By Cydney Posner
It probably comes as not much of a surprise given the accounts of the hearing (see my email of 4/8/11), but today a three-judge panel of the DC Circuit tossed out the SEC's proxy access rules in the litigation initiated by the U.S. Chamber of Commerce and the Business Roundtable. The plaintiffs had argued, among other things, that the SEC has failed to properly analyze its costs and that it used inconsistent data, relying on a study that found that 15% of companies would have their board nominees contested in 2011 under the new regime to show that the rule would facilitate shareholder rights, but then using a lower estimate of the increase in the frequency of proxy fights to calculate the rule's costs. Oops. The court agreed, concluding that the SEC acted "arbitrarily and capriciously" in issuing the rule when it failed to provide an adequate cost/ benefit analysis. The WSJ characterized the opinion as a "sharp rebuke to the SEC, marking the fourth time in recent years the same court has thrown out an SEC rule based on similar grounds. ‘We are reviewing the decision and considering our options,' SEC spokesman Kevin Callahan said." As you may recall, Dodd-Frank gave the SEC explicit authority to promulgate a proxy access rule so as to eliminate issues that had been raised regarding the SEC's authority. However, Dodd-Frank did not mandate that proxy access be adopted, so the SEC could decide to try again with a new analysis or not to reissue the rule at all. As quoted in the WSJ, the president and CEO of the U.S. Chamber of Commerce said that "[t]oday's decision also sends a strong message that regulators need to meet their statutory requirement to clearly prove that the benefits of regulation outweigh the costs." He said that the decision would "'prevent special interest politics from being injected into the boardroom.' "