U.S. business groups sue SEC over proxy access

By Reuters
Posted Sep. 29, 2010 at 10:58 a.m.

The U.S. Chamber of Commerce and the Business Roundtable sued the Securities and Exchange Commission Wednesday over its rule giving shareholders an easier way to influence corporate boards.

The Chamber of Commerce, the biggest business lobby in the United States, said the rule empowers unions and special interests at the expense of shareholders.

The SEC, chaired by Mary Schapiro, passed the so-called proxy access rule in late August. In a split vote, it approved giving shareholders the ability to nominate directors if they hold at least 3 percent of the company’s stock for at least three years.

The business groups called the rule “arbitrary and capricious” and asked the SEC to delay implementing the rule pending the outcome of the legal challenge.

The groups also said the SEC failed to properly assess the rule’s effects on “efficiency, competition and capital formation as required by law.”

The SEC had no immediate comment on the lawsuit.

Activist shareholders who want more say on how companies are run have long sought the ability to place their nominees’ names on company proxy statements.

That demand increased after the government used billions of tax dollars to prop up companies like American International Group Inc and Bank of America Corp.

In the past decade, two other SEC chairmen have tried to adopt proxy access rules with no success. This time, the SEC had backing from the Dodd-Frank financial reform bill, which affirms the agency’s authority to adopt proxy access rules. The legislation is expected to help shield the SEC from some legal challenges, but it is not clear if that will be enough to withstand the lawsuit filed on Wednesday.

Republican SEC Commissioner Kathleen Casey, who voted against the proxy access rule in 2007 and again this year, has said the rule is fundamentally flawed and she does not expect it to survive court scrutiny.

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