by James Hyatt
The Securities and Exchange Commission put the proxy access movement on hold, granting a request by business groups to stay the SEC’s recently adopted rules giving shareholders a procedure to put nominees on the ballot at corporate elections for directors.
The SEC’s order, issued Oct. 4, said the stay “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.”
The petition filed Sept. 29 by the U.S. Chamber of Commerce and the Business Roundtable hadn’t challenged a related SEC rule allowing investors to seek bylaw amendments permitting eased proxy access procedures, but the SEC stay also covers that proposal as well, citing the “potential for confusion.”
The challenge will now move to the U.S. Court of Appeals for the District of Columbia, where the two business groups will assert that proxy access is arbitrary and capricious, violates the Administrative Procedure Act, and that the SEC failed to properly assess the rule’s effect on “efficiency competition and capital formation” as required by law. The groups also assert the SEC rules create “significant ambiguities” with state laws covering nomination and election of directors.
Both business groups applauded the SEC announcement. The RiskMetrics governance blog quoted Amy Borrus, deputy director of the Council of Institutional Investors — a prominent supporter of proxy access — as saying “a few more months’ wait will not make a big difference…it was already a stretch for active investors to use access in the 2011 proxy season.”
The SEC proxy access rule, approved in August by a 3-2 vote, would apply to shareholders owning at least 3% of a company’s total voting power, and such shareholders would be required to have held their shares for at least three years. Shareholder activists assert access to the corporate proxy, avoiding the need for a costly and complicated separate proxy soliciation, is needed to effectively challenge entrenched and unresponsive directors and officers.