Nasdaq Diversity Rules Challenged

The Alliance for Fair Board Recruitment is challenging the SEC’s order approving diversity quotas for Nasdaq-listed companies, in which corporations are threatened with de-listing if they fail to meet diversity goals. The brief argues that the SEC has gone beyond its jurisdiction to promote a rule that it has no legal or statutory right to promote: “The SEC’s order violates the constitutional right to equal protection, as it encourages discrimination against potential board members and also by current board members and shareholders; and it stigmatizes board members who identify as one of the preferred demographics. The order also violates the First Amendment by demanding disclosure of “controversial” information, which the Supreme Court has prohibited absent compelling justifications and narrow tailoring. Finally, the SEC lacked statutory authority to issue the order, which seeks to regulate demographics through the guise of “financial disclosures.”