A federal appeals court struck down Nasdaq (^IXIC) rules designed to encourage more diverse company boards, the latest defeat for DEI policies across corporate America.

The decision handed down by nine judges for the Fifth Circuit Court of Appeals in New Orleans concluded that the Securities and Exchange Commission should not have approved the Nasdaq rules in 2021.

These rules would have required the thousands of companies listed on the tech-heavy exchange to have at least one person who self-identified as female on their board, or explain why there was not one, along with at least one person who self-identified as either from a racial minority or as LGBTQ.

It was the first proposal of its kind for a US exchange, and it attracted opposition from conservative groups that challenged the policy in court.

The nine appeals judges in the majority, who were appointed by Republican presidents, found the Nasdaq proposal violated securities law.

"We hold … that the diversity rules cannot be squared with the Securities Exchange Act of 1934," they said in the 9-8 ruling.

The SEC, they added, failed to establish that the diversity disclosure rules were related to the purpose of the Exchange Act — which "exists primarily to protect investors and the macroeconomy from speculative, manipulative, and fraudulent practices, and to promote competition in the market for securities transactions."

Five judges who parted ways with the majority said in a dissenting opinion that the court overstepped its authority by imposing policy on a private limited liability company.

"The SEC approved the rule because the reviewing scheme that Congress created doesn’t permit the SEC to displace Nasdaq’s private business judgment informed by investor behavior with agency policy priorities," the dissenting judges said.

The decision underscores a backlash against diversity-focused initiatives and "woke" policies that picked up momentum across corporate America in 2024.

Walmart (WMT) last month became the most prominent company yet to scale back some of its diversity initiatives.

Walmart told Yahoo Finance that it would cease using the acronym DEI, no longer participate in a corporate equality rating system created by the Human Rights Campaign, and end its $100 million Center for Racial Equity that was scheduled to be sunsetted in 2025.

The company also said it would remove merchandise from its stores, including sexual and transgender products marketed to children, plus review its supplier diversity program to ensure that no preferences are made based on race. Walmart added that it would stop using the term "Latinx" in official communications to refer to people of Latin American cultural or ethnic identities.