SEC Approves Nasdaq Proposal to Repeal Board Diversity Disclosure Rules

The Securities and Exchange Commission announced that it has approved a Nasdaq proposal to remove a rule that requires companies to disclose board diversity data. This announcement follows a ruling from the Fifth Circuit Court of Appeals in which the court found such disclosure requirements unlawful.

Under the original board diversity rules, companies listed under the Nasdaq were required to disclose information regarding the diversity of the board of directors and to have at least two directors that were of a “diverse” background or explain why they do not. Additionally, the rule required that companies also disclose how board members identify in those categories.

In its ruling to vacate the board diversity rules, the Fifth Circuit found that the SEC went beyond the scope of its authority in requiring such information disclosure. “It is obviously unethical to violate the law or to disregard a contractual promise,” the court had said. “It is not unethical for a company to decline to disclose information about the racial, gender and LGTBQ+ characteristics of its directors.”

The court additionally found no reason as to why a company would need to disclose why their board of directors are not “diverse.” “We are not aware of any established rule or custom of the securities trade that saddles companies with an obligation to explain why their boards of directors do not have as much racial, gender or sexual orientation diversity as Nasdaq would prefer,” the court added.

Board Diversity Rules Repealed

The SEC agreed in its notice Friday to waive the usual 30-day operative delay and allow the proposed rule change to become effective on February 4^th. Under the applicable law, the SEC may elect a shorter time for a proposed rule to go into effect if such action is consistent with protection of investors and the public interest.

The SEC found that in this case, “waving the 30-day operative delay is consistent with the protection of investors and the public interest because it will allow the Nasdaq to repeal its board diversity listing requirements consistent with the effective date of the federal court’s decision, which is February 4, 2025.”

Until then, the SEC has opened up the proposed rule to public comment which can be found on the agency’s website.