The 5th U.S. Circuit Court of Appeals is set to reconsider a challenge to Nasdaq’s rule aimed at boosting boardroom diversity. This decision, announced in a recent court filing dated February 19, overturns a previous ruling that had endorsed the rule’s disclosure requirements. The court has marked the week of May 13 for a full-court review, known as an en banc hearing, where all judges will participate.
Originally submitted by Nasdaq to the U.S. Securities and Exchange Commission (SEC) in 2020 and approved in 2021, the rule mandates that companies listed on Nasdaq reveal the diversity makeup of their boards. Specifically, it calls for these companies to include at least one director who identifies as female and another who identifies as belonging to one of several racial or ethnic minorities or as LGBTQ+. If companies fall short of these standards, they need to provide an explanation.
However, the rule quickly faced legal opposition. The National Center for Public Policy Research, a conservative group, along with the Alliance for Fair Board Recruitment, contested the SEC’s approval in the 5th Circuit, seeking to have the SEC’s decision overturned. Their initial request was denied last year, but the call for a rehearing was strengthened by an amicus brief from 19 Republican state attorneys general. This push gained traction in the wake of a 2023 Supreme Court decision that invalidated race-conscious admissions policies in higher education, arguing that the SEC’s rule imposes unconstitutional race and sex-based quotas.
The New Civil Liberties Alliance, representing the challengers, has expressed eagerness for the upcoming full-court review, criticizing the original panel’s decision as a misinterpretation of the Exchange Act’s intentions. They argue that the Act does not support the use of quotas or compelled speech based on race, gender, or sexual orientation as a means to ensure fair and open markets.
Nasdaq, on its part, has chosen not to comment on the ongoing legal proceedings. This case represents a significant moment in the broader debate over diversity policies and their implementation within the corporate and regulatory environments.
