Proxy Access Rules Stayed
- The Securities and Exchange Commission today stayed its rule amendments facilitating shareholder director nominations, pending judicial review of a challenge brought by the Business Roundtable and the Chamber of Commerce of the United States. Release Nos. 33-9149, 34-63031, IC-29456 (Oct. 4, 2010). The SEC found that a stay is consistent with what justice requires (the statutory standard for a stay), noting that a stay avoids potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity. The SEC and petitioners will seek expedited review of the challenge before the U.S. Court of Appeals for the D.C. Circuit. It seems unlikely, however, that the D.C. Circuit will act quickly enough for the rule amendments to be in effect for the 2011 proxy season.
The new proxy access rule, Rule 14a-11 under the Securities Exchange Act of 1934, requires companies subject to the SEC's proxy rules to include certain shareholder nominees for director in their proxy statements. The Business Roundtable and the U.S. Chamber of Commerce on Wednesday brought a petition for review in the D.C. Circuit, arguing that the rule is arbitrary and capricious and otherwise not in accordance with law; does not promote efficiency, competition, and capital formation; exceeds the SEC's authority; and violates issuers' rights under the First and Fifth Amendments to the U.S. Constitution. Business Roundtable v. SEC, Case No. 10-1305 (D.C. Cir. filed Sept. 29, 2010). The petitioners also filed a motion for stay with the SEC itself, including a brief that outlines some of the petitioners' arguments on the merits. The petitioners did not seek a stay with respect to the SEC's amendment to Rule 14a-8, requiring companies to include certain shareholder proposals relating to election procedures in their proxy statements, but the SEC stay extends to that rule change as well.
Congress gave the SEC support for its proxy access rule when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 971 of the Dodd-Frank Act gives the SEC explicit authority to adopt proxy access requirements. However, although the petitioners argue in passing that the rule exceeds the SEC's authority, they rely primarily on other bases for their attack, with greatest emphasis given to their argument that the SEC erred in appraising the rule's costs. Among the petitioners' other arguments, they assert that the SEC erred by covering investment companies under the rule.
The SEC order granting the stay is available online at
The petitioners' press release announcing the filing of the action, with links to the petition and the request for stay and accompanying brief, is online at
For my post on the adoption of the rule amendments, see
The Dodd-Frank Act, Public Law 111-203, has now been published in definitive form and is online at
John M. Baker <JMB@...>
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
1250 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
FundLaw Listowner http://groups.yahoo.com/group/fundlaw