• SEC Will Not Appeal Proxy Access Ruling
  • September 12, 2011 | Authors: W. Brinkley Dickerson; Eric A. Koontz; David I. Meyers
  • Law Firms: Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Richmond Office
  • On September 6, 2011, the SEC announced that it would not appeal the D.C. Circuit’s decision that vacated the proxy access rule. Since the decision was based upon the process that the SEC went through in approving the proxy access rule, and not the substance of the rule, the SEC could re-propose the rule and go through a more robust consideration process that addresses the criticisms contained in the decision. However, given the changed political climate and the Dodd-Frank rule-making obligations currently on the SEC’s plate, it does not appear that the SEC has any appetite for going through that process anytime in the near future.

    The other proxy-related change approved by the SEC in 2010 - a change to Rule 14a-8 - was not challenged in the D.C. Circuit case and will go into effect on September 13. Prior to the change to Rule 14a-8, shareholders, working under the traditional shareholder proposal process, could not submit proposals that related to the election of directors, or the process for their election.

    As a result of the change to Rule 14a-8, shareholders now can, with minor exceptions, submit proposals related to the election process. For instance, a shareholder now can propose that shareholders approve a process requiring a company to include within its proxy statement (and on its proxy card) candidates nominated by others. This concept of permitting shareholders of each company to design their own governance structure is commonly referred to as “private ordering.”

    We do not expect a significant number of private ordering shareholder proposals relating to proxy access in the near-term. But we do expect in due course to see proposals in this area, just as over time there has been an increase in proposals relating to staggered boards, majority voting and similar items. It is not clear to us, however, that there will be enough shareholder support for proposals of this nature to pass on a significant scale.