Court rulings and legal analysis

5th Circuit Court Strikes Down Nasdaq's Board Diversity Rule, Citing SEC's Lack of Authority

Dec 12, 2024, 03:20 PM

In a significant legal setback for diversity, equity, and inclusion (DEI) initiatives in corporate America, the U.S. Court of Appeals for the 5th Circuit has struck down a Nasdaq rule aimed at promoting diversity on corporate boards. The rule, which was approved by the Securities and Exchange Commission (SEC) in 2021, required companies listed on Nasdaq to have at least one woman and one minority or LGBTQ+ director on their boards or explain their non-compliance. The court, in a 9-8 decision, ruled that the SEC lacked the legal authority to approve such regulations, stating that the rules were 'far removed' from the 1934 Securities Exchange Act's mandate to promote 'just and equitable principles of trade.' This decision marks the second major judicial blow to DEI efforts in the private sector within a week, following Judge Reid O’Connor’s decision against DEI initiatives at the Department of Justice. Nasdaq has expressed disagreement with the court's ruling but does not plan to appeal.