Yesterday, the Securities and Exchange Commission (“SEC”) issued a formal stay of the effectiveness of the newly adopted shareholder proxy access rules in the face of a legal challenge brought by the Business Roundtable and the U.S. Chamber of Commerce. The shareholder proxy access rules, described in Goodwin Procter's September 1, 2010 Client Alert, were originally scheduled to become effective on November 15, 2010.
The Business Roundtable and the U.S. Chamber of Commerce filed a petition for review of the newly adopted Rule 14a-11 and associated amendments to SEC rules in the U.S. Court of Appeals for the District of Columbia Circuit on September 29, 2010. The petition claimed that the new rule was arbitrary and capricious and violated the Administrative Procedure Act, and that the SEC failed to properly assess the rule’s effects on “efficiency, competition and capital formation” as required by law. The SEC did not address the merits of these claims.
The challenge relates solely to new Rule 14a-11 and related amendments, but does not cover the new amendments to Rule 14a-8 (relating to shareholder proposals) and related amendments. The SEC, however, stayed the effectiveness of both Rule 14a-11 and related amendments and the amendments to Rule 14a-8 pending resolution of the petition for review.
In light of the uncertainty surrounding the timing of effectiveness, companies should postpone finalizing any changes to their governing documents in response to the shareholder proxy access rules until the situation has been resolved. We will continue to provide updates as the situation develops.