•  
  •  
 

Abstract

In 2020, the Nasdaq Stock Market filed a proposal with the U.S. Securities and Exchange Commission seeking permission to adopt a board diversity-related disclosure requirement for its listed companies. In 2021, the SEC approved the proposal, thus entrenching Nasdaq’s position as the most significant stock exchange to date to mandate listing rules that reflect the intention of diversifying corporate boardrooms. Nasdaq’s movement into the diversity space is not the first attempt to address homogeneous boards in the U.S. In 2009, the SEC adopted a rule requiring publicly traded firms to report on whether they consider diversity in identifying director nominees. More recently, the state of California introduced mandated quotas. Between these two approaches—the light touch of the SEC’s “pure disclosure” approach and the heavy hand of California’s quota approach—Nasdaq’s new listing rule reflects a principles-based philosophy that is operationalized through a “comply-or-explain” formulation. It requires listed companies to state whether they adhere to a particular standard of behavior (“comply”) and, if not, they must provide reasons for their lack of compliance (“explain”).

Despite its increasing popularity, little is known about how comply-or-explain regimes work in practice. This Article attempts to fill that gap and to inform real-time policy conversations by providing lessons from the initial years of another jurisdiction’s experiment with this very approach. Comply-or-explain disclosure requirements with respect to gender diversity on corporate boards have existed in Canada since 2014. We discuss the initial findings from our on-going project to analyze the effects of Canada’s regulation. Our qualitative content analysis of the texts of Canadian corporate disclosures involves a four-year period and entails over 3,000 firm-year observations.

At a time when international regulators and private actors are contemplating, developing, and refining economic governance tools with the intention of diversifying corporate governance systems, comply-or-explain holds great promise. But if it is to realize its full potential, certain implementation-based issues should be considered. We show that comply-or-explain’s effectiveness can be compromised when firms avoid measures that would result in enhanced organizational learning by presenting weak explanations for non-compliance. Without appropriate engagement by oversight bodies, comply-or-explain runs the risk of giving firms too much discretion to define what it means to comply and compliance, while following the letter of the law, may simply be performative.

Download

Included in

Accounting Law Commons, Administrative Law Commons, Admiralty Commons, Agency Commons, Agriculture Law Commons, Air and Space Law Commons, Animal Law Commons, Antitrust and Trade Regulation Commons, Banking and Finance Law Commons, Bankruptcy Law Commons, Business Organizations Law Commons, Civil Law Commons, Civil Procedure Commons, Civil Rights and Discrimination Commons, Commercial Law Commons, Common Law Commons, Communications Law Commons, Comparative and Foreign Law Commons, Computer Law Commons, Conflict of Laws Commons, Constitutional Law Commons, Construction Law Commons, Consumer Protection Law Commons, Contracts Commons, Courts Commons, Criminal Law Commons, Criminal Procedure Commons, Cultural Heritage Law Commons, Disability Law Commons, Disaster Law Commons, Dispute Resolution and Arbitration Commons, Education Law Commons, Elder Law Commons, Election Law Commons, Energy and Utilities Law Commons, Entertainment, Arts, and Sports Law Commons, Environmental Law Commons, Estates and Trusts Commons, European Law Commons, Evidence Commons, Family Law Commons, First Amendment Commons, Food and Drug Law Commons, Fourteenth Amendment Commons, Fourth Amendment Commons, Gaming Law Commons, Government Contracts Commons, Health Law and Policy Commons, Housing Law Commons, Human Rights Law Commons, Immigration Law Commons, Indigenous, Indian, and Aboriginal Law Commons, Insurance Law Commons, Intellectual Property Law Commons, International Humanitarian Law Commons, International Law Commons, International Trade Law Commons, Internet Law Commons, Judges Commons, Jurisdiction Commons, Jurisprudence Commons, Juvenile Law Commons, Labor and Employment Law Commons, Land Use Law Commons, Law and Economics Commons, Law and Gender Commons, Law and Philosophy Commons, Law and Politics Commons, Law and Psychology Commons, Law and Race Commons, Law and Society Commons, Law Enforcement and Corrections Commons, Law of the Sea Commons, Legal Biography Commons, Legal Education Commons, Legal Ethics and Professional Responsibility Commons, Legal History Commons, Legal Profession Commons, Legal Remedies Commons, Legal Writing and Research Commons, Legislation Commons, Litigation Commons, Marketing Law Commons, Medical Jurisprudence Commons, Military, War, and Peace Commons, National Security Law Commons, Natural Law Commons, Natural Resources Law Commons, Nonprofit Organizations Law Commons, Oil, Gas, and Mineral Law Commons, Organizations Law Commons, Other Law Commons, President/Executive Department Commons, Privacy Law Commons, Property Law and Real Estate Commons, Public Law and Legal Theory Commons, Religion Law Commons, Retirement Security Law Commons, Rule of Law Commons, Science and Technology Law Commons, Second Amendment Commons, Secured Transactions Commons, Securities Law Commons, Sexuality and the Law Commons, Social Welfare Law Commons, State and Local Government Law Commons, Supreme Court of the United States Commons, Taxation-Federal Commons, Taxation-Federal Estate and Gift Commons, Taxation-State and Local Commons, Taxation-Transnational Commons, Tax Law Commons, Torts Commons, Transnational Law Commons, Transportation Law Commons, Water Law Commons, Workers' Compensation Law Commons

Share

COinS