On December 11, 2024, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc in Alliance for Fair Board Recruitment v. SEC, held that the approval by the U.S. Securities and Exchange Commission (SEC) of the Nasdaq Board Diversity Rules was arbitrary, capricious, and in contravention of the Securities Exchange Act of 1934, and vacated the approval of those Rules.
It is unclear if the SEC will seek to appeal the decision to the U.S. Supreme Court or if that court will grant the petition for certiorari. However, in a December 12, 2024, statement, Jeff Thomas, Nasdaq’s Global Head of Listings, confirmed that Nasdaq will not seek to appeal the ruling, and companies seeking Nasdaq listing or listed on the Nasdaq stock markets will not need to comply with the Diversity Rules.
The Diversity Rules, proposed as a securities exchange listing requirement in December 2020 and approved by the SEC under Section 19(b)(1) of the Exchange Act, went into effect in August 2021. Subject to certain transition periods and exceptions, it required each Nasdaq-listed company to publicly disclose information on the voluntary self-identified gender, racial characteristics, and LGBTQ+ status of the members of the company’s board of directors. The Exchange also required each Nasdaq-listed company, subject to certain exceptions, to have, or explain why it does not have, at least two members of its board of directors who are considered “diverse,” including at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented minority or LGBTQ+. In connection with the Diversity Rules, Nasdaq provided recruiting assistance for interested public companies to recruit diverse board members.