Amicus Brief: Alliance for Fair Board Recruitment vs. Securities and Exchange Commission

In August 2021, the Securities and Exchange Commission approved NASDAQ’s Board Diversity Rules, which require all companies listed on the exchange to publicly disclose the composition of their boards along racial, gender, and sexuality dimensions. It also requires each company to either fill quotas for at least two seats on their boards or explain why it failed to meet those quotas. The Rules also set up a system to create a government-established list of candidates a company can use to meet the quotas. The Alliance for Fair Board Recruitment (AFBR) and National Center for Public Policy Research (NCPPR) challenged these discriminatory rules and are now before the en banc Fifth Circuit, asking that court to review the SEC’s actions here.

AFBR argues that the SEC’s approval of the rules violates the constitutional right to equal protection by encouraging discrimination against potential board members and stigmatizing current board members based on race and sex. It further argues that the disclosure requirement violates the First Amendment, and that the SEC’s approval of the rules will lead to an uncompensated taking of property subject to the Fifth Amendment. NCPPR argues that the SEC may not approve the Rules because the 1934 Exchange Act requires it to ensure NASDAQ rules “are not designed to . . . regulate . . . matters not related to the purposes of [the Act.].” Because the SEC conceded that these rules have no impact on corporate performance, if they stand, the agency could adopt rules on seemingly any topic, expanding its remit without limit. NCPPR further argues that the rules compel speech in a way barred by the First Amendment.

MI joined Advancing American Freedom, Professor Allen Mendenhall, and assorted other organizations to bring the court’s attention to the longstanding norm that corporations should prioritize shareholder returns and the SEC is to protect the market and shareholders. We demonstrate how the adoption of the diversity rules is harmful to shareholder value and antithetical to foundational American principles of equality.

James R. Copland is a senior fellow at the Manhattan Institute and director of Legal Policy.

Ilya Shapiro is a senior fellow and director of Constitutional Studies at the Manhattan Institute. Follow him on Twitter here.

Tim Rosenberger is a legal fellow at the Manhattan Institute.

Special thanks to legal associate Aaron Bondar.

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