A US appeals court will review a controversial Nasdaq index order requiring publicly traded companies to diversify their boards of directors with women, people from ethnic minorities or the LGTBQ community, or give explanations as to why it does not do so.
The Nasdaq began to partially apply the order at the end of fiscal 2023, more than two years after the securities regulator gave its approval and almost four years after the index proposed it, but many companies have the deadline in 2026.
Throughout this journey and until now, the Nasdaq rule has encountered opposition from conservative activists, led by jurist Edward Blum, who has denounced other cases of ‘positive discrimination’ in the United States, according to local media.
The Fifth Circuit Court of Appeals, in response to a petition led by Blum and another entity, ruled this Monday night in favor of reviewing the stock market regulator’s approval of the rule in 2021, according to the economic media CNBC.
In addition to issuing the review, the court overturned a previous decision by a three-judge panel of a lower court, which maintained the validity of the rule.
Unusually, all the judges of the court – with a Republican majority – will review the case en banc, with a tentative date of May 13.
The Securities and Exchange Commission (SEC) gave the green light in 2021 for Nasdaq to require its listed companies to disclose the composition of their boards of directors and have at least two diverse members: one woman and another who identifies as an ethnic minority or part of the LGBTQ+ community.
Listed companies that do not meet these quotas must provide explanations to the index.
Initially, failing to comply with the rule could lead to the listed company being removed from the index, but the Nasdaq seems to rule out that point in an explanatory document dated February 2023: it highlights that it is not a “mandate” and that it will not evaluate the “merits of explanation” of those who do not meet the quotas.
Source: Gestion
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