The 5th Circuit Court of Appeals struck down an effort by the SEC (Securities Exchange Commission) to order that all companies diversify their board of directors. This would force companies to name less qualified candidates on their boards in order to follow the liberal line. Fortunately, the 5th Circuit Court ruled against the SEC. The court ruled that the SEC had overstepped its bounds and had no right to impose DEI on them.
The decision found the SEC had no authority to impose its demands.
Stefan Padfield, of the Free Enterprise Project, said:
“We are grateful the court reached the right conclusion in this case. The SEC was reaching beyond its statutory authority to try and engage in progressive social engineering. The court’s decision here is not only correct on the law, but also consistent with the will of the American people, who are sick and tired of seeing their government engage in divisive identity politics.”
The SEC wanted companies to have race, sex, and orientation quotas for everyone. This could become a drag on companies that prefer to name the most qualified people to the board.
But the SEC Act of 1934:
VISIT OUR YOUTUBE CHANNEL“required companies listed on a registered stock exchange to comply with SEC disclosure regulations. … 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 decision was written by Judge Andrew S. Oldham in the case, National Center for Public Policy Research v. Securities and Exchange Commission.
The ruling states:
“SEC has intruded into territory far outside its ordinary domain.
“Offered little support for its claim that there is an empirically established – even logical – link between the racial, gender, and sexual composition of a company’s board and the quality of its governance.”
Peggy Little, NCLA counsel, said:
“The en banc majority hewed closely to the plain text of the Exchange Act and its 1975 Amendments. It adopted NCLA’s statutory construction analysis that not only did Congress fail to confer such extraordinary power on this financial regulator, but SEC is statutorily forbidden to approve rules unless they further the ‘purposes’ of the Act to ensure fair and open markets.”
And NCLA chief Mark Chenoweth explained:
“The en banc Fifth Circuit has now agreed with NCLA for the third time in the last three years. This time, the Court held that Congress did not authorize SEC to adopt disclosure rules willy-nilly. Today’s decision should chasten SEC to stick to its knitting and stop trying to abuse its market-regulating power.”
The ruling noted:
“Nasdaq proposed rules that compel the companies listed on its exchange to disclose information about the racial, gender, and sexual characteristics of their directors, and to have (or explain why they do not have) at least two directors who meet Nasdaq’s definition of ‘diverse,’ SEC approved those rules. We hold, however, that the diversity rules cannot be squared with the Securities Exchange Act of 1934.”
“It is obviously unethical to violate the law or to disregard a contractual promise. It is not unethical for a company to decline to disclose information about the racial, gender, and LGTBQ+ characteristics of its directors. 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.”
