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SEC Delays the Effective Date of Proxy Access Rule

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

October 4, 2010

It looks like it will be another year, at least, before large shareholders will be “knock knock knockin’ on the boardroom’s door.” Today, the SEC issued an order delaying the effective date of the rule pending the results of a legal challenge.

As reported in this previous post, last week the U.S. Chamber of Commerce and the Business Roundtable filed a petition with the U.S. Court of Appeals challenging the SEC’s adoption of Rule 14a-11, the proxy access rule. This rule grants large shareholders the right to nominate directors in certain circumstances and have these nominees included in the company’s proxy statement. The Chamber and the Roundtable requested that the effectiveness of the rule be delayed until the court had a chance to rule. In today’s order, the SEC agreed to the delayed effective date and joined the two groups in requesting expedited review by the court.

Ted Allen, in the RiskMetrics blog published by ISS, posted “The SEC Puts Proxy Access Rule on Hold,” discussing the anticipated impact of the SEC’s order:

. . . . Even if the appeals court acts quickly and upholds the controversial rule [14a-11], it’s not likely that proxy access would take effect until at least the 2012 proxy season.

The SEC also said it would delay an amendment to Rule 14a-8, which would have allowed investors to file bylaw proposals that seek more permissive access procedures. That rule change was not challenged by the corporate groups, which have argued that companies and investors should be able to adopt issuer-specific provisions instead of being subject to uniform federal standards. The SEC said it decided to delay the implementation of this rule change, ‘because the amendment to Rule 14a-8 was designed to complement Rule 14a-11 and is intertwined, and there is a potential for confusion if the amendment to Rule 14a-8 were to become effective while Rule 14a-11 is stayed.’

The SEC's decision, especially its move to also delay the Rule 14a-8 amendment, surprised both investors and corporate advisers. The Dodd-Frank Act, which was enacted in July, included authorization for the SEC to adopt a proxy access rule, so many SEC observers expected that the commission would move forward to implement the rule after obtaining that legal support.


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