The SEC will not ask for a
rehearing of a DC Circuit panel
opinion vacating the proxy
access rule, Rule 14a-11, nor
will the Commission appeal the
ruling to the U.S. Supreme
Court. In an effort to ensure
that the SEC carefully considers
and learns from the court's
objections as it determines the
best path forward, SEC Chairman
Mary Schapiro asked the staff to
continue reviewing the decision
as well as the comments the
Commission previously received
from interested parties.
Chairman
Schapiro said that the
Commission remains committed to
finding a way to make it easier
for shareholders to nominate
candidates to corporate boards.
In her view, providing a
meaningful opportunity for
shareholders to exercise their
right to nominate directors at
their companies is in the best
interest of investors and the
financial markets. It is a
process that helps make boards
more accountable for the risks
undertaken by the companies they
manage.
A unanimous
panel of the DC Circuit Court of
Appeals ruled that the SEC was
arbitrary and capricious in
promulgating the proxy access
rule and vacated the rule. Among
other things, the appeals panel
found that the SEC’s discussion
of the estimated frequency of
nominations under Rule 14a-11
was internally inconsistent and
therefore arbitrary. The appeals
court also found that the
Commission relied upon
insufficient empirical data when
it concluded that Rule 14a-11
would improve board performance
and increase shareholder value
by facilitating the election of
dissident shareholder nominees.
Business Roundtable and
Chamber of Commerce v. SEC,
DC Circuit, No. 10-1305, July
22, 2011.
The term
proxy access is shorthand for a
framework of rules under which a
shareholder may require the
corporation to include in its
proxy statement and proxy card a
person nominated by the
shareholders, but not by the
board of directors, for election
to the board.
Last year,
when the Commission adopted Rule
14a-11, it also adopted
amendments to Rule 14a-8, the
shareholder proposal rule. Under
those amendments, eligible
shareholders are permitted to
require companies to include
shareholder proposals regarding
proxy access procedures in
company proxy materials. Through
this procedure, shareholders and
companies have the opportunity
to establish proxy access
standards on a
company-by-company basis, rather
than a specified standard like
that contained in Rule 14a-11.
Although the
amendments to Rule 14a-8 were
not challenged in the
litigation, the Commission
voluntarily stayed their
effective date at the time it
stayed the effective date of
Rule 14a-11. The Commission's
stay order provides that the
stay of the effective date of
the amendments to Rule 14a-8 and
related rules will expire
without further Commission
action when the court's decision
is finalized. Thus, absent
further Commission action, Rule
14a-8 will go into effect and a
notice of the effective date of
the amendments will be
published.