Nasdaq Board Diversity Rules Vacated: Fifth Circuit Ruling

On December 11, 2024, the United States Court of Appeals for the Fifth Circuit made a decision about the Nasdaq Stock Market’s board diversity rules. In a 9-8 vote, the court said that the SEC had gone too far in approving these rules and that the rules needed to be vacated. These rules required companies listed on Nasdaq to share information about the diversity of their board members, including gender, race, ethnicity, and LGBTQ+ status.

Back in August 2021, the SEC had approved Nasdaq’s proposal to change its listing standards. The SEC thought these rules would provide more helpful information to investors and voters. However, after this approval, the Alliance for Fair Board Recruitment and the National Center for Public Policy Research challenged the rules in court. They said the SEC didn’t have the power to make these rules.

In October 2023, a smaller group of judges on the Fifth Circuit had supported the SEC’s decision. But on December 11, 2024, the full Fifth Circuit decided against the rules. They said that the SEC had overstepped its authority with these rules, and that investors didn’t really need this diversity information. However, they did note that companies could still choose to share diversity information if they wanted to.

Eight judges disagreed with this decision. They believed that the SEC had the right to make these rules and that Nasdaq would have had a good argument if the SEC had rejected them. This decision is part of a bigger trend of challenges to diversity, equity, and inclusion policies in the business world.

Nasdaq has said they won’t appeal this ruling. The SEC is looking at the decision and will decide on their next steps. Even though Nasdaq-listed companies don’t have to follow these rules anymore, many may still choose to share diversity information. Companies might do this to meet investor expectations or follow the advice of shareholder voting groups.

Overall, the way companies share board diversity information might change now that these rules are gone. Companies have more freedom to decide how they want to present this information and what categories they want to include. So, even though the rules are gone, diversity disclosure is still likely to be a common practice among public companies.