Industry reports or surveys on corporate governance practices

5th Circuit Overturns Nasdaq's Board Diversity Rule, Citing SEC Overreach

Dec 12, 2024, 03:23 PM

The U.S. Court of Appeals for the 5th Circuit has struck down a Nasdaq rule aimed at promoting diversity on corporate boards, marking a significant setback for diversity, equity, and inclusion (DEI) efforts in corporate America. The rule, approved by the Securities and Exchange Commission (SEC) in 2021, required companies listed on Nasdaq to have at least one woman, person of color, or LGBTQ member on their boards or explain why they do not. The court found that the SEC lacked the authority to approve these regulations, deeming them inconsistent with federal securities laws. This decision, made by a 9-8 vote, reflects a broader conservative resistance to DEI initiatives perceived as imposing quotas. Nasdaq has indicated it will not seek further review, while the SEC is evaluating its response. The ruling has implications for how diversity policies are implemented in the corporate sector, emphasizing voluntary market-driven approaches over regulatory mandates. Conservative groups like the National Center for Public Policy Research and the Alliance for Fair Board Recruitment, led by Edward Blum, challenged the rule, arguing it violated civil rights laws and encouraged discrimination.