Nasdaq’s recently approved board diversity quotas have been challenged in Federal Court by the Alliance for Fair Board Recruitment (AFFBR).
The Texan non-profit membership organisation incorporated has filed a Petition for Review in the US Court of Appeals; 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, as reported. According to AFFBR, the Nasdaq rule will compel many of the 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 US-listed member companies hire at least one director who self identifies as female, and at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American, or Alaska Native, two or more races or ethnicities, or as LGBTQ+,” AFFBR pointed out. “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.
UNEVEN PLAYING FIELD
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 colour or sex as being alike and interchangeable”. Furthermore, the rule “will not deliver the promised benefits”, it said. 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 signalling rule is allowed to take effect,” explained the non-profit. “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.”
“The race, sex and sexual identity board quotas required by NASDAQ are unfair and illegal,” stated Edward Blum, President of AFFBR. “This rule violates our nation’s civil rights laws and Constitution and should be struck down by the courts without delay.”
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