We're All Free to Choose on Our Own

Dan Ferris
Stansberry Research

Complaints of systemic racism and other forms of discrimination abound today — as do myriad 'solutions'.

Apparently, the folks who run the Nasdaq stock exchange believe the solution is more racial and gender discrimination… embedded by law, no less. Here's what I mean…

On Tuesday, Nasdaq filed a proposal with the U.S. Securities and Exchange Commission ("SEC") to establish new rules for board diversity and disclosure. (You can read the full proposal right here.) The new rules would require that all Nasdaq-listed companies…

• Disclose statistics on the diversity of their boards of directors (races and genders).
• Have at least two "diverse" directors, or explain why they don't.

Nasdaq officials spend most of the 271-page document touting the virtues of the plan. Of course, as always, they get bogged down in the linguist quagmire in the first sentence…

Over the past year, the social justice movement has brought heightened attention to the commitment of public companies to diversity and inclusion.

Social justice, diversity, and inclusion are all undefinably vague, but popular buzzwords of our time. They're used to justify the government (and other powerful entities) imposing their will on individuals who aren't infringing on anyone's person or property.

Let me say it again loud and clear… It is wrong in all times and places for governments and powerful organizations like Nasdaq to force anyone to do business with anyone else. Using coercion and fraud for any purpose are wrong in all times and places. Period.

Before I go any further, I need you to understand…

I'm not saying racism doesn't exist or isn't harmful. I'm a libertarian to the bone… That means I believe all people should have the liberty to live however they want and to achieve whatever they can based only on their hard work and ingenuity. Race shouldn't define your opportunities… But neither should the government rigging the scales.

Here's the big problem with forcing companies to do something like the Nasdaq proposes…

If you believe the current system favors white men in particular, and you flip it to force companies to favor women and other races… you haven't made a single step forward.

And if anything, you've actually stepped backward. Like civil-rights icon and Christian minister Martin Luther King Jr. wrote in his book, Strength to Love, nearly 60 years ago…

Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.

In less poetic language, two wrongs don't make a right.

I can barely believe I need to say things like this out loud, as if they're not blatantly obvious. Who could fail to see that forcing someone to hire based on race or gender is a direct violation of basic human rights?

Now, I'm certainly not a lawyer, but I think the Nasdaq folks might also have given companies a loophole…

You see, if we read the proposal carefully, we can see that the writers might've hedged a little bit with their language. It would require Nasdaq-listed companies to have…

At least one director who self-identifies as a female, and… at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or… explain why the company does not have at least two directors on its board who self-identify in the categories listed.

The loophole might be in the term "self-identifies."

If you don't know what "self-identifies" means, it's simple… It's when someone assigns a particular category to oneself or describes oneself as belonging to a particular group. You can give yourself any old identity that you want. For example, it's when a man says he's really a woman and demands you call him "her," not "him."

Remember when Massachusetts Senator Elizabeth Warren self-identified as a Native American? She wound up looking silly.

Self-identifying is mostly modern stupidity, but I honestly don't have a problem with it. If calling yourself "he" or "she" or "they" makes you happy, then make yourself happy. But what makes me testy is when the government wades in and starts limiting my opportunities based on all that stuff.

And think about this Catch-22…

Our HR department here at Stansberry Research has a list of literally dozens of personal questions that we can't ask prospective employees… Topics like family life, dating, and sexuality are all no-nos. But…

How do I ensure diversity on my board if I can't ask people about their family life or whom they like to date?

Look, I think those things are none of my business… But if you're going to hold me accountable, then you're forcing me to make it my business.

I know a lot of my rant is over the top today, but there's a direct investment tie-in to today's Digest…

No rational shareholder should care if a company appoints directors who are men or women, gay or straight people, or folks of any race or creed. Instead, we should just care whether they're running a great business and creating value.

Public companies are businesses. They're not tools to push political agendas.

When you invest in these businesses, you're buying a stream of cash flows, a business model, a management team and other employees, or some other reason for putting your hard-earned money into them… You're not buying some woke political agenda.

I know that sounds naïve… But it's also 100% right, so I'll keep saying it.

Beside the obvious discrimination in the proposal, there's another problem with involving the SEC technocrats…

The regulatory state is little more than a bunch of unelected people making up laws any time they feel like it, without any legislative process.

If you think I don't know what I'm talking about, that's fine… But what about Supreme Court Justice Samuel Alito? He commented on this issue in a recent speech, calling it a disturbing trend…

The COVID crisis has served as a sort of constitutional stress test and in doing so, it has highlighted disturbing trends that were already present before the virus struck.

One of these is the dominance of lawmaking by executive fiat, rather than legislation. The vision of early 20th century progressives and the New Dealers of the 1930s was that policymaking would shift from narrow-minded, elected legislators to an elite group of appointed experts. In a word, that policymaking would become more scientific.

That dream has been realized to a large extent. Every year administrative agencies, acting under broad delegations of authority, churn out huge volumes of regulations that dwarfed the statutes enacted by the people's elected representatives.

And what have we seen in the pandemic? Sweeping restrictions imposed, for the most part, under statutes that confer enormous executive discretion.

The SEC is a group of technocrats — and they're all worthless…

It had Bernie Madoff — one of the biggest fraudsters in history — delivered to it on a silver platter several times over a period of several years… but it never went after him.

Its lack of action cost billions of dollars for investors… Madoff took $20 billion from investors and deceived them into believing he had made much more than that in investment returns. Yet less than $15 billion has been recovered and returned to investors.

Meanwhile, the SEC routinely harasses short-sellers like David Einhorn and Bill Ackman for finding and betting against fraudulent companies. All for political correctness though, right?

This is truly insane and will reap disastrous consequences…

In capitalism, you don't rise by exerting power through identity politics. You rise by showing competence and excellence in the workplace… Merit should be the only yardstick for appointing directors, the same as it should be for hiring anyone, in any job, anywhere.

In the same way a lack of price discovery has made financial markets less valuable to investors, violently shoving woke politics on all of us will make it harder to know who is getting ahead by merit and who is just a slick political operator. How will we know who's most deserving?

Maybe it's not a big deal right now. But the future always arrives faster than you think… And what's wrong is wrong.

I won't pretend this is all the government's fault, though… After all, Nasdaq is a private enterprise, not a government one. But it's pushing the woke agenda, nonetheless.

And apparently so is Vanguard, the massive investment management firm known for pioneering index funds. The Nasdaq proposal references a Vanguard report that says…

We want companies that disclose the diversity makeup of their boards on dimensions such as gender, age, race, ethnicity, and national origin, at least on an aggregate basis.

This is nothing less than a call to set the civil rights clock back to the 1950s and embed the scourge of racial and gender discrimination into corporate America.

We should all oppose ideas like the Nasdaq proposal… We should shout loud and long until these people stop treating us like lab rats in a social engineering experiment.

I know not everyone who reads this Digest will agree with what I'm saying. I'm sure the feedback inbox will be flooded with responses over the weekend.

But that doesn't make what I said at the outset today any less true…

The government's monopoly on force should be used sparingly and judiciously… And it should only be used for carefully considered, very good reasons — not wantonly and carelessly to push bad ideas on unsuspecting shareholders.

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