{"id":9808,"date":"2026-02-13T03:48:39","date_gmt":"2026-02-13T03:48:39","guid":{"rendered":"https:\/\/usatrustedlawyers.com\/blog\/fifth-circuit-vacates-sec-approval-of-nasdaqs-board-diversity-rules\/"},"modified":"2026-02-13T03:48:39","modified_gmt":"2026-02-13T03:48:39","slug":"fifth-circuit-vacates-sec-approval-of-nasdaqs-board-diversity-rules","status":"publish","type":"post","link":"https:\/\/usatrustedlawyers.com\/blog\/fifth-circuit-vacates-sec-approval-of-nasdaqs-board-diversity-rules\/","title":{"rendered":"Fifth Circuit Vacates SEC Approval of Nasdaq\u2019s Board Diversity Rules"},"content":{"rendered":"\n
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On December 11, 2024, the Court of Appeals for the Fifth Circuit, sitting en banc<\/em>, struck down Nasdaq rules requiring listed companies to report certain board of director diversity statistics, and to have, or explain why they do not have, at least two directors that Nasdaq considered diverse. The Fifth Circuit held that when approving the rules, the SEC failed to demonstrate they were consistent with the requirements of the Securities Exchange Act of 1934 (the \u201cExchange Act\u201d).<\/p>\n

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At issue in Alliance for Fair Board Recruitment<\/em> v. SEC<\/em> were three Nasdaq diversity-related rules which required Nasdaq-listed companies to: (i) disclose statistical information regarding the diversity composition of their boards of directors; (ii) have at least two directors that Nasdaq considered \u201cdiverse\u201d or, alternatively, explain why they did not; and (iii) offer companies who did not meet these \u201caspirational diversity objectives\u201d complimentary access to a \u201crecruiting solution\u201d which \u201cprovid[ed] access to a network of board-ready diverse candidates.\u201d<\/p>\n

Under the Exchange Act, before Nasdaq can adopt a new rule, it must file the proposed change with the SEC. The SEC, in turn, must approve the proposal only if \u201cit finds [the proposal] is consistent with the requirements of\u201d the Exchange Act.<\/p>\n

The Fifth Circuit, however, held that Nasdaq\u2019s diversity rules \u201ccannot be squared with\u201d the language of the Exchange Act. In doing so, the Court rejected the SEC\u2019s contention that \u201cany<\/em> disclosure-based exchange rule is related to the purposes of the Exchange Act.\u201d Rather, a disclosure rule is related to the purposes of the Act \u201conly if\u201d it has some connection to the \u201cails\u201d the Act was \u201cdesigned . . . to eradicate,\u201d such as protecting the economy from \u201cspeculation, manipulation, and fraud,\u201d or \u201cremoving barriers to exchange competition.\u201d But \u201cdisclosure of any and all information about listed companies\u201d is not related to the Act\u2019s purposes, according to the Court. The Court also rejected the SEC\u2019s arguments that the diversity rules were consistent with the Exchange Act because they: (i) promoted \u201cjust and equitable principles of trade\u201d; (ii) removed \u201cimpediments to and perfected the mechanism of a free and open market and a national market system\u201d; and (iii) \u201cprotected investors and the public interest\u201d by making available information that some investors wanted.<\/p>\n

Additionally, the Court explained that the \u201cmajor questions doctrine\u201d\u2014which the Supreme Court has increasingly relied on in recent years to strike down agency actions\u2014\u201cconfirms our interpretation of the statute\u2019s ordinary meaning.\u201d The Court said that the economic and political scope of the SEC\u2019s approval of the Nasdaq rules was \u201cstaggering by any measure,\u201d in addition to being an unprecedented and novel interpretation of longstanding statutory language. The Court wrote that, until recently, the \u201cSEC has never claimed the authority to impose diversity requirements, or anything resembling them, on corporate boards.\u201d<\/p>\n

The Fifth Circuit\u2019s decision comes in the wake of increased scrutiny of employers\u2019 diversity initiatives and practices. After the decision was announced, Nasdaq released a statement explaining that it \u201crespect[s] the Court\u2019s decision and do[es] not intend to seek further review. As a result, companies will no longer be required to follow Nasdaq\u2019s board diversity disclosure rules.\u201d Given the upcoming change in administration, it seems unlikely that the SEC will seek further review.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

On December 11, 2024, the Court of Appeals for the Fifth Circuit, sitting en banc, struck down Nasdaq rules requiring listed companies to report certain board of director […]<\/p>\n","protected":false},"author":1,"featured_media":9809,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[2353,1580,610,1186,7455,351,762,1390],"class_list":["post-9808","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-lawyers","tag-approval","tag-board","tag-circuit","tag-diversity","tag-nasdaqs","tag-rules","tag-sec","tag-vacates"],"_links":{"self":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/9808","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/comments?post=9808"}],"version-history":[{"count":0,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/9808\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media\/9809"}],"wp:attachment":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media?parent=9808"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/categories?post=9808"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/tags?post=9808"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}