Federal Appeals Court Overturns Nasdaq Diversity Rules

The 5th U.S. Circuit Court of Appeals has ruled that Nasdaq's rules requiring listed companies to have women and minority directors or explain why they do not are invalid, siding with conservative advocacy groups that challenged the regulations. The court found that these diversity requirements, approved by the SEC, violated federal securities law, with a narrow 9-8 decision reflecting its conservative majority. This decision reverses an earlier ruling by a panel of judges appointed by Democratic presidents who had upheld the SEC's authority. The case was brought forth by groups such as the National Center for Public Policy Research and Alliance for Fair Board Recruitment, led by Edward Blum, known for opposing affirmative action policies. The court emphasized that the SEC's justification for the rules did not align with the original intent of the Securities Exchange Act of 1934. Nasdaq's diversity initiative was seen as a response to growing calls for corporate accountability regarding diversity in the wake of racial justice movements.