After a three-judge panel last month rejected their lawsuit seeking to overturn Nasdaq's board diversity rule, the conservative groups behind the legal challenge would like an entire federal appeals court to hear the case.
The New Civil Liberties Alliance, representing the National Center for Public Policy Research, on Nov. 27 filed a petition in the Fifth Circuit Court of Appeals in New Orleans requesting that the full court give its lawsuit another look.
On Oct. 18, three Fifth Circuit judges ruled that the Securities and Exchange Commission did not violate the Securities Exchange Act or the Administrative Procedure Act when it approved Nasdaq's rule in 2021.
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," such as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, according to an 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 lawsuit in question was brought by the National Center for Public Policy Research and the Alliance for Fair Board Recruitment, the latter of which has already separately filed a petition to have the case heard en banc, or by all 16 judges on the Fifth Circuit.
"Some activist investors apparently want to make their investment decisions based on the gender, race and sexual orientation of companies' directors, even though such characteristics are not rationally related to corporate performance and investor returns," said Sheng Li, litigation counsel at the NCLA, in a statement. "The panel decision deferred to SEC's conclusion that helping these investors engage in irrational, invidious discrimination somehow serves the Exchange Act's limited purpose of maintaining 'fair and orderly markets.' The en banc court should correct this grievous error and confirm that facilitating discrimination falls outside the Exchange Act's statutory purposes."
