SEC Will Not Appeal Proxy Access Rule Decision - DC Circuit
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SEC Will Not Appeal Proxy Access Rule Decision

Securities and Exchange Commissioner Mary Schapiro announced last week that the Securities and Exchange Commission (SEC) will not challenge a D.C. Circuit Court of Appeals decision throwing out the SEC's proxy access rule.

The proxy access rule is the first judicial casualty of the 2010 Dodd-Frank Act, a sweeping measure drafted to implement reforms in the U.S. financial sector.

The D.C. Circuit Court of Appeals struck the SEC's proxy access rule in July. Under the proxy access rule, a company had to bear the cost of providing proxy statements about shareholder-nominated candidates for the company's board of directors.

Traditionally, a company selected its own board members and sent ballots with information about the nominees to the shareholders in proxy statements; shareholders who wished to make their own nominations were responsible for disseminating their own proxy statements.

The proxy access rule arose from the Commission's concerns that the proxy process stifled shareholders' rights under state corporation law to nominate and elect directors. The rule required a company subject to the Securities Exchange Act proxy rules, including an investment company like a mutual fund, to include in its proxy materials the "name of a person or persons nominated by a shareholder or group of shareholders for election to the board of directors."

The Business Roundtable and U.S. Chamber of Commerce challenged the rule, arguing that the rule promulgation process violated the Administrative Procedures Act because, in part, the SEC failed to adequately consider the rule's effect upon efficiency, competition, and capital formation.

The D.C. Circuit Court agreed, noting that the SEC's reasoning was "unutterably mindless," and vacated the rule.

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