On October 4, 2010, the Securities and Exchange Commission (SEC) stayed the effect of its newly adopted proxy access rules, pending judicial review of a challenge to those rules brought by the Business Roundtable and the Chamber of Commerce of the United States of America.
In August, the SEC adopted rules that give shareholders the ability to have their nominees for election as director included in the company’s proxy materials – commonly referred to as “proxy access.” Under new Rule 14a-11, companies must include information about shareholder nominees for director in company proxy statements, and the names of the nominee or nominees as choices on company proxy cards, under specified conditions. The proxy access rules were scheduled to become effective on November 15, 2010.
In a petition for review filed in the U.S. Court of Appeals for the District of Columbia Circuit, the Chamber and Business Roundtable charges that the rule is arbitrary and capricious, violates the Administrative Procedure Act, and that the SEC failed to properly assess the rule’s effects on “efficiency, competition and capital formation” as required by law.
The petitioners did not seek a stay with respect to the new amendments to Rule 14a-8, which would prohibit companies from excluding shareholder proposals seeking to establish a procedure in the company’s governing documents for inclusion of one or more shareholder nominees in the company’s proxy statement, but the SEC stayed that rule change as well.
The stay avoids potentially unnecessary costs, regulatory uncertainty and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity. Both sides have agreed to seek expedited review of the challenge. However, it is possible that the challenge will not be resolved in time for the proxy rules to be in effect for the 2011 proxy season.