On October 4, 2010, the U.S. Securities and Exchange Commission (“SEC”) announced that it has stayed the effectiveness of its proxy access rules previously adopted by it. These rules are Rule 14a-11 and related amendments (including to Rule 14a-8), which were due to become effective on November 15, 2010 and to apply to the upcoming proxy season for issuers that mailed their 2010 proxy statements on or after March 13, 2010.
The SEC’s action was taken pursuant to its authority to exercise discretion to stay its rules pending judicial review if it determines “justice so requires,” and was made in response to a petition filed September 29, 2010 by the Business Roundtable and the U.S. Chamber of Commerce in the U.S. Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit Court”) seeking to invalidate the new proxy access rules, and a related motion to stay Rule 14a-11 and associated amendments filed with the SEC. The Business Roundtable and U.S. Chamber of Commerce have asserted in these filings that the new proxy access rules are arbitrary and capricious and otherwise not in accordance with law; do not promote efficiency, competition and capital formation; exceed the SEC’s authority; and are unconstitutional (violating issuers’ rights under the First and Fifth Amendments to the United States Constitution). The SEC’s actions do not address the merits of these claims.
While the SEC and the petitioners will seek expedited review by the D.C. Circuit Court, the impact of this stay on the 2011 proxy season remains unclear. An SEC spokesperson has stated that the SEC expects the legal issues will be resolved by “late spring,” which would effectively delay implementation of the new proxy access rules for at least one year for most companies. We will continue to monitor the status of this proceeding and any SEC rule changes for our clients.
Andrews Kurth looks forward to continuing discussions with our clients regarding the implementation and impact of proxy access, but we alert our clients that you may consider deferring final changes implementing proxy access (e.g., bylaw amendments) until these issues are resolved.