The U.S. Chamber of Commerce and Business Roundtable on Wednesday filed a lawsuit seeking to overturn SEC rules that will require shareholder access to corporate proxy materials to nominate directors.
According to the lawsuit, filed in the U.S. Court of Appeals in Washington, the rules adopted by the SEC Aug. 25 are “unlawful” and “arbitrary and capricious.” The appellate court has jurisdiction for reviewing final rules.
The rules “exceed the commission's authority” and violate corporations' rights under the First and Fifth amendments of the U.S. Constitution, according to the lawsuit.
The chamber and roundtable asked the court to delay implementation of the rules, scheduled for Nov. 15, until the conclusion of their lawsuit.
“The SEC's proxy-access rule empowers unions and other special interests at the expense of the vast majority of retail shareholders,” David Hirschmann, president and CEO of the U.S. Chamber's Center for Capital Markets Competitiveness, said in a statement about the suit. “This special-interest-driven rule will give small groups of special-interest activist investors significant leverage over a business' activities. This will undermine a company's ability to grow and create jobs.”
The SEC was authorized to adopt the rules as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Barack Obama on July 21.
Under the SEC rules, shareholders have to own at least 3% of a company's shares continuously for at least the prior three years to be eligible to have their nominees included in the proxy materials.
John Nester, SEC spokesman said in a statement, “We believe that the commission's proxy-access rules are both lawful and in the best interests of the public and shareholders. The commission will, of course, carefully consider and timely respond to the motion for a stay.”
The Council of Institutional Investors, in a statement, called the business community's legal challenge “an assault on a fundamental shareowner right.” The council plans to file a brief in support of the rules, the statement said.
“The council fought long and hard for U.S. shareowners to gain the right to have their board candidates considered alongside those of management,” Ann Yerger, the council's executive director, said in the statement. “Proxy access will make companies more responsive to their shareowners and more vigilant in their oversight of companies.”
The Business Roundtable is an association of about 200 CEOs of major U.S. companies with nearly $6 trillion in annual revenues.
The chamber represents more than 3 million businesses of all sizes, as well as state and local chambers and industry associations