- The Washington Times
Monday, August 29, 2022

Affirmative action opponents are not targeting just colleges in the battle against racial and gender preferences in law. Companies are emerging as another front in the battle.

A federal appeals court heard a challenge Monday to the tech-heavy Nasdaq stock exchange’s mandate that its largest listed companies must meet diversity standards on their corporate boards.


The challenge is advancing as the Supreme Court prepares to hear arguments this fall over the role of race in admissions decisions for Harvard University and the University of North Carolina. It is one of the most anticipated cases of the upcoming term.

The “Board Diversity Proposal” requires Nasdaq-listed corporations to maintain and disclose a certain number of minority members — or else be delisted. Among the companies on the exchange are Apple, Meta and Tesla.

The rule, proposed in February 2021, requires Nasdaq-traded corporations, with exceptions for small or foreign companies, to have or explain why they don’t have at least one director who identifies as a woman and one director of a minority race or from the LGBTQ community.

The National Center for Public Policy Research challenged the rule. The conservative think tank said the Nasdaq plan runs afoul of the Constitution by promoting discrimination and effectively forcing corporations to “speak” in violation of the First Amendment by disclosing personal details of board members.


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“The board diversity rules compel speech in violation of the First Amendment,” Margaret Little, a lawyer representing the National Center for Public Policy Research, told the 5th U.S. Circuit Court of Appeals during oral arguments Monday.

“It is threatening to delist people who do not speak,” she said.

The U.S. Securities and Exchange Commission approved the Nasdaq diversity rule in August 2021. A lawyer representing the government told the three-judge panel Monday that Nasdaq is a private entity and can create its own membership rules based on demand from its investors.

Tracey Hardin, representing the SEC, insisted it wasn’t the government acting in an unlawful manner regarding race, gender or speech.

“Nasdaq is a private, for-profit industry,” she said. “It is simply not the same as a government agency.

“This is a private initiative initiated by Nasdaq,” she added.

Opponents of the mandates say Nasdaq has no business imposing them and the SEC has no statutory authority to approve them.

“It is unconscionable to see discrimination so blatantly put on display by requiring these companies to hire employees based solely on race, sex and sexuality,” Texas Attorney General Ken Paxton, a Republican, said in an amicus brief to the 5th U.S. Circuit Court of Appeals. “The SEC’s quotas violate the Constitution and federal civil rights laws by requiring that companies overlook a person’s relevant qualifications under the guise of promoting diversity.” 

A spokesperson from Nasdaq, which ranks second behind the New York Stock Exchange in the market capitalization of the companies on its trading board, declined to comment on the lawsuit.

The case is National Center for Public Policy Research v. SEC, and it’s pending before three judges at the 5th Circuit, all appointed by Democratic presidents. 

It’s not the only legal battle involving racial and gender quotas in the business sector before the courts this year. California courts have recently stuck down two similar state laws — one related to requiring female representation and another for minorities on corporate boards.

A 2018 state law mandated that all publicly held corporations with headquarters in the state — roughly one-eighth of all U.S. companies — had to have at least one female director by the end of 2019. By the end of 2021, boards with five members were required to include at least two women and boards with six or more directors had to have at least three women as directors.

Supporters of the mandates point to scholarly studies in the U.S. and Europe that they say back the argument that boards with greater racial and gender diversity return more value to shareholders than those without such diversity. The average share of women on boards of California companies grew from 12.9% in 2016 to 23.2% in 2020 after the laws were enacted.

The Nasdaq challenge was argued about two months before the Supreme Court will hear arguments against affirmative action policies at Harvard and UNC Chapel Hill, challenging race as a factor when considering a student’s application for admissions.

Those are slated for Oct. 31, and a ruling from the high court is expected by June 2023.

• Alex Swoyer can be reached at aswoyer@washingtontimes.com.


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