On October 4, 2010, less than six weeks after approving new rules to facilitate shareholders’ rights to nominate directors, the SEC postponed the effectiveness of the rules. As a result of this postponement, in the upcoming proxy season companies most likely will not have to address the new shareholder proxy access rules.
In the Order granting the postponement, the SEC granted a request by the Business Roundtable and the U.S. Chamber of Commerce to delay the effective date of the SEC’s new Rule 14a-11. See Order Granting Stay, Release Nos. 33-9149, 34-63031, and IC-29456. The Business Roundtable and Chamber of Commerce had filed a petition on September 29 with the Court of Appeals for the District of Columbia Circuit seeking a review of the rule and alleging that the rule is unlawful. The SEC did not address the merits of that challenge, but agreed to exercise its discretion to postpone Rule 14a-11 and related amendments.
The SEC determined that a postponement would avoid “potentially unnecessary costs, regulatory uncertainty, and disruption” that might occur if the rules became effective during the Court’s consideration of the challenge. The SEC postponed the new Rule 14a-11 regarding shareholder proxy access as well as the amendment to Rule 14a-8 regarding shareholder amendments to the provisions in a company’s documents relating to director nominations that would provide for more permissive access.
Although the SEC and the Business Roundtable and Chamber of Commerce will seek expedited review of the challenge in Court, a resolution is not expected before late spring 2011. Consequently, companies do not need to take the actions suggested in our September 1, 2010 alert because their proxy materials will not need to be made available to shareholders for board nominees this year.