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US Securities and Exchange Commission

Circuit Court Lets Nasdaq Intervene in Board Diversity Standards Suit

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

A Fifth Circuit judge on September 8, 2021, agreed to allow Nasdaq Stock Market LLC to intervene in a lawsuit against the SEC challenging the recent commission approval of the exchange’s board diversity listing standards. Nasdaq, in a brief filed the same day, argued that the outcome of the suit “could affect or impair Nasdaq’s ability to protect its interest in its own rules and contractual relationships with its listed companies.”

“The rules are, after all, Nasdaq’s rules (albeit Commission approved),” the exchange wrote. “Nasdaq has invested a great deal of time and effort in developing the rules, and Nasdaq will be responsible for implementing and enforcing them.”

A nonprofit group headed by conservative anti-affirmative-action activist Edward Blum sued the SEC on August 10, days after its approval of the Nasdaq standards in Release No. 34-92590Order 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. Under the changes, listed companies would need to have at least one director who 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, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+,” or to explain why it doesn’t meet those minimums. (See SEC Approves Nasdaq’s Board Diversity Proposal in the August 10, 2021, edition of Accounting & Compliance Alert.)

Democratic lawmakers and other advocates for corporate board diversity hailed the commission approval of Nasdaq’s proposal, while Republicans cast the action as another example of the SEC catering to a progressive social agenda.

In a statement announcing the suit, Blum, president of the Alliance for Fair Board Recruitment, said the “race, sex and sexual identity board quotas required by NASDAQ are unfair and illegal.”

Blum is a prolific opponent of diversity requirements imposed by academia and government. In July, the Alliance for Fair Board Recruitment sued California over legislation signed into law last year establishing a board diversity mandate for public companies headquartered in the state.

In seeking to intervene in the case, Nasdaq argued that, as the entity that developed and will be in charge of implementing and enforcing the rules – and whose contractual relationships would be impaired should Blum prevail – it “easily carries its burden to show that the Commission may not adequately represent Nasdaq’s interest in this proceedings.” Courts routinely allow Nasdaq and the New York Stock Exchange (NYSE) to intervene in cases where a petitioner is challenging a commission approval of a self-regulatory organization (SRO) proposal or other action that affects the exchanges’ interests, Nasdaq wrote.

The Alliance for Fair Board Recruitment did not oppose allowing Nasdaq to intervene.


This article originally appeared in the September 10, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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