Thursday, October 7, 2010
THE SEC STAYS- PROXY ACCESS RULES
On September 29, 2010, the Business Roundtable and the U.S. Chamber of Commerce filed a petition in the U.S. Court of Appeals for the D.C. Circuit challenging the newly adopted rules granting proxy access to shareholders that were issued recently by the SEC and set to become effective on November 15, 2010. The petitioners also requested that the SEC stay the effectiveness of newly adopted Rule 14a-11 pending resolution of the petitioners’ challenge by the court. On October 4, 2010, the SEC granted that motion.
In their motion and petition, the Business Roundtable and U.S. Chamber of Commerce asserted that the new proxy access rules are arbitrary and capricious in violation of the Administrative Procedure Act, that the SEC failed to adequately assess the rules’ effects on “efficiency, competition, and capital formation” as required by law, and that the rules are unconstitutional under the First and Fifth Amendments. In staying the effectiveness of the rules, the SEC did not address the merits of the petitioners’ claims but stated that “under all of the circumstances of this matter, a stay of Rule 14a-11 and related rule amendments is consistent with what justice requires [because] a stay avoids potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity.”
The petitioners’ challenge relates solely to new Rule 14a-11 and related amendments but does not cover the new amendments to Rule 14a-8 (relating to shareholder proposals) and related amendments. The SEC, however, stayed the effectiveness of both Rule 14a-11 and the amendments to Rule 14a-8 pending resolution of the petition.
While the impact of this development on the 2011 proxy season is uncertain at this time, an SEC spokesman has said that the SEC expects that the legal issues raised will be resolved by late spring, which would effectively delay implementation of proxy access for at least one year for most companies. We recommend that companies continue working to determine the best way to implement proxy access, but wait until the situation is clarified before adopting bylaw provisions and taking other steps to implement proxy access. We will continue to provide updates as the situation develops.
This Alert is for information purposes only, is general in nature and should not be construed as legal advice. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship. For further information or an explanation about the matters discussed in this Alert, please contact any of the following attorneys in our Securities Regulation and Corporate Finance Practice Group.