On August 6, 2021, the Securities and Exchange Commission (SEC) approved the Nasdaq U.S. Exchange’s proposed new rule on board diversity and disclosure (“the Rule”). The Rule required Nasdaq-listed companies to:
If the listed company fails to satisfy the second requirement, it must explain why.
US SIF sent a letter to the SEC urging the agency to allow Nasdaq to adopt these rules as “investors would benefit from clear, consistent and comparable disclosures by companies.”
On October 18, 2023, a unanimous decision by a randomly selected three-judge panel, each Democratic-appointed, denied the petitions by the Alliance for Fair Board Recruitment (AFBR) and the National Center for Public Policy Research (NCPPR) and chose to uphold the Rule. The two organizations challenged the SEC’s acceptance of Nasdaq’s Rule in the Fifth Circuit Court of Appeals, which is considered one of the most conservative courts in the country.
The court’s opinion in Alliance for Fair Board Recruitment, National Center for Public Policy Research v. SEC upholding Nasdaq’s diversity filing rule found the following:
In the decision written by Judge Higginson, the opening line states that “the ‘fundamental purpose’ of the Securities Exchange Act of 1934 (Exchange Act), codified as amended at 15 U.S.C § 78a et seq., is to enforce ‘a philosophy of full disclosure in the securities industry.’” This affirms that the SEC’s “fundamental purpose” is to create and enforce a disclosure-based regime for the securities industry, which will be essential in expected challenges to coming SEC rulemakings like the climate-related risk disclosure rule. Affirming the SEC’s disclosure-related purpose also strengthens the case for the SEC moving forward with additional disclosure rules around human capital management, human rights, and political activity.
Immediately following the decision, AFBR and NCPPR filed a new petition, requesting the case to be heard by the entire set of judges in the Fifth Circuit, a group dominated by Republican-appointed judges. US SIF will continue to uplift our members’ interest in having comprehensive, comparable, and standardized disclosure of information that they find critical to their investment decisions.