Earlier today, the U.S. Court of Appeals for the D.C. Circuit vacated the Securities and Exchange Commission's ("SEC") proxy access rules, which had been stayed pending the outcome of this litigation. The court found that the SEC "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters." In addition, the unanimous three-judge panel stated that "[b]y ducking serious evaluation of the costs that could be imposed upon companies from use of the rule by shareholders representing special interests, particularly union and government pension funds, we think the Commission acted arbitrarily."
As we previously explained, the proxy access rules would have permitted shareholders who collectively owned at least 3% of a company's shares for a period of three years to include nominees in a company's proxy materials. The court's decision is a rebuke to the SEC, but the SEC could request a rehearing, appeal to the supreme court or revise its analysis without necessarily changing the rules.