Americans hate racial discrimination, and they hate inequality borne of government force. However, if you try to solve the problem of inequality by engaging in Orwellian and neo-racist "discrimination in the name of anti-discrimination" (often advanced under the banners of "antiracism" and “DEI” -- "diversity, equity, and inclusion"), then you will sooner or later experience the wrath of the people. The recent judicial rebuke of Nasdaq's diversity rule adds to the drumbeat of feedback alerting corporations to this fact: If corporations want to maintain their social license to operate, then they must stop discriminating on the basis of race.
In National Center for Public Policy Research (NCPPR) v. SEC, the en banc U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s approval of Nasdaq’s “Board Diversity Rules.” I work for the National Center, and our excellent attorneys at the New Civil Liberties Alliance (NCLA) described the discredited rules as follows: “These Rules imposed gender, race and sexual orientation quotas on corporate board membership for Nasdaq-listed companies, compelling those that failed to meet their board seat quotas to explain why or face involuntary delisting from the stock exchange.”
You can read the National Center’s press release as well as NCLA’s press release for more detailed analysis of the case.
The short of it is that the SEC exceeded its statutory authority in approving the rule because the rules advanced none of the express purposes of the governing statute, but were instead a thinly veiled attempt to shame corporations into advancing the forced neo-racist social engineering that’s become so popular as “antiracism” the past few years.
In reading some of the subsequent analysis, I was particularly struck by Professor Ann Lipton’s conclusions. In part, Lipton writes that:
“I tend to agree that [the] diversity disclosure rule is not, in fact, intended to help investors price securities or even to adopt governance practices that contribute to wealth creation; it is more in the category of the kind of rule that serves a kind of signaling function, that the corporation is exercising its power responsibly and inclusively. It’s a display of self-governance and discipline, in a manner that costs corporations very little but perhaps wins them legitimacy. It benefits companies and investors, but not in the traditional manner by which the securities laws operate; it does so by contributing to their social license to operate.”
It is worth noting that Lipton – with whom I used to co-blog at the Business Law Prof Blog, and who is an excellent scholar – does not even try to defend the diversity rule with the worn out “diversity is good for the bottom line” trope, which has by now been thoroughly debunked to the point that the SEC itself could not mount a defense on that basis (though that doesn’t stop DEI advocates from continuing to claim the business case for diversity has been proven, which is a lie).
Lipton goes on, however, to argue that diversity disclosures support a corporation’s social license to operate. The problem with this assertion, however, is that it boils down to arguing that racial discrimination is good for society. But once one sees through the lovely sounding “diversity, equity, and inclusion” mantra, one is left with the unmistakable conclusion that what is going on in the name of DEI is nothing short of sorting people into buckets based on their race (and other related identity categories), and then allocating resources like jobs, promotions, and financial support on that basis. While it has indeed taken Americans some time to figure this out, they have now done so – and corporations are quite properly dumping DEI fast.
But not all corporations, of course. In reporting on the Nasdaq ruling, it has been noted that the Big 5 (the Big 3 asset managers BlackRock, Vanguard, and State Street, together with the Big 2 proxy advisory firms ISS and Glass Lewis) still push corporations to allocate resources on the basis of race and sex in various ways. For a more specific example, one need look no further than Goldman Sachs, which denies its IPO services to companies that don’t meet Goldman’s neo-racist social engineering vision: “In 2021, the bank upped the requirement to two diverse board members, including at least one woman.” In other words, straight white male boards don’t just go to the back of Goldman’s IPO bus, they aren’t even allowed on.
In 2020, we were told a reckoning was coming. Well, it’s now 2024 and the terms of that reckoning have changed. Corporations that continue to force “antiracist” neo-racism on their employees and other stakeholders will be left facing boycotts and lawsuits that will materially harm their bottom line. And don’t let them tell you they weren’t warned -- they were.
Finally, let’s keep in mind that addressing inequality doesn’t require neo-racism. Instead, progress can be made by focusing on socio-economic status or geographic and viewpoint diversity. It’s time corporations stopped dividing us on the basis of race and got back to uniting employees around the common goal of providing the best products and services so that the poverty-eradicating engine of free market capitalism can continue to maximize the spread of prosperity.
