Nasdaq Board Diversity Quotas Challenged in Federal Court by the Alliance for Fair Board Recruitment

AUSTIN, Texas, Aug. 18, 2021 /PRNewswire/ -- On August 9, 2021, the Alliance for Fair Board Recruitment (AFFBR), a nonprofit membership organization incorporated in the state of Texas, filed a Petition for Review in the United States Court of Appeals for the Fifth Circuit seeking a review of the approval by the Securities and Exchange Commission (SEC) of the corporate board diversity quotas proposed by the Nasdaq stock exchange.

The SEC's approval is styled as:

"Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Approving Proposed Rule Changes, as Modified by Amendments No. 1, to Adopt Listing Rules Related to Board Diversity and to Offer Certain Listed Companies Access to a Complimentary Board Recruiting Service," Release No. 34-92590 (Aug. 6, 2021).

According to AFFBR, 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.

Specifically, Nasdaq's Rule 5605(f) requires that virtually all U.S.-listed member companies hire (1) "at least one director who self identifies as female," and (2) "at least one director who self-identifies as Black or African American, Hispanic or Latinx [sic], Asian, Native American, or Alaska Native, two or more races or ethnicities, or as LGBTQ+." Nasdaq tries to shame companies into compliance by requiring that any company failing to meet these quotas must publicly "explain why." According to Nasdaq and the SEC, this approach helps investors and will improve firm performance.

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. Further, the rule will not deliver the promised benefits. As Harvard law professor Jesse Fried has explained, numerous studies have shown "that stock returns suffer when firms are pressured to hire new directors for diversity reasons."

It is not only investors who will suffer if Nasdaq's virtue signaling rule is allowed to take effect. AFFBR has members who, because of their race, sex, and sexual orientation are forced to compete on an uneven playing field because of Nasdaq's quota requirements.

Edward Blum, president of AFFBR, said, "The race, sex and sexual identity board quotas required by NASDAQ are unfair and illegal. This rule violates our nation's civil rights laws and Constitution and should be struck down by the courts without delay."

Boyden Gray and Associates is counsel to AFFBR.

Contact: Edward Blum, President
[email protected]
(703) 505-1922

SOURCE Alliance for Fair Board Recruitment