SEC Sued Over NASDAQ Board Diversity Rule

Once again, those who love to rhapsodize about the free market want to protest when they don’t like the results. A group claiming to be about free enterprise is suing the SEC over its approval of the NASDQ listing standards on board diversity. For the thousandth time, that rule is not a quota. It is a disclosure requirement, you know, the basis of the informational elements that make markets efficient.

The National Center for Public Policy Research has filed a lawsuit  against the U.S. Securities & Exchange Commission (SEC) over the SEC’s approval of the Nasdaq Stock Market’s board diversity rules, which require Nasdaq-listed companies to either establish board of director quotas on the basis of race, sex and sexual orientation, or explain why they have not done so.

The National Center, represented by the New Civil Liberties Alliance (NCLA), argues that the SEC lacks the authority to establish such quotas. The SEC’s regulatory authority, established by the 1934 Securities and Exchange Act, is limited to regulation of securities to ensure honest markets and to enforce federal laws that punish fraud. The lawsuit asserts that approving market rules establishing quotas for boards of directors exceeds that limited authority.

“The SEC has grown increasingly politicized in recent years, and especially since the arrival of Chairman Gary Gensler,” said Scott Shepard, Director of the National Center’s Free Enterprise Project. “It has a narrowly circumscribed authority: that of protecting shareholders in limited ways. In no way does this extend to social engineering of the sort attempted by the Nasdaq rule. It was thus illegitimate for the SEC to approve the rule. The approval was especially appalling because the rule in effect requires companies to either subordinate merit to illegal race-, sex- and orientation-based discrimination, or open themselves to the howling left-wing mob.”

Of course, this claim is bunk, implying that either (1) there can be no value in board candidates who are not cis-gender white males or (2) investors may be smart enough to buy the stock but cannot evaluate information about the quality of the board who are fiduciaries whose legal obligation is to represent their interests.

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