Last week, in a ruling applauded by business groups, the U.S. Court of Appeals for the District of Columbia Circuit (the “Court”) issued an opinion rejecting and vacating the Securities and Exchange Commission’s landmark shareholder proxy access rule.1 Rule 14a-11 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), adopted in August 2010 by a bitterly divided 3-2 vote after years of controversy, was intended to facilitate the rights of shareholders to nominate directors of corporate boards.2 However, in September 2010, the Business Roundtable and the Chamber of Commerce of the United States of America (the “Plaintiffs”) filed a petition for review with the Court challenging the rule, and in October 2010 the SEC agreed to stay the effectiveness of the rule pending the Court’s decision.3 In its decision last week, the Court held that the SEC acted “arbitrarily and capriciously” and failed to adequately assess the economic effects of the new rule.

The SEC’s proxy access initiatives would have implemented Rule 14a-11, under which shareholders owning at least three percent of a company’s voting power for at least three years (and who meet other requirements) generally could have their nominees included in the company proxy materials that are sent to all voters. Additionally, under revised Exchange Act Rule 14a-8, shareholders would be able to use the shareholder proposal process to establish procedures to include shareholder director nominations in company proxy materials that may be even more shareholder-friendly than those required by the new SEC rules. The proxy access rules were slated to become effective November 15, 2010 and would have applied to many companies’ 2011 annual meetings.