A federal appeals court has vacated the Nasdaq stock market’s rule requiring Nasdaq-listed companies to disclose diversity data for their boards of directors.
In 2021, the Securities and Exchange Commission approved Nasdaq’s proposal to require most Nasdaq-listed companies to have at least one female and one minority/LGBTQ board member or explain their lack of diversity. The rule also required covered companies to disclose the number of their directors by demographic categories, including four gender categories and seven race/ethnicity categories.
In Alliance for Fair Board Recruitment v. SEC, the full U.S. Court of Appeals for the Fifth Circuit held December 11 that the SEC had exceeded its authority by approving the rule. “No part of the [1934 Securities] Exchange Act even hints at SEC’s purported power to remake corporate boards using diversity factors,” the court stated. Eight of the 17 judges dissented.
The SEC has not yet indicated whether it will seek Supreme Court review of the decision. For now, Nasdaq-traded companies need not comply with the disclosure requirement.
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