August 23, 2021

Nasdaq Board Diversity Rule: The Litigation Begins

Last week, the “Alliance for Fair Board Recruitment” – a non-profit opponent of affirmative action which has also challenged California’s board diversity statutes and whose president, Edward Blum, also founded the “Students for Fair Admissions” organization that sued Harvard over allegedly discriminatory admissions processes – filed a Petition to challenge the SEC’s approval of Nasdaq’s new requirement that listed companies eventually must add at least one woman and one person from an underrepresented community to their board, or explain why they haven’t done so. In its press release announcing the move, AFBR says:

The Nasdaq rule will compel many of our nation’s largest publicly traded corporations to illegally discriminate on the basis of gender, race, and sexual orientation in selecting directors.

As AFFBR explained in a comment submitted to the SEC, Nasdaq’s discriminate-or-explain rule also exceeds its role and the authority granted by federal securities law and also violates core Bill of Rights guarantees against compelled speech and discrimination based on sex and race by stereotyping all people of the same skin color or sex as being alike and interchangeable.

The press release also cites to a study that was rebutted by Richard Painter as reaching questionable conclusions.

Constitutional law isn’t my specialty, so here’s a CNN recap of where courts have come down on previous challenges that could be viewed as similar. This blog from Keith Bishop looks at the procedural details of AFBR’s Petition, including why it filed its claim in the federal court of appeals instead of a district court.

This clearly isn’t Blum’s first rodeo. Courts haven’t agreed with him yet, but he’s attempting to take the Harvard case to the Supreme Court. For now, Nasdaq-listed companies should still plan to comply with the exchange’s matrix disclosure requirement next year and the initial phase of the “comply or explain” board composition requirement by the following year.

Liz Dunshee