U.S. appeals court tosses Nasdaq diversity rules for company boards
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The Nasdaq building in New York City's Times Square. Photo: Eduardo MunozAlvarez/VIEWpress
A federal appeals court on Wednesday struck down the Nasdaq's diversity disclosure rules for companies listed on the stock exchange, which were designed to boost the representation of women and minority directors on boards.
The big picture: The conservative-majority New Orleans-based 5th U.S. Circuit Court of Appeals ruled the Securities and Exchange Commission did not have the power to approve the rule that required companies to ensure women and minority directors were on their boards or provide an explanation of why this was not the case.
- It was implemented after George Floyd's killing pushed companies to address racial inequality and move toward diversity, equity and inclusion.
- An SEC spokesperson said in an emailed statement Wednesday evening that the agency was "reviewing the decision and will determine next steps as appropriate."
Thought bubble, via Axios' Emily Peck and Felix Salmon: These diversity rules have been hotly contested and this decision by the Fifth Circuit Court of Appeals was expected, as it has a reputation for politicized and idiosyncratic jurisprudence.
- A similar board diversity law in California was struck down in 2022 as unconstitutional. The rules touch on one of the most reviled parts of DEI: quotas.
State of play: Conservative groups the National Center for Public Policy Research and Alliance for Fair Board Recruitment challenged an earlier court ruling in favor of the move.
- Alliance for Fair Board Recruitment is founded by Edward Blum, who previously led a legal fight that resulted in the Supreme Court last year striking down affirmative action in higher education.
What they're saying: "We maintain that the rule simplified and standardized disclosure requirements to the benefit of both corporates and investors," a Nasdaq spokesperson said in an emailed statement on Wednesday evening.
- "That said, we respect the Court's decision and do not intend to seek further review."
Go deeper: Regulation is slowing deal environment, Nasdaq CEO says
Editor's note: This article has been updated with more details from the case and further context.
