DEI backlash reaches Nasdaq as court strikes down diversity rules

A federal appeals court has invalidated the rules established by Nasdaq (^IXIC) aimed at promoting greater diversity on corporate boards. This ruling constitutes a significant setback for diversity, equity, and inclusion (DEI) initiatives within corporate America.

The Fifth Circuit Court of Appeals in New Orleans, comprising nine judges, determined that the Securities and Exchange Commission (SEC) should not have endorsed the Nasdaq regulations in 2021. These regulations would have mandated that the numerous companies listed on the tech-centric exchange include at least one individual who self-identifies as female on their board. Furthermore, companies would have been required to either appoint someone from a racial minority or identify as LGBTQ or provide an explanation for their failure to do so.

This proposal was unprecedented for a U.S. exchange and faced considerable opposition from conservative organizations that subsequently challenged it in court. The majority of the nine appeals judges, all appointed by Republican presidents, concluded that the Nasdaq proposal contravened securities law. They stated, “We hold … that the diversity rules cannot be squared with the Securities Exchange Act of 1934.”

The judges further noted that the SEC had not adequately demonstrated that the diversity disclosure regulations aligned with the objectives of the Exchange Act, which is primarily designed to protect investors and the macroeconomy from speculative, manipulative, and fraudulent practices, in addition to promoting competition within the securities transaction market.

In a dissenting opinion, five judges disagreed with the majority’s assessment, asserting that the court overstepped its authority by imposing regulations on a privately held limited liability company. The dissenters remarked, “The SEC approved the rule because the reviewing scheme that Congress created does not permit the SEC to displace Nasdaq’s private business judgment informed by investor behavior with agency policy priorities.”

This ruling reflects a growing resistance to diversity-oriented policies and initiatives perceived as “woke” that gained traction across corporate America in 2024. Recently, Walmart (WMT) became a notable example of a company that has begun to retract some of its DEI measures.

Walmart informed Yahoo Finance of its decision to discontinue the use of the acronym DEI, to withdraw from a corporate equality rating system established by the Human Rights Campaign, and to terminate its $100 million Center for Racial Equity, which was projected to be concluded in 2025. Additionally, the company indicated that it would remove certain merchandise, including sexual and transgender products aimed at children, and would reassess its supplier diversity program to eliminate any preferences based on race. The company also announced it would cease using the term “Latinx” in official communications regarding individuals of Latin American heritage.

In its statement, Walmart acknowledged, “We have been on a journey and understand that we are not perfect, but every decision arises from a desire to create a sense of belonging, to provide opportunities for all our associates, customers, and suppliers, and to embody a Walmart for everyone.”

Furthermore, home improvement retailer Lowe’s (LOW), rural distributor Tractor Supply (TSCO), and agricultural machinery manufacturer John Deere (DE) also signaled their retreat from DEI policies during the previous summer. Additional companies that have made similar reductions include Harley-Davidson (HOG), Brown-Forman, the producer of Jack Daniel’s (BF-A), Polaris (PII), and its subsidiary Indian Motorcycle.

Conservative activist Robby Starbuck has indicated that many of these curbed DEI initiatives arose after he disclosed plans to “expose” policies regarded as woke. In his communication with Walmart, he stated on X that he informed the retailer’s executives of his intent to investigate “wokeness there” and emphasized that he and Walmart engaged in productive discussions to identify solutions.

Referencing the changes enacted by Walmart, he asserted, “This represents the most significant victory thus far for our campaign to eliminate wokeness in corporate America.”