Earlier today, in Business Roundtable v. Securities & Exchange
Commission, No. 10-1305 (D.C. Cir. July 22, 2011), the
United States Court of Appeals for the District of Columbia Circuit
issued its decision invalidating the SEC's proxy access rules
adopted in August 2010 with the intention that they be effective
for the 2011 proxy season (see our blog
here). The Business Roundtable and U.S. Chamber of
Commerce filed the lawsuit in September 2010 challenging the
SEC's adoption of proxy access rules and separately requesting
for the SEC to stay implementation of the rules pending the outcome
of the lawsuit. The SEC granted the request for stay in October
2010 and issuers were relieved of the burdens of proxy access for
the 2011 proxy season. (See our blog posts
The Court found that the Commission "neglected its
statutory responsibility to determine the likely economic
consequences of Rule 14a-11 and to connect those consequences to
efficiency, competition, and capital formation." The
Court also criticized the SEC's reliance on empirical data that
purported to demonstrate that proxy access would improve board
performance and increase shareholder value by facilitating the
election of dissident nominees, pointing out numerous studies
submitted in the rule comment process that reached the opposite
The SEC's proxy access rules also included an amendment to
Rule 14a-8 that would authorize stockholder proposals to establish
a procedure for stockholders to nominate directors. The SEC
stayed implementation of the changes to Rule 14a-8 at the same time
it stayed implementation of Rule 14a-11; however, the changes to
Rule 14a-8 were not affected by the Court's decision.
The SEC will now need to decide whether to propose new
regulations for proxy access and whether to permit Rule 14a-8 to go
effective. However the SEC decides to proceed, it seems
unlikely that public companies will face mandatory proxy access for
the 2012 proxy season.
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