In a recent ruling, the U.S. appeals court upheld Nasdaq’s board diversity rule, requiring companies listed on the exchange to have women and minority directors on their boards or provide an explanation if they don’t comply, as reported by Reuters on October 18. The court rejected lawsuits filed by conservative groups, including the National Center for Public Policy Research and the Alliance for Fair Board Recruitment, which sought to block the rule. The court stated that the Securities and Exchange Commission (SEC) acted within its authority in approving the rule and considered investors’ opinions, emphasizing the importance of board diversity information for investment decisions. Nasdaq welcomed the decision, viewing it as a way to enhance board diversity disclosures through a market-driven approach, while the conservative groups expressed disappointment and announced plans to appeal.

The rule, approved by the SEC in 2021, mandates companies to appoint one director identifying as female, a member of an underrepresented racial or ethnic minority, or LGBTQ+ by the end of the year, with a requirement for two diverse directors by 2026. The court clarified that Nasdaq, as a private entity, is not bound by governmental restrictions, asserting that the rule is a disclosure requirement rather than a quota system. This ruling marks a significant development in corporate governance and diversity efforts, with the court emphasizing the importance of standardized information on board diversity for investors while addressing constitutional concerns raised by the conservative groups.

Sources:

https://www.reuters.com/sustainability/boards-policy-regulation/us-court-upholds-nasdaq-board-diversity-rule-2023-10-18/