How the D.C. Circuit Got It Wrong: The Decision in Business Roundtable v. SEC, SEC's Rule 14a-11 and the Proposal for Increased Shareholder Access to Corporate Proxy Materials
27 Pages Posted: 4 Nov 2012
Date Written: November 2, 2012
This article provides the first examination of the opinion of the Court of Appeals for the District of Columbia in Business Roundtable v. SEC, as it pertains to the SEC’s would-be proxy access rule, R. 14a-11. The SEC introduced a new proposal in 2009 which would allow shareholders to place their own candidates on the proxy materials prepared by a corporation for its own slate of nominees. The proposal would have the effect of reducing cost barriers to shareholders related to procuring disclosure documents, copying costs and mailing fees. Improved shareholder access to the nomination and election process would ensure increased accountability of boards to the shareholders in allowing for greater ease of removal of inept directors and their replacement with qualified candidates. Essentially, the SEC proposal sought to increase the ability of shareholders to free-ride on corporate proxy materials.
Following the adoption of the proposed rule, R. 14a-11, the rule was challenged in the Court of Appeals for the District of Columbia in the case of Business Roundtable vs. SEC. The Business Roundtable Court’s convoluted analysis and misplaced criticism resulted in the voidance of R. 14a-11. In so doing, the D.C. Circuit prevented the SEC from duly exercising its rulemaking authority as an administrative agency and struck down the SEC’s attempt to provide more meaningful access to the mechanisms of corporate accountability. This article analyzes the D.C. Circuit’s holding in Business Roundtable and will demonstrate that this decision is fundamentally flawed.
This article seeks to bring a new prospective to the longstanding debate regarding the appropriate level of corporate board and director accountability in the post-economic bailout era. To wit, this article postulates that without greater shareholder access to the expensive and complex proxy nomination procedures, corporate boards and directors will continue to be unresponsive to their constituent shareholders. The article also explores the overreaching of an outcome-driven D.C. Circuit which disregarded the standard of review (“arbitrary and capricious”) in attempt to quell the uproar of big business. This topic should be one of concern to all legal scholars and lay persons alike as the D.C. Circuit’s open hostility to shareholder rights threatens to impede the progress of federal and administrative economic reform.
Keywords: securities, securities and exchange commission, SEC, rule 14a-11, free-riding, corporations, proxy, proxy materials, Business Roundtable, corporate ethics, shareholder, stakeholder, board, nominations
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