Court Strikes Down Nasdaq’s Diversity Rule

A US appeals court has struck down Nasdaq’s diversity disclosure rules for companies listed on the stock exhange.

The rules required companies to appoint women, racial minorities, or LGBTQ+ individuals to their boards or explain why they could not.

The 5th Circuit Court ruled 9-8 that the proposal was not legal and that the Securities and Exchange Commission (SEC) had overstepped by approving Nasdaq’s rule.

Court Rejects SEC’s Role in Diversity Mandate

Nasdaq introduced a rule requiring companies to share board diversity data and include at least one director from underrepresented groups, such as women, racial minorities, or LGBTQ+ individuals.

If companies couldn’t meet the requirement, they had to explain why.

However, US Circuit Judge Andrew Oldham argued the rule went beyond what the Securities Exchange Act of 1934 allows.

While transparency is important for markets, he said, the rule wasn’t tied to addressing fraud or market manipulation—the act’s primary focus.

Nasdaq expressed disappointment but announced it would not challenge the court’s decision.

“We respect the Court’s decision and do not intend to seek further review,” a spokesperson told Bloomberg.

Implications for Corporate Diversity

The ruling reflects a growing rollback of diversity initiatives. 

Supporters of the rule, including major corporations like Airbnb and Microsoft, argued it promoted transparency and empowered investors with consistent data. 

Meanwhile, detractors, including conservative groups like the Alliance for Fair Board Recruitment, described it as discriminatory.

Legal experts warn that the decision could extend beyond diversity rules, affecting other SEC initiatives such as climate-related disclosures.