The ideological left's incessant focus on identity politics, including gender and racial identity, have intruded upon virtually all aspects of society, including federal bureaucracies, financial institutions, and private corporations.

Those days may be ending soon, however, as a federal appeals court just rejected a corporate board diversity disclosure rule proposed by the Nasdaq stock exchange and approved by the U.S. Securities and Exchange Commission, Reuters reported.

The rule required companies listed on the exchange to have at least one board member who was a woman, minority, or LGBTQ, or to explain in a public filing why they did not, and to publicly disclose the gender and racial identities of all other board members.

Nasdaq's SEC-approved board diversity disclosure rule

According to Bloomberg Law, the board diversity rule was first proposed by Nasdaq and approved by the SEC in 2021, after which it was challenged by a lawsuit by an organization known as the Alliance for Fair Board Recruitment, which is led by Ed Blum, who previously succeeded in convincing the U.S. Supreme Court to strike down racial quotas in college admissions.

The challenged rule was initially upheld by a district court and an all-Democratic three-judge panel of the 5th Circuit Court of Appeals last year, but following an en banc rehearing by the entire 5th Circuit, the rule was struck down as being beyond the SEC's statutory authority.

The reversal came in a 9-8 ruling that featured all Republican-appointed judges on the side of the majority and the three Democrat-appointed judges from the initial appellate panel in the minority.

SEC overstepped its bounds, judge says

In a 51-page opinion, Judge Andrew Oldham said the rule was "far removed" from the authorities laid out in the 1934 Securities Exchange Act that created the SEC and tasked it with regulating stock markets to ensure "just and equitable principles of trade," with one of its responsibilities being to approve or disapprove self-governing regulations proposed by the markets themselves.

"It is obviously unethical to violate the law or to disregard a contractual promise," the judge wrote. "It is not unethical for a company to decline to disclose information about the racial, gender, and LGTBQ+ characteristics of its directors."

He added, "We are not aware of any established rule or custom of the securities trade that saddles companies with an obligation to explain why their boards of directors do not have as much racial, gender, or sexual orientation diversity as Nasdaq would prefer."

According to The Washington Post, Judge Oldham wrote at another point, "In sum, Congress passed the original Exchange Act primarily to protect investors and the American economy from speculative, manipulative, and fraudulent practices," and noted, "SEC may not approve even a disclosure rule unless it can establish the rule has some connection to an actual, enumerated purpose of the Act."

It was also pointed out that while the rule compelling the board diversity disclosures wouldn't stand, there was nothing that prevented the companies listed on the Nasdaq from voluntarily disclosing that information to the public if the companies desired to do so.

Reactions to the ruling

The Post reported that the Alliance's Blum said of the decision, "The rule was an unlawful attempt to alter the racial and sexual composition of corporate boards across America and penalize any company that failed to conform," and added, "Race and sex quotas have no place in American public policies."

Jonathan Berry, an attorney who represented the Alliance, said of the ruling, "As Judge Oldham’s scholarly opinion explains, stock exchanges like Nasdaq have a great deal of market power. And they unlawfully abuse that power when they subject corporate boards to identity politics."

The Post noted that a Nasdaq spokesperson said, "We maintain that the rule simplified and standardized disclosure requirements to the benefit of both corporates and investors. That said, we respect the court’s decision and do not intend to seek further review." The SEC, however, said it was reviewing the court's decision and "will determine next steps as appropriate."