US Appeals Court Upholds Nasdaq Rule Requiring Companies to Have 'Diverse' Directors on Board
US Appeals Court Upholds Nasdaq Rule Requiring Companies to Have 'Diverse' Directors on Board A panel of the Fifth U.S. Circuit Court of Appeals has unanimously rejected lawsuits challenging a Nasdaq stock market rule requiring companies listed on the exchange to have "diverse" directors on their boards or explain why they do not. The rule was approved by the Securities and Exchange Commission (SEC) in August 2021 and states that companies listed "must have" at least two diverse board directors. These directors include at least one diverse director who self-identifies as female, underrepresented minority, or LGBTQ+. The plaintiffs argued that the rule was an attempt at coercing companies into satisfying a "diversity quota". They also claimed that it violated the Exchange Act and the Administrative Procedure Act, and free speech. The SEC and Nasdaq defended the rule, stating it acted within its authority and upheld the SEC's approval of the rule.
Được phát hành : 2 năm trước qua Katabella Roberts trong Finance
A panel of the New Orleans-based Fifth U.S. Circuit Court of Appeals court on Oct. 18 struck down lawsuits challenging a Nasdaq stock market rule requiring companies listed on the exchange to have "diverse" directors on their boards or explain why they do not.
In a lengthy opinion, the Fifth U.S. Circuit Court of Appeals rejected lawsuits seeking to block the rule by the National Center for Public Policy Research and the Alliance for Fair Board Recruitment, a group formed by conservative legal activist Edward Blum.
The rule at the center of the lawsuit was approved by the U.S. Securities and Exchange Commission (SEC) in August 2021.
It states that companies listed on the exchange "must have, or explain why it does not have, at least two members of its board of directors who are diverse, including (i) at least one diverse director who self-identifies as female; and (ii) at least one diverse director who self-identifies as an underrepresented minority or LGBTQ+."
The term "diverse" is described in the rule as "an individual who self-identifies in one or more of the following categories: female, underrepresented minority, or LGBTQ+."
According to the rule, companies must have, or explain why it does not have, two "diverse" directors by Dec. 31, 2026.
Companies must also disclose on an annual basis how board members identify in those categories, although the individuals do not need to answer that question should they choose not to.
The SEC and Nasdaq argue the rule is a disclosure requirement that provides standardized information on board diversity.
However, in their lawsuit challenging the rule, the groups argued it was instead an attempt at coercing companies into satisfying a "diversity quota."
In addition, the groups contended the rule was unconstitutional, and violated the Exchange Act and the Administrative Procedure Act, and free speech.
"Nasdaq’s discriminate-or-explain command is unlawful because it fails to advance any legitimate exchange purpose. It is instead a prohibited regulation of 'matters not related to the purposes' of the Exchange Act," the groups wrote. "To be lawful, Nasdaq’s diversity rule must be 'designed to' achieve one or more of the purposes of an exchange, like preventing fraud or protecting investors, and it may not impose unnecessary burdens on competition."
"But Nasdaq’s rule is designed to promote board diversity, not to prevent fraud or further any other legitimate purpose under the Exchange Act," the plaintiffs continue.
"Second, even if Nasdaq’s diversity rule were legally permissible and supported by substantial evidence (and it is not), it is not permissible under the U.S. Constitution. The U.S. Constitution’s Fifth Amendment prohibits federal discrimination based on sex, race, or sexual orientation except in very narrow circumstances. To approve the proposed discrimination, the SEC would have to conclude that Nasdaq’s rule survives the exacting scrutiny needed to justify the discriminatory treatment of individuals based on their sex, race, or sexual orientation," the plaintiffs said. "Nasdaq’s pretextual interest in improving securities markets does not remotely begin to justify discriminatory classifications based on sex, race, or sexual orientation. The diversity rule would also unconstitutionally compel speech, exceed federal authority, and raise serious separation of powers concerns," the groups wrote in their lawsuit.
The SEC and Nasdaq, however, countered that argument in court filings by noting the stock exchange is a private entity and thus not bound by restrictions on government. It further noted the difference between disclosure requirements and "outright prohibitions on speech.”
In their ruling Wednesday, the panel of judges on the Fifth U.S. Circuit Court of Appeals agreed with the SEC, finding that it acted within its authority in approving the rule while rejecting the plaintiff's claims that it violated free speech.
"This evidence is sufficient to support the SEC's determination that regardless of whether investors think that board diversity is good or bad for companies, disclosure of information about board diversity would inform how investors behave in the market," the panel wrote
Nasdaq welcomed the ruling in a statement to The Washington Post.
"We are pleased that the U.S. Court of Appeals for the Fifth Circuit has upheld the U.S. Securities and Exchange Commission’s (SEC) approval of Nasdaq’s rule to enhance board diversity disclosures through a market-led solution," Nasdaq said. "We look forward to working with our companies in continuing to implement this listing standard for corporate governance."
Mr. Blum, however, said his organization was disappointed by the court’s decision and vowed to continue to "fight to eliminate race discrimination in corporate America."
"An appeal to a higher court will be filed shortly," he said in a statement to the publication.
Chủ đề: Markets, NASDAQ