SEC Sued for Approving Nasdaq’s “Racist, Sexist” Board Quota Rules

Washington, D.C. – The National Center for Public Policy Research has filed a lawsuit against the U.S. Securities & Exchange Commission (SEC) over the SEC’s approval of the Nasdaq Stock Market’s board diversity rules, which require Nasdaq-listed companies to either establish board of director quotas on the basis of race, sex and sexual orientation, or explain why they have not done so.

The National Center, represented by the New Civil Liberties Alliance (NCLA), argues that the SEC lacks the authority to establish such quotas. The SEC’s regulatory authority, established by the 1934 Securities and Exchange Act, is limited to regulation of securities to ensure honest markets and to enforce federal laws that punish fraud. The lawsuit asserts that approving market rules establishing quotas for boards of directors exceeds that limited authority.

Scott Shepard

“The SEC has grown increasingly politicized in recent years, and especially since the arrival of Chairman Gary Gensler,” said Scott Shepard, Director of the National Center’s Free Enterprise Project. “It has a narrowly circumscribed authority: that of protecting shareholders in limited ways. In no way does this extend to social engineering of the sort attempted by the Nasdaq rule. It was thus illegitimate for the SEC to approve the rule. The approval was especially appalling because the rule in effect requires companies to either subordinate merit to illegal race-, sex- and orientation-based discrimination, or open themselves to the howling left-wing mob.”

The SEC approved Nasdaq Stock Market LLC Rules 5605(f) and 5606 on August 6. The rules require that listed companies (a) must disclose information about their board members’ self-identified gender, race and sexuality; and (b) either include on their board minimum quotas of individuals of certain gender, racial and sexual identities or publicly explain why the board does not meet such quotas. Nasdaq offers companies access to a list of “board-ready diverse candidates” who could meet the quotas. The ultimate enforcement mechanism for failing to adhere to these rules is the delisting of the company from Nasdaq.

The National Center submitted a comment to the SEC during the approval process in which it argued that the quotas exceed the SEC’s authority, are unconstitutional and illegal and are impermissibly vague.

Justin Danhof, Esq.

“In allowing Nasdaq’s board plan to go forward, the SEC is completely flouting the U.S. Constitution,” said Justin Danhof, Esq., executive vice president of the National Center. “The folks who run Nasdaq may have no clue what is and isn’t constitutionally permissible, but the lawyers and regulators at the SEC ought to know better. Companies should be free to appoint directors who will help their firms prosper. Mandating board appointments based on the color of candidates’ skin, their gender and their sexual partners is not only unconstitutional, but also pandering, racist, sexist and just plain offensive. Let’s hope the court issues a commonsense decision overturning this radical scheme.”

Nasdaq’s board diversity rules are also being challenged in parallel lawsuits.

To schedule an interview with a member of the Free Enterprise Project on this or other issues, contact Judy Kent at (703) 477-7476.

Launched in 2007, the National Center’s Free Enterprise Project focuses on shareholder activism and the confluence of big government and big business. Over the past four years alone, FEP representatives have participated in over 100 shareholder meetings – advancing free-market ideals about health care, energy, taxes, subsidies, regulations, religious freedom, food policies, media bias, gun rights, workers’ rights and other important public policy issues. As the leading voice for conservative-minded investors, it annually files more than 90 percent of all right-of-center shareholder resolutions. Dozens of liberal organizations, however, annually file more than 95 percent of all policy-oriented shareholder resolutions and continue to exert undue influence over corporate America.

FEP activity has been covered by media outlets including the New York Times, Washington Post, USA Today, Variety, the Associated Press, Bloomberg, Drudge Report, Business Insider, National Public Radio and SiriusXM. FEP’s work is prominently featured in Stephen Soukup’s new book The Dictatorship of Woke Capital: How Political Correctness Captured Big Business (Encounter Books) and Kimberley Strassel’s 2016 book The Intimidation Game: How the Left is Silencing Free Speech (Hachette Book Group).

The National Center for Public Policy Research, founded in 1982, is a non-partisan, free-market, independent conservative think-tank. Ninety-four percent of its support comes from individuals, less than four percent from foundations and less than two percent from corporations. It receives over 350,000 individual contributions a year from over 60,000 active recent contributors. Sign up for email updates here.

The New Civil Liberties Alliance (NCLA) is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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