We posted on Jul. 29, 2011 that the U.S. Court of Appeals for the District of Columbia had vacated the SEC’s proxy access rule.  SEC Chairman Mary L. Schapiro confirmed on Sep. 6, 2011 that the SEC would not seek a rehearing or an appeal to the U.S. Supreme Court.

While she confirmed her support for proxy access through shareholder nomination of directors, Chairman Schapiro indicated that the staff would revisit how best to proceed, taking into account the appellate court’s decision and comments received with respect to the intended rule.  The proxy access rule was originally proposed by the SEC in June 2009.  The SEC adopted new Rule 14a-11 in August 2010 effective for the 2011 proxy season, but then vacated the rulemaking in October 2010 pending resolution of the petition for review that challenged the rule.

The Wall Street Journal reported that institutional investors are not happy with the decisionIn a letter addressed to Chairman Schapiro (PDF), the Council of Institutional Investors express its “disappointment” with the SEC’s decision, but affirmed its commitment to a “uniform proxy access rule.”

The Commission also disclosed that the amendments to Rule 14a-8 regarding shareholder proposals would be effective when the appellate court’s decision is finalized, which is expected to be Sep. 13, 2011.  Although not challenged in the lawsuit, the Rule 14a-8 amendments were stayed at the same time as new Rule 14a-11 (PDF) in order to avoid confusion pending final resolution of the petition for review.

OUR TAKE:  With this decision, it is back to the drawing board for the SEC.  While there is still considerable pressure from shareholder groups for greater access, the SEC’s challenge is to craft a rule that both satisfies the perceived need and has a solid foundation of analysis to support it.