Court rules Nasdaq diversity initiative illegal

More and more companies are pulling back on some of their diversity, equity and inclusion initiatives. Sometimes they get a lot of attention for it, sometimes not. But plenty of companies are keeping their efforts in place — albeit, perhaps, quietly.

Those opposed to corporate DEI initiatives achieved a legal success this week when a federal appeals court in Louisiana said a proposed diversity rule by Nasdaq — yes, the stock exchange — was illegal.

The Securities and Exchange Commission originally greenlit Nasdaq’s proposal with the goal of boosting diversity on the boards of the almost 3,000 companies on the exchange.

Scott Yonker, a finance professor at Cornell, explained the rule would have required “that every listed firm on the Nasdaq have at least one person who identifies as female and another that identifies as either nonwhite or as an LGBTQ+ person.”

Or disclose to investors why they don’t. Opponents argued that the rule was discriminatory and amounted to a public shaming of companies. They also said the SEC had overstepped its authority.

“The SEC has recently been trying to use its powers to force companies to provide more information than companies normally provide to investors,” said Devin Watkins, an attorney with the Competitive Enterprise Institute.

Watkins anticipates this will be the first of many such provisions to be overturned in the courts.

But companies are finding quieter ways to accomplish their diversity goals, according to Stephanie Creary, a professor of management at the Wharton School.

She said verdicts like this aren’t as much of a win for DEI opponents as they might think. “They’re creating opportunities for companies to be even more strategic and even more creative around solving these issues and creating opportunities around DEI,” she said.

Companies that really want to foster greater diversity, Creary said, will find a way.