A Louisiana appeals court on Wednesday rejected Nasdaq's proposed rules aimed at increasing diversity on corporate boards.
5th U.S. Circuit Court of Appeals in New Orleans dominated Nasdaq says it cannot implement a proposed diversity policy that would require companies listed on the stock exchange to explain why they lack minority and female directors on their boards. In its ruling, the appeals court said the Securities and Exchange Commission (SEC) did not have the authority to approve the proposed rules.
“Nasdaq requires companies listed on its exchanges to disclose information about the race, gender, and sexual characteristics of their directors and to have at least two directors who meet Nasdaq's definition (or explain why they do not have one). “various,'' the ruling states. “The SEC has approved those rules. However, we do not believe that the diversity rules are consistent with the Securities Exchange Act of 1934.”
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“It is clearly unethical to violate the law or ignore contractual promises,” the ruling said. “It is not unethical for companies to refuse to disclose information about the racial, gender, and LGTBQ+ characteristics of their directors. Why Nasdaq doesn’t have as much racial, gender, and sexual orientation diversity on its board as it would like We are not aware of any established rules or conventions in securities trading that impose an obligation on companies to explain.
“Furthermore, the SEC's efforts 'raise eyebrows' by departing from the normal regulatory realm of market manipulation and proxy voting and invading the realm of other agencies,” the ruling states.
Some companies have quietly rolled back their diversity, equity, and inclusion (DEI) practices this year under intense legal pressure from conservatives and shareholders. Major companies that have recently rolled back DEI-related policies include Walmart, the world's largest retailer, scaling back its DEI policies and Boeing eliminating its entire DEI department in October. (Related: Supreme Court abandons chance to correct Hawaii ruling, ruling 'spirit of aloha' violates Second Amendment)
President-elect Donald Trump has promised to root out “woke” ideology within the U.S. government once he returns to office. On December 4, President Trump announced that he would nominate former SEC Commissioner Paul Atkins to be the next SEC Chairman.
Current SEC Chairman Gary Gensler announced in November that he would step down when Trump returns to the Oval Office in January 2025. The SEC proposed rules in March 2022 that would require companies to publish climate-related information, a move criticized by some Republicans. In March, regulators adopted rules aimed at strengthening and standardizing “climate-related disclosures in public companies and public offerings.” According to Go to press release.
“We are reviewing the decision and will determine next steps as appropriate,” an SEC spokesperson said in a statement shared with the Daily Caller News Foundation.
Nasdaq did not immediately respond to a request for comment from DCNF.
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