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Corporate Board Diversity Mandates in the United States: A Legal Lens on AFBR v. SEC

Acta Legis Turkuensia 2/2024 s. 34–65
30.12.2025
Opiskelijakirjoitus

This article examines how the U.S. Constitution affects guidelines issued by private companies, especially when said guidelines potentially violate an individual’s fundamental rights. In the case Alliance for Fair Board Recruitment (AFBR) v. Securities and Exchange Commission (SEC), the question was whether national stock exchange may set rules on how listed companies must compose their board.

The rule insists that all the listed company boards must have quotas for women and for other minorities who usually have not been represented in bigger companies’ boardrooms. AFBR stated for example that this rule violates the Fifth and the First Amendment to the U.S. Constitution. The Fifth Circuit Court of Appeals ruled that a company registered as private may issue rules that could be seen unconstitutional. According to the court’s ruling, a private operator cannot impede an individual’s rights, since only an authority could do that.

A great deal of research has also been conducted about diverse boards’ positive effects on companies’ e.g. financial situation and governance to back up the arguments for board diversity rules. The question on the table is interesting, as there are previous cases where a similar rule has been banned, however, as it has been given at the level of the law. Considering the latest Supreme Court cases and overruling, AFBR v. SEC may also potentially take an interesting turn if a decision is made to continue the controversy in the Supreme Court.

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