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Republican AGs back lawsuit challenging Nasdaq diversity rules



A group of 19 Republican state attorneys general filed an amicus brief Tuesday in a lawsuit challenging the Nasdaq Stock Market’s board diversity disclosure requirements, arguing that the full circuit should rehear the case following a three-judge panel’s dismissal of the suit in October.

The attorneys general said the 5th U.S. Circuit Court of Appeals’ October decision constituted a “flawed endorsement” of the Securities and Exchange Commission’s move to allow Nasdaq to implement the disclosure requirements.

Nasdaq first proposed new listing rules that required companies to publicly disclose diversity statistics regarding their boards of directors in 2020. Specifically, the exchange wrote in its pitch to SEC that Nasdaq-listed companies would be required to have at least one director who self-identifies as female, as well as at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaskan Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities or as LGBTQ+.

Under the proposal, companies that did not meet this requirement would need to explain why they did not have at least two directors on their boards who self-identified in these categories. In a press release accompanying the proposal, Nasdaq said its goal was to “provide stakeholders with a better understanding of the company’s current board composition and enhance investor confidence that all listed companies are considering diversity” when selecting directors.

After the SEC approved Nasdaq’s proposal, two organizations, the Alliance for Fair Board Recruitment, an advocacy group, and the National Center for Public Policy Research, a conservative think tank, sued SEC in 2021. The plaintiffs asked the 5th Circuit to vacate the SEC order as well as the Nasdaq rule.

In October, the court denied these petitions, finding that the SEC’s approval order complied with the Exchange Act as well as the Administrative Procedure Act. The plaintiffs filed for a rehearing en banc on Nov. 27.

The amicus brief submitted by the attorneys general cited the recent U.S. Supreme Court collegiate admissions ruling, which struck down race-conscious admission programs at Harvard University and the University of North Carolina at Chapel Hill. The SEC, per the brief, “is practicing what it is constitutionally bound to be eliminating,” namely “race-based requirements for listed corporations” and “overt sex-based mandates.”

The case is just one of several legal actions targeting diversity, equity and inclusion efforts following the SCOTUS ruling. While the high court’s decision did not directly concern employer programs, attorneys have cautioned that it could increase complaints about DEI initiatives and generate potential liability for employers.

Large U.S. organizations have not shied away from DEI in recent years, however. In July 2022, each member of the Fortune 100 had made a public DEI commitment, symbolizing the topic’s rise to prominence in the corporate world.

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