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SEC Proxy Access Rule Vacated by D.C. Court of Appeals

Published October 1, 2011

The Washington, D.C. Circuit Court of Appeals ruled that the Securities and Exchange Commission’s (SEC) new proxy access rule 14a-11 is “arbitrary and capricious” and thus invalidated the rule. The DC Circuit Courts decided in Business Roundtable v. SEC that the SEC’s rule had unsupported assertions and arguments.

The SEC proxy access rule states that public companies need to provide shareholders with information regarding shareholder-backed candidates when board of directors are going to be voted on. The Business Roundtable and U.S. Chamber of Commerce said this rule violates the Administrative Procedure Act and had not “…adequately considered the rule’s effect upon efficiency, competition, and capital formation.”

Lately the SEC has come under fire for not analyzing their new rules with data and economic analysis that demonstrates the trade-offs and consequences of the new procedures. Some accuse the SEC of “back of the envelope” analysis or picking and choosing what makes sense to them rather than assessing the full economic repercussions of those rules. The Circuit Court decision is the first time one of the new rules has been vacated out of the 250 new requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Other rules from the Dodd-Frank Act have been challenged and the SEC must consider the far-reaching effects of their regulations. SEC Chairwoman Mary Schapiro has admittedly, “…parachuted into complex legislative matters demanding immediate specialized expertise” that warrants solid economic analysis and legal consideration before releasing as a rule.

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