Under the rule, companies without two diverse directors must explain why they do not meet the requirement. That includes "at least one director who self-identifies as female and at least one director who self-identifies as LGBTQ+ or an underrepresented minority," like Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, according to the SEC order.
"This evidence is sufficient to support the SEC's determination that regardless of whether investors think that board diversity is good or bad for companies, disclosure of information about board diversity would inform how investors behave in the market," judges from the Fifth Circuit said in their decision.
The judges also referenced statements cited by the SEC from Vanguard, State Street Global Advisors and BlackRock calling on companies to disclose board diversity information.
The lawsuits in question were brought by the National Center for Public Policy Research and the Alliance for Fair Board Recruitment.
"We are pleased that the U.S. Court of Appeals for the Fifth Circuit has upheld the U.S. Securities and Exchange Commission's approval of Nasdaq's rule to enhance board diversity disclosures through a market-led solution," a Nasdaq spokesperson said in a statement. "We look forward to working with our companies in continuing to implement this listing standard for corporate governance."
Dennis Kelleher, co-founder, president and CEO of the watchdog group Better Markets, also welcomed the decision. "Hopefully, this rule will lead to greater diversity in America's corporate board rooms, which should better reflect the diversity of the country, and spark progress in bringing minorities into the economic mainstream and centers of corporate power," he said in a statement.