On July 22, 2011, in the case Business Roundtable and Chamber of Commerce of the United States of America v. Securities and Exchange Commission, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit vacated Rule 14a-11 (the proxy access rule) adopted by the SEC under the Exchange Act in 2010, finding that the SEC had acted “arbitrarily and capriciously” in adopting the rule without properly assessing and weighing the rule‟s effect upon efficiency, competition and capital formation.

Rule 14a-11 required public companies and registered investment companies to permit any shareholder or group of shareholders owning at least 3% of the company‟s voting stock for at least three years to include director nominees in company proxy materials. In vacating the rule, the court noted that the SEC, among other things, “inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.” With respect to the final point, the court noted that the SEC failed to deal with concerns raised by the ICI and others that the rule would impose greater costs on investment companies by disrupting the unitary and cluster board structures.

The SEC issued a statement following the release of the decision stating that it was considering its options going forward. The SEC noted in its press release that the amendments to Rule 14a-8 allowing shareholders to submit proposals for proxy access at their companies, which it adopted at the same time as Rule 14a-11, were unaffected by the court‟s decision.