A group of Republican attorneys general is scrutinizing Nasdaq’s proposal for the boards of corporations on its listing to meet specific diversity goals, National Review has learned.
Iowa attorney general Brenna Bird wrote a letter Thursday to Nasdaq CEO Adena Friedman questioning whether Nasdaq is violating the law with its proposed rule for corporate boards to include a certain number of female and either LGBT or minority directors.
“Nasdaq insists on continuing down the wrong path. Nasdaq’s defense of its board quota revolves around its claim that constitutional and statutory discrimination prohibitions do not apply to it,” the letter reads.
“Given Nasdaq’s zealous desire to impose quotas on companies, several of which are headquartered in our states, we are interested in learning what policies Nasdaq has in place to ensure its listed companies are following federal and State anti-discrimination laws,” the letter adds.
Along with Bird, 21 other Republican attorneys general signed onto the letter. They are requesting that Nasdaq turn over documentation of its rules ensuring that companies follow anti-discrimination laws, and how those laws are consistent with Nasdaq’s diversity directive.
In December 2020, Nasdaq announced its proposal to the Securities and Exchange Commission for adopting a new set of rules mandating that companies listed on its U.S. exchange disclose diversity statistics about their boards of directors. The rules package would also require most Nasdaq companies to have two directors whose immutable characteristics are considered diverse, or explain why they do not have two diverse directors.
The diverse-director rule proposal remains the subject of ongoing litigation with the conservative-leaning Fifth Circuit Court of Appeals. During the litigation, Nasdaq argued that the rule was simply a “disclosure-based framework,” the attorneys general said in the letter. When the Nasdaq rule was going through the public-comment process, Nasdaq said the proposed diversity requirements were “aspirational” and not mandatory.
“The board disclosure framework was developed in response to strong demand from both investors and corporates, with pragmatism as a guiding principle,” Nasdaq said in a statement to National Review.
“As a firm believer in the rule of law, Nasdaq designed the framework to preserve each company’s decision-making authority over its board composition. It has enhanced and simplified company disclosures through a standardized framework driving greater transparency on corporate governance.”
Title VII of the 1964 Civil Rights Act prohibits employment discrimination based on race, color, religion, sex, and national origin. Conservative groups have pursued legal challenges against corporate diversity programs on civil-rights grounds, arguing that they discriminate against certain groups such as white Americans and Asian Americans.
The Nasdaq Composite is one of the largest American stock indexes by market capitalization. Its member companies are predominantly in the technology sector.
“Nasdaq is clearly attempting to circumvent federal and state prohibitions on discrimination by asking the SEC to mandate companies meet and disclose specific DEI quotas,” said Will Hild, executive director of Consumers Research, a consumer-advocacy group that opposes progressive corporate activism.
“Not only is this illegal, it’s morally repugnant, especially for an organization that is supposed to serve as the platform for capital formation and allocation.”