The US Court of Appeals for the District of Columbia Circuit has vacated a SEC rule which would have required companies and investment companies to include, under certain circumstances, the names of shareholder nominees for board positions in their proxy materials: Business Roundtable v Securities and Exchange Commission (DC Cir. 22 July 2011) [Link available here].

The Business Roundtable and the Chamber of Commerce of the United States argued that the SEC had adopted the rule (already once proposed and revised after comment) without adequately considering its effect on efficiency, competition and capital formation, as required under the Securities and Exchange Act and the Investment Company Act of 1940. The court agreed. The proposed rule violated the Administrative Procedure Act as an ‘arbitrary and capricious’ measure that did not consider the economic consequences and costs of companies of its imposition. There were also insufficient data to establish the SEC’s contention that the rule would have improved board performance and increased shareholder value through the election of dissident nominees. The rule was vacated. The SEC has since indicated that it will not appeal the ruling.