In a severe rebuke for the SEC, the DC Circuit Court of Appeals has thrown out the regulator’s Rule 14a-11 that would have opened up the company’s proxy statement to investor nominees for directors.
The court said the SEC ‘acted arbitrarily and capriciously for having failed’ to adequately assess the economic effects of the new rule.
The court opinion detailed the failures of the SEC, charging that the commission ‘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.’
The rule, enacted as a result of a provision under the Dodd-Frank Act, would have permitted any shareholder or group of shareholders owning at least 3 percent of a public company’s voting stock for at least three years to include its own director nominees in the company proxy materials.
The SEC had held off implementing the rule, pending the outcome of the lawsuit filed by the Business Roundtable and US Chamber of Commerce, which both opposed the change.
‘This is a big win for America’s job creators and investors,’ says Thomas Donohue, president and CEO of the US Chamber of Commerce, in a press statement. ‘We applaud the court’s decision to prevent special interest politics from being injected into the boardroom.’
Attorneys Kim Anderson and Tim Hearn, writing in the Dorsey & Whitney blog, speculate that the SEC could pursue the case before the circuit court, appeal the case directly to the Supreme Court or start over and address the cost-benefit issues raised by the circuit court.
If the SEC does start over, the bloggers say ‘it is highly unlikely a new rule will be in place in time for the 2012 proxy season.’ They say the SEC might also ‘simply decide to abandon the Rule 14a-11 initiative.’
