The US Court of Appeals for the District of Columbia Circuit [official website] on Friday overturned [opinion, PDF] the Securities and Exchange Commission (SEC) [official website] "proxy access" rule. The rule allowed certain shareholders to have their board nominees listed on company-mailed proxy ballots that also list the management's preferred candidates. Otherwise, the shareholders would incur the costs of mailing out separate ballots. The petitioners, the US Chamber of Commerce (COC) and the Business Roundtable [official websites], argued that the SEC failed "adequately to consider the rule's effect upon efficiency, competition, and capital formation" in violation of the Administrative Procedure Act [5 USC § 551 text]. The three-judge panel agreed, calling the rule "arbitrary, capricious, [and] an abuse of discretion." President and CEO of the COC Thomas Donohue welcomed the court's decision:
This is a big win for America's job creators and investors. We applaud the court's decision to prevent special interest politics from being injected into the boardroom. Companies and directors need to continue to focus on the important work of creating jobs and reviving our economy. Today's decision also sends a strong message that regulators need to meet their statutory requirement to clearly prove that the benefits of regulation outweigh the costs.The SEC has failed in this same court to enforce similar laws on three other occasions, though it will now have the opportunity to reevaluate and potentially reissue the rule.
Some investor groups, including labor unions and pension funds, espouse proxy access rules, arguing that such rules ensure that company management is held accountable [WSJ report]. Companies, however, contend that proxy access rules give too much power to minority or special interest groups. The SEC was authorized to implement proxy access rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act [text, PDF], which was signed into law [JURIST report] by President Barack Obama in July 2010 and created the new regulatory council to monitor financial institutions in order to prevent companies from becoming "too big to fail." In addition to creating the US Financial Stability Oversight Council (FSOC) [offical website], this legislation also gives the Federal Reserve [official website] new oversight over the largest financial institutions, creates a bureau of consumer protection, introduces multitudes of new regulations on derivatives and other financial instruments and limits the amount of capital banks can invest in hedge funds. In June 2009, the administration proposed a broad series of regulatory reforms [press release; JURIST report] aimed at restoring confidence in the US financial system in the wake of economic crisis [JURIST news archive].