Clifford Chance

NASDAQ Board diversity rules thrown out by fifth circuit

December 17, 2024

On December 11, 2024, the U.S. Court of Appeals for the Fifth Circuit rendered a closely divided 9-8 en banc decision, striking down Nasdaq's board diversity rules. The court determined that the SEC exceeded its statutory authority under the Exchange Act by approving these rules.  As a result, Nasdaq-listed companies are no longer required to comply with the board diversity rule requirements.

The majority opinion characterized the rules as a "public-shaming penalty" for non-compliance with government-imposed diversity mandates. The court underscored that the primary objective of the Exchange Act is to prevent market abuses, not to mandate disclosures solely for their own sake. Furthermore, the ruling pointed out that the SEC failed to establish a link between board diversity and the quality of a company's financial reporting, internal controls, public disclosures, and management oversight.

Download PDF