The Securities and Exchange Commission issued an order on Oct. 4, 2010 to delay the effectiveness of its new federal proxy rules pending resolution of a petition filed by the U.S. Chamber of Commerce and Business Roundtable in the U.S. Court of Appeals for the D.C. Circuit. These new proxy rules were set to take effect during the 2011 proxy season for most issuers.
The petition challenges the SEC's adoption of new Rule 14a-11 under the Securities Exchange Act, and related rule amendments, under authority given to it by the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules effectively grant certain shareholders the right to include their director nominees in an issuer's proxy materials, subject to certain conditions, including the filing of new Schedule 14N with the SEC. The petitioners sought the delay of new Rule 14a-11, but did not request suspension of the SEC's amendment to Rule 14a-8 under the Exchange Act, which requires an issuer in certain circumstances to include in its proxy materials proposals for amendment to the issuer's governing documents regarding director nomination procedures. The SEC's suspension, however, covers the Rule 14a-8 amendment because it intended this amendment to complement Rule 14a-11.
Pursuant to the SEC's order, the SEC and petitioners will seek expedited review of the petition. It is likely, however, that the case will not be resolved in time for the new proxy rules to be effective for the 2011 proxy season. Issuers may still consider whether any adjustments to their governing documents would be prudent.
For a more complete overview of the SEC's new proxy rules, see our Public Securities Alert titled "SEC's New Rules for 2011 Proxy Season."