Nasdaq Board Diversity Rules Face State Attorneys General Probe

Nasdaq rules encouraging diverse boards at companies listed on the stock exchange have drawn an investigation from 22 state attorneys general into whether the regulations are discriminatory.

The rules require thousands of companies to report director diversity information annually and have a diverse board or explain why they can’t. Implementation is moving forward despite a legal challenge from conservative groups still pending in the US Court of Appeals for the Fifth Circuit.

Republican attorneys general led by Brenna Bird of Iowa announced their inquiry Thursday. They’re giving Nasdaq Inc. until Oct. 23 to provide evidence and share any legal analysis it conducted to ensure its rules comply with anti-discrimination laws.

The Supreme Court was clear in its June 2023 Students for Fair Admissions v. President and Fellows of Harvard College decision limiting affirmative action at universities that “eliminating racial discrimination means eliminating all of it,” the attorneys general said in a letter to Nasdaq CEO Adena Friedman.

“Nasdaq insists on continuing down the wrong path,” the attorneys general wrote. Other signatories included Ashley Moody of Florida and Ken Paxton of Texas.

A Nasdaq spokesperson said the exchange is a “firm believer in the rule of law.”

“The board disclosure framework was developed in response to strong demand from both investors and corporates, with pragmatism as a guiding principle,” the representative said in a statement.

Bird, Moody, Paxton, and other Republican attorneys general previously urged the Fifth Circuit to toss Nasdaq’s rules. The full Fifth Circuit is reviewing the regulations after a three-judge panel of the court ruled last year that the Securities and Exchange Commission had the authority to approve the rules in 2021.

Nasdaq and SEC lawyers faced pointed questions from the full Fifth Circuit about the rules in May during oral arguments in the case. Of the 17 judges who heard the arguments, 11 were appointed by Republican presidents. The remaining six judges, including the three who ruled in favor of the rules in 2023, were picked by Democratic presidents.