No Proxy Access for Now

We talked earlier about how the Dodd-Frank Act is changing the way public companies do business and handing more power to shareholders.

Last week, the D.C. Circuit slowed that trend down significantly.  In a decision that blistered the SEC’s rulemaking prowess, Circuit Judge Douglas Ginsberg wrote that the SEC had:

acted arbitrarily and capriciously for having failed once again …adequately to assess the economic effects  of a new rule. Here the Commission inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commentators.

The SEC rules were drafted to implement provisions in the Dodd-Frank Act.  They would have given any bloc of shareholders who have owned at least three percent of the voting power of a company’s securities for at least three years the right to have their choice of director nominees included in the company’s proxy materials.  After an appeal by the U.S. Chamber of Commerce, however, the D.C. panel sent the rules back to the SEC’s drawing board.

The D.C. court took particular umbrage at the SEC’s failure to assess the economic consequences of these rules, and said it failed to consider what activist shareholders, such as unions, local governments or political groups, could be expected to do with the new rules that could cost the companies even if their nominees were not elected.