On September 29, 2010, the U.S. Chamber of Commerce and the Business Roundtable, as widely expected, filed a petition in the U.S. Court of Appeals for the District of Columbia Circuit seeking review of the U.S. SEC's adoption on August 25, 2010 of new Rule 14a-11 and amendments to certain of its other proxy rules that collectively would have required most publicly traded companies, commencing in early 2011, to include in their proxy materials director nominees put forward by a shareholder or a group of shareholders who have owned 3% or more of a company's stock for at least three years.
The plaintiffs' petition alleges, among other matters, that in adopting proxy access rules, the SEC acted arbitrarily and capriciously by
- failing to appraise the cost that proxy access would impose on American corporations, shareholders, and workers at a time the U.S. economy can least afford it;
- ignoring evidence and studies highlighting the adverse consequences of proxy access, including that activist shareholders would use the rules as leverage to further their agendas;
- claiming to be empowering shareholders, but actually restricting shareholders' ability to prevent special interest shareholders from triggering costly election contests; and
- claiming to be effectuating state law rights but giving short shrift to existing state laws, while creating ambiguities regarding the application of Federal and state law to the nomination and election process.
The plaintiffs also assert that the SEC's adoption of Rule 14a-11 violated both the Administrative Procedure Act and the First and Fifth Amendments to the U.S. Constitution, and did not properly assess the rule's effect on efficiency, competition and capital formation.
Concurrently with the submission of their petition to the Court of Appeals, the plaintiffs also filed a motion with the SEC to stay the implementation of the proxy access rules pending the court's review. On October 4, 2010, the SEC, without commenting upon the merits of the plaintiffs' petition, issued an order that stayed Rule 14a-11 and the other proxy rule amendments adopted on August 25, 2010 pending a ruling by the Court of Appeals. Although the plaintiffs had not sought review of Rule 14a-8, which deals with shareholder proposals, the SEC also stayed the amendments to that rule, noting that these amendments were designed to complement Rule 14a-11, and citing the potential for confusion if they were to become effective while Rule 14a-11 was stayed.
On October 8, 2010, the plaintiffs and the SEC jointly filed a briefing schedule with the Court of Appeals that contemplates oral arguments in March or April 2011 and a decision by the summer of 2011. This schedule, if approved by the Court of Appeals, will delay the availability of proxy access to shareholders beyond the 2011 proxy season.