On October 4, 2010, the Securities and Exchange Commission announced that it would stay the effectiveness of the new proxy access rules pending resolution of a petition filed by the U.S. Chamber of Commerce and the Business Roundtable with the U.S. Court of Appeals for the D.C. Circuit. In their petition, the U.S. Chamber of Commerce and the Business Roundtable asserted that the new rules were invalid because the SEC failed to consider their effect on efficiency, competition and capital formation and because the rules were arbitrary and capricious, went beyond SEC authority and were unconstitutional.
Rule 14a-11, which was to become effective on November 15, would have required public companies to permit any shareholder or group of shareholders owning at least 3% of a public company’s voting stock for at least three years to include director nominees in company proxy materials. The SEC also announced that it would stay effectiveness of an amendment to Rule 14a-8. Rule 14a-8 would have been amended to permit shareholders to submit proposals for inclusion in company proxy materials relating to adoption of a less restrictive shareholder access regime under a company’s governing documents, so long as such proposals do not conflict with or limit the mandatory provisions of Rule 14a-11.
While the SEC, the U.S. Chamber of Commerce and the Business Roundtable are expected to request an expedited review of this matter, the time it will take to resolve legal issues raised in the petition is unclear. It appears unlikely that proxy access rules will be in place in time for the 2011 proxy season. At this time, we recommend that companies hold off amending their bylaws in response to proxy access rules until the matter is resolved.