Nasdaq board quotas get their day in court

Should publicly traded companies prove they have a woman, minority, or gay person on their board in order to list on Nasdaq?

A federal court considered the issue and the government’s role in greenlighting such a warrant earlier this week.

The Nasdaq thinks that to break up the old boys’ club, they can make diversity quotas a condition of enrollment. However, resorting to discrimination to remedy perceived discrimination is not a good solution. Hopefully the court will agree.

What is happening

The US 5th Circuit Court of Appeals yesterday heard oral arguments in a case brought by two groups, the National Center for Public Policy Research and the Alliance for Fair Board Recruitment, challenging the board diversity quota rule. administration of the Nasdaq. The rule requires companies listed on its U.S. stock exchange to publicly disclose board-level diversity statistics and to have or explain why they don’t have at least two different directors.

By “diverse” they mean a woman and a person who is a racial minority or who identifies as gay, lesbian, bisexual, transgender or queer. Imagine how intrusive it is to follow the sex habits of the boards.

The plaintiffs argue that the Nasdaq plan violates the Constitution by encouraging discrimination and that the disclosure requirements are unconstitutional forced speech.

Margaret Little, a lawyer representing the National Centre, told the court, according to information from the washington time:

Board diversity rules mandate speaking out in violation of the First Amendment. He threatens to write off people who don’t speak.

In addition, the court will have to decide whether the Securities and Exchange Commission (SEC) exceeded its authority when it approved the Nasdaq board’s requirement last year. Unsurprisingly, the government believes it has clean hands.

Tracey Hardin, who represented the SEC, insisted that the government had no discriminatory and persuasive speech:

The Nasdaq is a private, for-profit industry. It’s just not the same as a government agency. This is a private initiative initiated by the Nasdaq.

The National Center still holds the government responsible for greenlighting the Nasdaq proposal. Justin Danhof, Esq., executive vice president of the National Center, previously explained their reasoning:

By allowing the Nasdaq board’s plan to go ahead, the SEC completely flouts the US Constitution. The people who run the Nasdaq may have no idea what is or isn’t constitutionally permitted, but SEC lawyers and regulators should know better. Businesses should be free to appoint directors who will help their business thrive. Mandating board appointments based on candidates’ skin color, gender, and sexual partners is not only unconstitutional, but also self-indulgent, racist, sexist, and downright offensive. Let’s hope the court issues a common-sense decision reversing this drastic scheme.

The battle lines have been drawn. On the one hand, Republican attorneys general from several states who filed a brief in favor of the groups. On the other side are institutional investors and a coalition of Nasdaq-listed companies that want the rule enforced.

A word about quotas

My colleague Charlotte Whelan wrote about the SEC’s approval of the Nasdaq board requirements and felt it was unnecessary given that companies are already welcoming more women to their boards. Also, it can lead to token actions and weaker boards as less qualified people are asked to fill quotas.

Disclosure rules are used as a tactic to shame companies into complying with quotas. Companies are forced to defend why they have too few women or people of color and push back against poor public relations for not appearing “diverse” enough.

But what is the end goal of the Nasdaq quota? The data is inconclusive about the causal relationship between gender diversity and board performance. Numerous studies have found both positive and negative impacts, but nothing to establish a causal link.

The real goal is probably to pursue gender parity as a social good. Checkboxes become virtue signals like other types of ESG initiatives.

Increasing the number of women, racial minorities, or LGBTQ directors does not equate to intellectual diversity, diversity of backgrounds, or viewpoints. Arguably, these forms of diversity may better shape boardroom decisions rather than gender and race. They bring together people who see the challenges from very different lived experiences.

Racial and gender diversity initiatives often call on the same women and people of color to join multiple boards. And, these people often have similar pedigrees, backgrounds, and experiences to those who recruit them. This is not true diversity.


Nasdaq diversity quotas are on the chopping block. If they are invalidated, it will send a powerful message that discrimination should not be tolerated, even if it is aimed at advancing social goals.

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