Nasdaq's DEI rules for company boards struck down by US appeals court

A U.S. appeals court has struck down Nasdaq's proposal to mandate diversity on the boards of companies listed on its exchange

This has thereby halted efforts to increase the representation of women, racial minorities, and LGBTQ individuals in corporate governance

The Fifth U.S. Circuit Court of Appeals in New Orleans ruled that the SEC should not have approved Nasdaq's policy, which was set to be the first of its kind for a U.S. securities exchange

NEW ORLEANS, Louisiana: A U.S. appeals court has struck down Nasdaq's proposal to mandate diversity on the boards of companies listed on its exchange, thereby halting efforts to increase the representation of women, racial minorities, and LGBTQ individuals in corporate governance.

The Fifth U.S. Circuit Court of Appeals in New Orleans ruled that the Securities and Exchange Commission (SEC) should not have approved Nasdaq's policy, which was set to be the first of its kind for a U.S. securities exchange.

The policy, approved by the SEC over three years ago, required nearly 3,000 companies listed on the Nasdaq to have at least one woman on their board of directors and one individual from a racial minority or who identifies as LGBTQ. It also called for companies to disclose board demographic data.

In its decision, the court stated that Nasdaq's requirements were not legally enforceable.

"It is not unethical for a company to decline to disclose information about the racial, gender, and LGBTQ+ characteristics of its directors," the ruling said. "We are not aware of any established rule or custom of the securities trade that saddles companies with an obligation to explain why their boards do not meet Nasdaq's preferred diversity criteria."

Nasdaq expressed disappointment with the ruling but indicated it would not pursue further legal action.

"We maintain that the rule simplified and standardized disclosure requirements to the benefit of both corporates and investors," Nasdaq said in a statement.

"That said, we respect the Court's decision and do not intend to seek further review."

The SEC, which initially approved the policy, said it was reviewing the ruling and would determine its next steps accordingly.

The decision comes as companies across the U.S. reassess their diversity, equity, and inclusion (DEI) initiatives amid growing political and legal challenges. In recent months, several major corporations have scaled back DEI programs following the U.S. Supreme Court's decision to strike down affirmative action in college admissions and increased scrutiny from conservative groups.

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