Twenty-two state attorneys general sent a letter to the CEO of Nasdaq on Thursday, questioning the legality of requiring Nasdaq-listed companies to meet diversity quotas for corporate boards.

The attorneys general wrote to Nasdaq CEO Adena Friedman about its proposed rule that would “require most Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identified as either an underrepresented minority or LGBTQ+.”

The attorneys general noted that Nasdaq had to reframe its “board quota” to the Securities and Exchange Commission (SEC) as “aspirational and not mandatory” after there were “well-founded objections that its policy violated anti-discrimination laws.”

Then in litigation before the Fifth Circuit, the stock exchange “pivoted again” and started calling its “illegal board quota” as a “disclosure-based framework.”

A Nasdaq spokesperson said that the exchange is a “firm believer in the rule of law.”

“The board disclosure framework was developed in response to strong demand from both investors and corporates, with pragmatism as a guiding principle,” the spokesperson added.

The attorneys general wrote:

For more than three years, Nasdaq has defended as something other than a quota a policy that looks like a quota and acts like a quota. During that time, the Supreme Court of the United States held unconstitutional university race-based admissions policies and reaffirmed “the absolute equality of all citizens of the United States politically and civilly before their own laws.” The Court was clear: “Eliminating racial discrimination means eliminating all of it.”

Nevertheless, Nasdaq insists on continuing down the wrong path. Nasdaq’s defense of its board quota revolves around its claim that constitutional and statutory discrimination prohibitions do not apply to it. Its litigation strategy raises questions about Nasdaq’s commitment to following state and federal anti-discrimination laws. Given Nasdaq’s zealous desire to impose quotas on companies, several of which are
headquartered in our states, we are interested in learning what policies Nasdaq has in place to ensure its listed companies are following federal and State antidiscrimination laws. [Emphasis added]

Will Hild, the executive director of Consumers’ Research, said in a written statement:

Nasdaq is clearly attempting to circumvent federal and state prohibitions on discrimination by asking the SEC to mandate companies meet and disclose specific DEI quotas. Not only is this illegal, it’s morally repugnant, especially for an organization that is supposed to serve as the platform for capital formation and allocation. Make no mistake, this rule isn’t just bad for workers, it’s bad for consumers, who lose out when corporations focus on committing gross racial discrimination rather than improving their products. Fortunately, our state Attorneys General are fighting back for their constituents and for the rule of law by demanding Nasdaq stop pushing a woke agenda and focus on their fiduciary duty. Consumers’ Research will continue to highlight elected officials who demand companies start serving their customers and stop serving woke politicians. [Emphasis added]