Proxy Access on Hold

The SEC placed proxy access on hold and will ask the U.S. Court of Appeals for the District of Columbia for an “expedited review” of a legal challenge by the U.S. Chamber of Commerce and the Business Roundtable, according to a legal order posted on the agency’s website today. The move means rules allowing shareholders to nominate directors on corporate ballots won’t take effect Nov. 15 as planned. (SEC Delays Rules Easing Ouster of Directors Amid Review of Legal Challenge, Bloomberg, 10/4/10)

According to the SEC filing:

The Commission has discretion to grant a stay of its rules pending judicial review if it finds that “justice so requires.”…

the Commission has determined to exercise its discretion to stay Rule 14a-11 and related amendments to the Commission’s rules, including the amendment to Rule 14a-8, pending resolution of petitioners’ petition for review by the Court of Appeals.
The Commission finds 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. Among other things, 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. Because the Commission and petitioners will seek expedited review of petitioners’ challenge, questions about the rules’ validity will be resolved as quickly as possible.
The Commission further finds that, under all of the circumstances of this matter, it is consistent with what justice requires to stay the effectiveness of the amendment to Rule 14a-8 adopted contemporaneously with Rule 14a-11 because the amendment to Rule 14a- 8 was designed to complement Rule 14a-11 and is intertwined, and there is a potential for confusion if the amendment to Rule 14a-8 were to become effective while Rule 14a-11 is stayed.
Accordingly, it is ORDERED, pursuant to Exchange Act Section 25(c)(2) and Administrative Procedure Act Section 705, that the motion of petitioners filed on September 29, 2010 for a stay of the effect of Commission Rule 14a-11 and related amendments pending resolution of petitioners’ petition for review by the Court of Appeals be, and hereby is, granted; and it is further
ORDERED, pursuant to Exchange Act Section 25(c)(2) and Administrative Procedure Act Section 705, that the amendment to Commission Rule 14a-8 adopted on August 25, 2010 is stayed pending resolution of petitioners’ petition for review by the Court of Appeals.

“While we are disappointed in the delay, it is not the end of the world,” said Amy Borrus, deputy director of the Council of Institutional Investors. “The Council and concerned investors have pressed for years for this basic shareowner right. A few more months’ wait will not make a big difference.  Given the timing of the rule approval and publication in the Federal Register, it was already a stretch for active investors to use access in the 2011 proxy season. We look forward to expedited resolution of this case because of the cloud of uncertainty hanging over the rules as a result of the litigation. We continue to believe that access to the proxy is a fundamental shareowner right and that it will make boards of U.S. public companies more responsive to shareowners and more diligent in their oversight of management.” (The SEC Puts Proxy Access Rule on Hold, RMG Blog, 10/4/10)

As one who petitioned for proxy access in 2002, this delay looks appropriate for 14a-11 filings and, I suppose, 14a-8 resolutions also must be stayed because 14a-11 becomes the floor. Hopefully, we will have a clear route to access before the 2012 proxy season. I’m glad I didn’t spend a lot of time working on language for 14a-8 resolutions.