A federal judge sided with the Securities and Exchange Commission in a lawsuit challenging the agency’s 2022 rule-making on proxy-voting advice.
The SEC was within its authority to reconsider its rules on the highly contentious subject, said Judge Aleta A. Trauger of the U.S. District Court in Nashville, Tenn., in a court order Monday. He also dismissed the lawsuit filed in July by the U.S. Chamber of Commerce, Business Roundtable and Tennessee Chamber of Commerce & Industry.
The business groups in their lawsuit took issue with the SEC in July voting to rescind two amendments to its rules concerning proxy-voting advice adopted in 2020 under the previous administration that increased restrictions on proxy advisory firms.
The rescinded amendments would have allowed companies that were the subject of voting advice to access that advice prior to or at the same time as it was disseminated to clients. It also would have required proxy advisory firms to provide clients with access to any response the company provides on voting advice before those clients vote.
The business groups contended that the SEC did not follow proper procedures or provide adequate justification for its decision to roll back the 2020 rule before it was allowed to take effect.
But the judge disagreed.
“The SEC reconsidered a matter and came down on a different side of a debatable question, which it was permitted to do, and then it explained that decision clearly and thoroughly, as was required,” Ms. Trauger wrote. “Because the SEC explained in sufficient scope and detail why it concluded that the 2022 policy was preferable, it satisfied the general (Administrative Procedure Act) obligations at the heart of” the plaintiffs’ lawsuit.
Tom Quaadman, executive vice president of the Chamber’s Center for Capital Markets Competitiveness, said in a statement that proxy advisory firms “harm the public company model by empowering activists over investors. The U.S. Chamber of Commerce will continue to defend public companies from the proxy advisory firm duopoly actively working to harm innovation and growth. We will exhaust all legal options to challenge the SEC’s illegal rollback of its 2020 proxy advisory rule and defend the competitiveness of the American economy.”
On the other side of the debate, Stephen W. Hall, legal director and securities specialist at Better Markets, a non-profit market watchdog group, welcomed the court’s decision and said in a statement that the SEC’s decision to rescind the 2020 amendments protects investors.
“The court’s ruling will remove a cloud hanging over an important rule that investors need to ensure their access to independent, timely and affordable advice regarding how their proxies should be voted,” Mr. Hall said. “Put differently, investor protection triumphed over corporate management’s attempt to prevent investors from getting independent advice. Unfortunately, the industry can be expected to continue its assault in the courts, by appealing this decision and hoping to find judges that will accept their baseless claims.”