Recently, the U.S. Court of Appeals for the District of Columbia Circuit vacated Rule 14a-11 under the Securities Exchange Act of 1934, known as the Proxy Access Rule, promulgated by the Securities and Exchange Commission (SEC) (Business Roundtable and Chamber of Commerce v. SEC, No. 10-1305, July 22, 2011).
The rule would have allowed certain shareholders to nominate directors in a company’s proxy materials, thus lending them power to oust existing board members. In vacating the rule, the court concluded, among other things, that:
- the SEC had not adequately considered the economic consequences of the rule;
- the rule as applied to investment companies was invalid because the SEC failed to address existing regulatory requirements and whether the costs would outweigh benefits as a result of the effects of the rule;
- the SEC relied on insufficient data in concluding that the rule would “improve board performance and increase shareholder value”; and
- the SEC failed to consider how union and state pension funds might use the rule to gain concessions.