Days after the SEC approval, the Alliance for Fair Board Recruitment — a group led by affirmative-action opponent Edward Blum — petitioned the 5th Circuit to review the rules’ legality, arguing that they were unconstitutional and that they violated the Exchange Act and the Administrative Procedure Act. The National Center for Public Policy Research, a right-wing think tank, also challenged the rules.
“We are pleased that the U.S. Court of Appeals for the Fifth Circuit has upheld the U.S. Securities and Exchange Commission’s (SEC) approval of Nasdaq’s rule to enhance board diversity disclosures through a market-led solution,” Nasdaq said in a statement Wednesday. “We look forward to working with our companies in continuing to implement this listing standard for corporate governance.”
Blum, whose lawsuits against Harvard and the University of North Carolina culminated in the Supreme Court in June overturning race-conscious college admissions, signaled that his group’s efforts to challenge the stock exchange’s board diversity rules are not over.
“This organization is disappointed by the Court’s decision in this case, and we will continue the fight to eliminate race discrimination in corporate America,” he said in a statement to The Washington Post. “An appeal to a higher court will be filed shortly.”
Scott Shepard, a National Center for Public Policy Research fellow, said his organization is disappointed by the ruling but thinks there’s a chance it would be reversed by a full panel of judges on the 5th Circuit, which leans conservative. The center probably will make that appeal, said Peggy Little, a lawyer for the organization.
The three-judge panel that rendered Wednesday’s ruling — Stephen A. Higginson, Carl E. Stewart and James L. Dennis — were all nominated by Democratic presidents. The Alliance for Fair Board Recruitment and the National Center for Public Policy Research “have given us no reason to conclude that the SEC’s Approval Order violates the Exchange Act or the APA,” the panel wrote.
The challenges to the Nasdaq rules had come amid a broader backlash to diversity, equity and inclusion efforts in the private sector. In May, a federal judge sided with the Blum-led Alliance for Fair Board Recruitment and ruled unconstitutional a California law requiring corporate boards of companies based in the state to include at least one to three members of underrepresented groups.
Such legal challenges have only picked up momentum since the Supreme Court’s June decision on race-conscious college admissions. Through a different organization — the American Alliance for Equal Rights — Blum in August sued corporate law firms Perkins Coie and Morrison Foerster, alleging their diversity fellowships illegally discriminated on the basis of race. Both law firms subsequently opened those fellowships to students of all racial backgrounds, instead of only those from underrepresented groups.