D.C. Circuit Vacates Stayed Proxy Access Rule

On July 22, 2011, the United States Court of Appeals for the District of Columbia Circuit handed down a decision in the case captioned Business Roundtable and U.S. Chamber of Commerce vs. Securities and Exchange Commission, which vacates new proxy access Rule 14a-11, and related amendments to Rule 14a-8 on shareholder proposals. The implementation of new Rule 14a-11 and the related Rule 14a-8 amendments had been stayed pending the decision. In reaching its decision, the D.C. Circuit held that the SEC's promulgation of Rule 14a-11 was arbitrary and capricious because the SEC failed to adequately assess the economic effects of the new rule by, among other things, inconsistently and opportunistically framing the costs and benefits of the rule, contradicting itself and failing to respond to substantial problems raised by commenters. This decision effectively sends the SEC back to square one in its rulemaking process with respect to proxy access and it remains to be seen when, or if, the SEC will begin crafting a new proxy access rule that remedies the deficiencies cited by the D.C. Circuit.