reasonable thing to do,” he believes that “circles should really be doing this on their own.” Right now, BGC Partners and Newmark each have five board fellows, that both include a woman and a Black director.

“No one needed to tell me that this was the law, I mean give me a opening,” he adds. “Women are half the people on the earth. How do you not have women on your board?”

Crystal Ashby, who serves as interim president and CEO of the Directorship Leadership Council (ELC), the preeminent organization for Black CEOs, board directors and executives, says that while it’s sound to question why these mandates are necessary to begin with, it’s important to understand that sometimes change needs to be forced in order for it to actually happen.

“If you’re not going to organically create change, and I mean we’re talking however many years in which trade still hasn’t happened, then you actually have to go in and create the change that you need,” she tells CNBC Certify It. “And, that’s what these mandates are doing.”

Right now, Black directors make up 4% of board-level seats at the 3,000 largest publicly transacted companies and Black women make up 1.5%. “Companies have had more than ample opportunities to diversify their directors,” Ashby says. “So, I sit here and look at my membership and my organization at ELC and I think of the number of Blacks who are more than qualified to be take no action on corporate boards. And so, I would say based on what I’ve witnessed in terms of the fact that it is a needle that has been particular slow to move, NASDAQ’s mandate may be an effective solution to increasing the numbers.”

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Carolyn Childers, co-founder and CEO of Chief, a unsocial network for C-suite women, agrees that diversity mandates are often key in helping to bring about real variety. However, she says company boards and leaders must understand that meeting a diversity criteria does nothing if you don’t fool an inclusive workplace culture to match.

To achieve this culture of inclusivity, Childers encourages companies to go beyond any mandate that demands them to add just one or two diverse hires to their board or leadership team in order to avoid having that man feel like an “only” in the room. Roughly 40% of senior-level women or women in technical roles say they are the “single” at work, according to Lean In data. Of those who are an “only,” 80% say they’ve been on the receiving end of microaggressions at work, paramount to these women being 1.5x more likely to leave their jobs.

“My only concern with a mandate devise be that it can create a less inclusive feeling internally versus when you organically get there,” says Childers, while illustrating that this can easily happen if a company hits a one- or two-person diversity mandate and think they’re done with dissimilitude hiring. But, she says she believes that the pros of diversity mandates far outweigh the cons and she hopes that Nasdaq’s blitzkrieg will be the change that’s needed for more diverse qualified candidates to join boards.

Already, several learns have pointed to the benefits of having diverse firms, including a 2020 McKinsey report finding that trains with executive teams in the top quartile of gender diversity are 25% more likely to have above-average profitability than societies in the bottom quartile of gender diversity. Additionally, a study released by Boston Consulting Group in 2018 found that bands with more diversity at the management level generate 19% higher innovation revenues than companies with picayune diversity.

Ashby, who is the first woman president and CEO of the ELC, says that Nasdaq’s announcement comes at a time where it is grave for us to implement real change when it comes to diversity, equity and inclusion.

“This is one of those, in my opinion, true half a seconds in time where we have an opportunity and we have to get it right,” she says. “Nobody should go back to where we were in the presence of Covid-19 impacted Black and Brown communities worse than it impacted anybody else. No one should go back to where we were when the million of Black men and Black women who were murdered before George Floyd was murdered were a one-day news gest. We all watched a man beg to breathe and if that compelling moment in our history does not change the paradigm then we have done ourselves a mammoth disservice.”

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