Federal Appeals Court Vacates Nasdaq Board Diversity Rules

Banking & Financial Institutions Capital Markets

Under rules approved in 2021, Nasdaq-listed companies were required to (1) publicly disclose a board diversity matrix and (ii) have, or disclose why they do not have, at least one diverse director on their board by 2023 and a second diverse director by 2025 or 2026 depending on the company’s listing tier.

On December 11, 2024, the United States Court of Appeals for the Fifth Circuit issued an opinion vacating the Securities and Exchange Commission’s (“SEC”) order approving Nasdaq’s board diversity rules. The court concluded that the “SEC failed to justify its determination that Nasdaq’s Board Diversity Proposal is consistent with the requirements” of the Securities Exchange Act of 1934, and that its finding that the diversity rules were related to the purposes of the Exchange Act was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

The decision means that Nasdaq-listed companies do not have to comply with the board diversity rules. Companies may continue to make diversity disclosures on a voluntary basis.

The SEC could appeal the decision.

Jonathan A. Greene is co-leader of the Banking & Financial Institutions practice group of Wyrick Robbins, and is also a member of the firm’s Capital Markets practice group.

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