SEC Elects Not To Seek Rehearing of Opinion Vacating Exchange Act Rule 14a-11 Regarding Shareholders' Rights to Nominees Be in Proxy Materials
On Tuesday, September 6, the SEC announced that it is not seeking rehearing of the decision by the D.C. Circuit Court of Appeals invalidating Exchange Act Rule 14a-11. That Rule, which was previously discussed here, allowed 3% shareholders (or larger) to use the company proxy statement to nominate directors. As discussed here, on Friday, July 22, 2011, the D.C. Circuit Court of Appeals issued an Opinion vacating the rule. Business Roundtable v. SEC, No. 10-1305, slip op. (D.C. Cir. Jul. 22, 2011).
In announcing the decision not to seek a rehearing, SEC Chairman Mary Schapiro said:
I firmly believe that providing a meaningful opportunity for shareholders to exercise their right to nominate directors at their companies is in the best interest of investors and our markets. It is a process that helps make boards more accountable for the risks undertaken by the companies they manage. I remain committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards.
At the same time, I want to be sure that we carefully consider and learn from the Court's objections as we determine the best path forward. I have asked the staff to continue reviewing the decision as well as the comments that we previously received from interested parties.
The SEC simultaneously announced that Exchange Act Rule 14a-8 (under which eligible shareholders are permitted to require companies to include shareholder proposals regarding proxy access procedures in company proxy materials), which had been stayed, will now go into effect. The Commission noted that "shareholders and companies have the opportunity to establish proxy access standards on a company-by-company basis – rather than a specified standard like that contained in Rule 14a-11."
The Commission also announced that it "will seek public comment on a plan to conduct retrospective reviews of its existing regulations." It appears that this request for comment has been triggered, in part, by President Obama's executive order to have independent regulatory agencies consider analyzing rules that might be outmoded, ineffective or burdensome. The SEC stated that it "has long had formal and informal processes in place to review its existing rules," and is "seeking public comment on the process it should use to conduct retrospective reviews, such as how often rules should be reviewed, the factors that should be considered, and ways to improve public participation in the rulemaking process." They have requested that public comments be received by October 6, 2011.