The Corporate world has come under increased scrutiny in recent years of so-called diversity, equity, and inclusion (DEI) efforts.

The latest example of that came this week when a federal court ruled that the Nasdaq stock exchange's diversity program is illegal. 

Court: SEC exceeded its authority by approving rule

At issue was a rule adopted by Nasdaq and approved by the Securities and Exchange Commission (SEC) which required listed firms to have women, racial minorities, and LGBTQ identifying individuals on their boards of directors.

According to Fox Business, the rule was challenged by the American Alliance for Fair Board Recruitment and the National Center for Public Policy Research.

The plaintiffs argued that the SEC was exceeding its congressionally mandated authority, a position with which the U.S. Fifth Circuit Court of Appeals agreed in a nine to eight ruling on Wednesday.

"SEC has intruded into territory far outside its ordinary domain," U.S. Circuit Judge Andrew Oldham wrote in the majority opinion.

Fox Business noted that this week's decision overturned an earlier decision in Nasdaq's favor which came from a three-judge panel.

Nasdaq unlikely to appeal ruling

"In sum, Congress passed the original Exchange Act primarily to protect investors and the American economy from speculative, manipulative, and fraudulent practices," the Washington Post quoted Wednesday's opinion as reading.

"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," the court pointed out.

Emily Pan serves as a spokeswoman for Nasdaq, and she defended the stock exchange's policy while indicating that it will likely not appeal the 5th Circuit's ruling.

"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," she declared.

Plaintiff: "Race and sex quotas have no place in American public policies"

The Post noted that the American Alliance for Fair Board Recruitment is led by conservative activist Edward Blum, and he provided a statement concerning Wednesday's 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," he wrote in an email to the Post.

"Race and sex quotas have no place in American public policies," added Blum, who has long been an opponent of affirmative action efforts.