Nasdaq Rule on Board Diversity Vacated by Fifth Circuit Court
The U.S. Court of Appeals for the Fifth Circuit recently made a decision that has big implications for Nasdaq-listed companies and their board diversity. They vacated the U.S. Securities and Exchange Commission’s order that approved Nasdaq’s board diversity listing rule. This means that companies on Nasdaq don’t have to follow the rule anymore, which required them to disclose diversity statistics about their boards of directors and have at least two diverse directors—one female and one from an underrepresented minority or LGBTQ+ group.
Why did this happen? Well, a bunch of conservative groups, like the Alliance for Fair Board Recruitment and the National Center for Public Policy Research, challenged the rule, saying it broke federal securities laws. And the court agreed, saying the SEC didn’t have a good enough reason to approve the rule in the first place. They said the rule didn’t really match up with the goals of the Securities Exchange Act of 1934. In simple terms, the court thought that requiring companies to share personal details about their directors’ characteristics wasn’t really related to the main purposes of the law.
The court also talked about something called the major questions doctrine, which says that agencies like the SEC should be careful about making rules on big topics when Congress hasn’t given them clear permission to do so. In this case, the court said the SEC overstepped its bounds by making the diversity rule.
But don’t worry—this decision doesn’t stop companies from sharing info about their board diversity if they want to. Many companies have started to do this on their own, even without the rule. So, while Nasdaq and NYSE-listed companies are back to square one with diversity rules, the influence of the court’s decision on diversity disclosures is still up in the air.
This article is just for general information and isn’t a replacement for legal advice. It’s also important to remember that in some places, this info might be considered advertising for lawyers.
