SEC Approves Nasdaq’s Proposal to Eliminate Corporate Board Diversity Requirement
A federal appeals court determined that the SEC did not have the authority to approve a rule with such significant economic implications.
The Securities and Exchange Commission (SEC) has accepted Nasdaq’s proposal to withdraw a rule that would enforce diversity quotas on the boards of companies listed on the exchange.
According to the rule, companies with more than five board members were expected to have two directors from “underrepresented” backgrounds, including at least one who “self-identifies as a female” and another who “self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+.” For boards with five or fewer members, the requirement was to have at least one “diverse” director.
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The majority highlighted the extensive reach of Nasdaq’s influence, pointing out that by the end of 2024, the market capitalization of companies trading on the Nasdaq exchange would surpass $25 trillion—greater than the real GDP of the United States. This, the judges argued, subjects the SEC’s actions to the “major question” doctrine, a legal principle that prevents federal regulators from making decisions of “vast economic and political significance” without clear authorization from Congress.
Judge Andrew Oldham, writing for the majority, noted, “This does not imply that every regulatory action by the SEC concerning Nasdaq automatically raises a major question. However, establishing rules like these, which seek to alter the internal structures of many of the largest corporations globally, certainly does.”
“Such regulations almost amount to managing the entire economy,” Oldham remarked.
Due to SEC regulations, Nasdaq originally had to wait 30 days after filing to execute its plan, but the commission bypassed the waiting period in light of the court ruling, which will take effect on Feb. 4.
“Waiving the 30-day operational delay aligns with the protection of investors and the public interest,” the order stated.
This decision followed a leadership change at the SEC. Former Chair Gary Gensler, a Democrat, stepped down on Jan. 20, coinciding with President Donald Trump’s second inauguration. Trump designated Republican Commissioner Mark Uyeda as acting chair until the Senate confirms his nominee, former Commissioner Paul Atkins.
