US appeals court throws out Nasdaq board diversity rules

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A United States appeals court on Wednesday decided that Nasdaq could not establish rules aimed at boosting diversity in corporate America by mandating that companies listed on the exchange include women and minority directors on their boards or justify why they do not.

The New Orleans-based 5th U.S. Circuit Court of Appeals voted 9-8 in favor of two conservative advocacy groups, stating that the regulation approved by the U.S. Securities and Exchange Commission violated federal securities laws.

This diversity regulation faced opposition from the National Center for Public Policy Research, a conservative think tank, and Alliance for Fair Board Recruitment, a group founded by Edward Blum, who previously led a successful U.S. Supreme Court challenge against race-conscious admissions at colleges. The SEC, Nasdaq, and the parties involved did not quickly reply to requests for comments.

The main concern was a Nasdaq rule stating that companies must have at least one woman, racial minority, or LGBTQ individual on their boards or explain why they do not. Companies are also required to report each year how board members identify in those categories.

In October 2023, a three-judge panel of the 5th Circuit, made up entirely of appointees from Democratic presidents, upheld the SEC's 2021 decision to endorse Nasdaq’s rules, asserting that the regulator acted within its rights.

However, the conservative-majority court decided to have all its judges review the case. All nine judges in the majority were appointed by Republican presidents, including the one who authored the ruling, U.S. Circuit Judge Andrew Oldham, who was appointed by President-elect Donald Trump during his first term. Oldham stated that the SEC mistakenly assumed that since Nasdaq’s proposal would require information from exchange-listed companies to be disclosed, it aligned with the objectives of the Securities Exchange Act of 1934, which oversees stock trading.

"The history shows that the Act mainly focuses on limiting speculation, manipulation, and fraud, and on removing obstacles to competition on exchanges," he noted. "There are other, secondary purposes, but disclosing any and all information is not one of them."

He mentioned that the approval of the rules had "huge" political implications and raised the so-called "major questions" doctrine, a legal concept favored by conservatives that gives judges broad power to invalidate actions by the executive branch unless Congress has clearly authorized them.

Eight judges disagreed, including U.S. Circuit Judge Stephen Higginson, an appointee of Democratic former President Barack Obama, who asserted that the SEC's role in evaluating Nasdaq's proposed rules was limited under the law.

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.