A Louisiana appeals court has ruled that Nasdaq cannot require diversity on the boards of directors of companies listed on the stock exchange.
The decision comes more than three years after the Securities and Exchange Commission approved Nasdaqs proposal to increase the number of women, racial minorities and LGBTQ people on American corporate boards.
The proposed policy — which would be the first of its kind for a U.S. stock exchange — would require most of the nearly 3,000 Nasdaq-listed companies to have at least one woman on their board of directors, along with one person from a racial group. minority or who identifies as gay, lesbian, bisexual, transgender or queer. It would also have required companies to disclose statistics on the demographic composition of their boards of directors.
Some conservative groups and Republican lawmakers have strongly opposed the proposal, arguing the requirements were arbitrary and burdensome.
And on Wednesday, the Fifth US Circuit Court of Appeals in New Orleans ruled that the proposal was not legal.
The court said in its ruling that the SEC should not have approved Nasdaq’s proposed diversity policy.
“It is not unethical for a company to refuse to disclose information about the race, gender and LGTBQ+ characteristics of its directors,” the ruling said. “We are not aware of any established rule or custom in the securities industry that imposes a burden on companies to explain why their boards do not have as much racial, gender or sexual orientation diversity as Nasdaq would like.”
Nasdaq stands by its proposed policy.
“We believe the rule has simplified and standardized disclosure requirements to the benefit of both companies and investors,” Nasdaq said in a statement. “That said, we respect the Court’s decision and do not intend to seek further review.”
The American stock exchange of the Nasdaq is dominated by technology companies such as Apple and Microsoft, but there are also many financial, biotech and industrial companies.
The SEC also weighed in.
“We are reviewing the decision and will determine next steps, if necessary,” an SEC spokesperson said in a statement.
The court’s ruling comes at a time when many companies are taking a closer look at their diversity, equity and inclusion initiatives. In October, a group of Democrats in Congress called on the largest American companies to stick to their policies diversity, equality and inclusivity programs that say something like that attempts give everyone a fair chance to achieve the American dream.
The 49 members of the House of Representatives, led by U.S. Rep. Robert Garcia of California, shared their views in an emailed letter to the leaders of the Fortune 1000. This move followed. several large companies in recent months they said they would end or curtail their DEI initiatives.
A handful of American companies, including FordHarley Davidson, John Deere, Lowes and Molson Coors rolled back their DEI initiatives over the summer. The withdrawals came in the wake of the U.S. Supreme Court ban positive discrimination upon admission to university and beyond conservative activists were targeted prominent American brands on their diversity policies and programs.