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On Friday, the SEC voted to approve Nasdaq’s board diversity listing standard.  Here’s a copy of the SEC’s 82-page approval order. As usual, the SEC was divided, with Commissioner Peirce dissenting and Commissioner Roisman dissenting in part. SEC Chair Gary Gensler issued a brief statement in which he said that Nasdaq’s diversity disclosure rules “are consistent with the requirements of the Exchange Act,” and that they “reflect calls from investors for greater transparency about the people who lead public companies.”

If that sounds a little defensive, that’s probably because dissenting statements from Commissioners Peirce & Roisman contend that Nasdaq hasn’t satisfied its burden of showing that the rule is consistent with applicable Exchange Act requirements. Furthermore, as this excerpt from Hester Peirce’s lengthy dissenting statement points out, she questions the relevancy of the disclosure called for by the new standard to investors:

[T]his reasoning either begs the very question that needs to be asked—whether the information is relevant to investors in a way that matters under the Exchange Act—or suggests that an exchange may impose any obligation on issuers for which “commenters representing a broad array of investors” are clamoring. To the extent that it is begging the question, it fails under the D.C. Circuit’s decision in Susquehanna International Group LLC v. SEC, in which the Court held that the Commission’s “unquestioning reliance” on a self-regulatory organization’s analysis in approving a rule filing violated both the Exchange Act and the Administrative Procedure Act.

The Commission is obliged to critically assess the “self-serving views of the regulated entit[y],” and it cannot evade this obligation by assuming that the Proposal imposes disclosures and other obligations that are meaningful to investors (and “commenters representing” them) in a way that is relevant under the Exchange Act.

Commissioner Peirce raises a number of other legal issues in her statement (which reads like a brief), but her comments on the relevancy of information on board diversity to investors may be a preview of coming attractions. My guess is that we’ll likely hear similar arguments from dissenters when it comes to climate change & other ESG-related rule proposals that are likely to come down the pike over the next few years.

Commissioner Roisman issued a statement explaining why he supported the provisions of Nasdaq’s listing standard that would offer support to companies looking to add diversity to their boards, but dissented from the standard’s disclosure requirements for listed companies.  Commissioners Crenshaw and Lee issued a brief joint statement in support of the approval order.

Be sure to check out this Goodwin memo on the new rules.  We’ll be posting this and other memos in our “Nasdaq Guidance” Practice Area.

– John Jenkins