The Nasdaq Stock Market has moved to rescind its rule requiring companies to have a certain number of female and minority board directors, responding to a court defeat in the latest blow to corporate diversity, equity and inclusion initiatives.
Arnold Golub, Nasdaq general counsel, filed a proposed rule change to remove the stock exchange’s 2021 diversity and disclosure mandate after the 5th U.S. Circuit Court of Appeals found that the “diversity rules cannot be squared with the Securities Exchange Act of 1934.”
In the Jan. 16 filing, Nasdaq asked the SEC to “waive the operative delay to allow the proposed rule change to become effective on February 4, 2025” following publication in the Federal Register.
Those cheering Nasdaq’s decision to pull the diversity mandate included Will Hild, executive director of Consumers’ Research, who said he was pleased to see the exchange “abandon its anti-White, anti-Asian, and anti-male discrimination scheme.”
“For years, Nasdaq has been wielding its influence by forcing companies listed on the exchange to disclose board diversity data and meet diversity objectives,” Mr. Hild said. “After these practices were found illegal in court, Nasdaq is ending this woke, racist practice.”
The appeals court’s Dec. 11 ruling invalidated Nasdaq’s “Diverse Board Representation” policy, which requires listed companies with more than five board members to include at least two “diverse” members, one of whom “self-identifies as Female,” or publicly disclose why they do not.
The other “diverse” member must self-identify as one of the following: “Female, LGBTQ+, or an underrepresented individual.”
By “underrepresented individual,” Nasdaq means someone who is “Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities,” according to the rule.
Who qualifies as LGBTQ+? Any individual who self-identifies as “lesbian, gay, bisexual, transgender, or as a member of the queer community.”
Companies listed on the Nasdaq stock exchange with five or fewer board members are required to have at least one “diverse” board member.
Nasdaq also required companies to disclose “each director’s voluntary self-identified characteristics,” suggesting a matrix that lists directors by race and gender using the categories “Male,” “Female,” “Nonbinary” and “Did Not Disclose Gender.”
The rule was approved by the SEC in 2021, but promptly challenged by the Alliance for Fair Board Recruitment and National Center for Public Policy Research.
A three-judge panel of the 5th Circuit sided with the SEC in 2023, but the full court vacated the decision on a 9-8 vote, calling the board diversity proposal “far removed” from the law’s principles of just and equitable trade.
“It is obviously unethical to violate the law or to disregard a contractual promise,” the decision read. “It is not unethical for a company to decline to disclose information about the racial, gender, and LGBTQ+ characteristics of its directors.”
The court said it was “unaware of any established rule or custom of the securities trace that saddles companies with an obligation to explain why their boards of directors do not have as much radical, gender, or sexual orientation diversity as Nasdaq would prefer.”
Peggy Little, senior litigator for New Civil Liberties Alliance, who argued the case before the appeals court on behalf of the NCPPR, said the ruling means that companies “can just continue to hire who they think is best qualified to sit on their boards of directors.”
“They can still advertise the diversity of their board. Nothing stops them from doing that. They’re just not mandated to meet these quotas anymore,” NCLA litigation counsel Sheng Li said in a Jan. 12 video explaining the decision. “Different companies can have different strategies, and we have a free market for that.”
The decision to withdraw the board diversity rule comes with DEI initiatives being scaled back at numerous U.S. corporations, including McDonald’s, Walmart, John Deere, Ford, Lowe’s and Tractor Supply.
“Nasdaq’s move is a big step forward in the elimination of DEI and race quotas, but more work needs to be done to ensure DEI and other woke practices are removed by all companies,” Mr. Hild said.
• Valerie Richardson can be reached at vrichardson@washingtontimes.com.