A US appeals court has struck down Nasdaq’s diversity rules, which had set comply-or-explain diversity quotas for the board members of companies listed on the exchange, as reported by the Financial Times.
Introduced in 2020, the rules required large listed companies to have two diverse directors: one identifying as female and another as an underrepresented racial or ethnic minority, or from a diverse sexual orientation or gender identity group. The Fifth Circuit Court of Appeals ruled in a 9-8 decision that the Securities and Exchange Commission (SEC) lacked authority under existing laws to approve these rules.
The court’s majority opinion, authored by Judge Andrew Oldham, stated: “There may be other purposes buried in the exchange act’s voluminous text, but our review of the act’s history makes clear that disclosure of any and all information about listed companies is not among them.” Dissenting Judge Stephen Higginson countered that the SEC’s role was narrowly defined, arguing, “Congress created a unique, limited role for the SEC that didn’t permit it to reach a different conclusion here.”
Nasdaq said it respects the decision and would not seek further review, adding that the rule aimed to “simplify and standardize disclosure requirements.” The SEC is reviewing the decision to determine next steps.
In an interview from Starling's 2022 Compendium, Karin Thorburn, the Research Chair Professor of Finance at NHH Norwegian School of Economics, discussed her research into the link between board diversity and corporate performance.
“As I have said before, the argument that diversity is good corporate governance has no support in the research,” she said. “Instead, it is a social policy measure that reflects the changing values in society. I think policymakers and regulators should be honest about the rationale behind diversity initiatives, so voters can hold them responsible for their decisions. The changes may still be welcomed by many.” ▸ Read More
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