Legal experts are the latest to throw their weight behind Nasdaq, the US stock market, and its efforts to introduce new board diversity rules.

Their intervention comes as US watchdogs contend with a legal case in the US Court of Appeal: campaign groups are arguing the market’s new rule violates the laws on “equal protection” and “freedom of expression” in the US constitution.

The experts claim that those opposing Nasdaq’s new measures are “missing the point”. They say the move doesn’t impose rules for boardroom representation on companies listed on the exchange but, instead, asks them to “disclose” information about their boardroom diversity.

“In our view, Nasdaq’s proposal simply requires disclosure and an explanation for any lack of board diversity, which could include reasons for why a company takes a different approach,” write the team of experts from US universities.

Who’s on board?

Nasdaq first floated a change to its rules back in 2020, with proposals for companies to disclose whether they had at least a single female board member and one from a minority ethnic group or an LGBTQ director.

A second part of the changes requires companies to explain to shareholders the absence of directors from any of those groups.

However, at the end of August, two groups challenged the Nasdaq rules in the Appeals Court. The Alliance for Fair Board Recruitment and the National Centre for Public Policy Research (NCPPR) claim the rules break with the Fifth and First Amendments. They are suing the Securities and Exchange Commission, the US regulator that cleared Nasdaq’s rule change to go ahead.

Scott Shepherd, a director at NCPPR, says the SEC’s clearance overstepped the bounds of its authority. He says the SEC’s backing means companies will be required to “subordinate merit” to race, sex or gender-based orientation, or risk the ire of “the howling left-wing mob”.

“[The SEC] 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,” says Shepherd.

Business experts have countered the objections to Nasdaq, backing the assertion that the rule change is about reporting.

One group writes that the rule does “compel” Nasdaq companies to have diverse boards. “Rather than a mandatory board composition regulation, the set of Nasdaq rules should, instead, be viewed as move towards more robust requirements for public disclosure about board-level diversity.”

Events surrounding the Nasdaq are part of a wider political clash between those seeking to integrate diversity and climate policies into corporate governance norms, and those claiming the effort is part of a “woke” liberal agenda. In Nasdaq’s case, a court will decide.