Petitioners File Reply Brief in Challenge to SEC Proxy Access Rules

John Olson is a founding partner of Gibson, Dunn & Crutcher’s Washington, D.C. office and a visiting professor at the Georgetown Law Center. This post is based on an reply brief that was prepared by a Gibson Dunn team representing the Chamber of Commerce and the Business Roundtable; the complete brief is available here. Other posts on the case are available here, and other posts on proxy access, including a number of posts by affiliates of the Program on Corporate Governance, are available here.

On February 25, my colleagues at Gibson Dunn, Gene Scalia, Amy Goodman and Dan Davis, representing petitioners Business Roundtable and the U.S. Chamber of Commerce, filed the petitioners’ reply brief in Business Roundtable v. SEC, a challenge to the Securities and Exchange Commission’s recently promulgated rules providing certain shareholders the right to place board-of-director nominees in company proxy materials.

According to the petitioners, in promulgating the rules the Commission failed to satisfy its statutory duty to assess the rules’ economic consequences. The Commission instead speculated about the rules’ costs, despite record evidence showing that the rules would likely cause expensive election campaigns. The petitioners contend further that the shareholders most likely to use the rules are union and government pension funds, which have a history of using shareholder activism to pursue non-investment-related objectives that depart from other shareholders’ interests. The petitioners fault the Commission for claiming that the rules further shareholder rights, when the mandatory rules instead disenfranchise the vast majority of shareholders, who may wish to avoid the tremendous costs that proxy access would impose on their company.

The rules violate not only the APA, the petitioners explain, but also the First Amendment by forcing corporations to carry the campaign-related speech of others who necessarily oppose the company’s position, even when that speech is false and misleading. The Commission was obligated to tailor its rules to avoid infringing constitutional rights, but the Commission failed to take First Amendment rights into account when crafting the rules.

The brief concludes that, because the Commission’s reasoning in adopting the rules was deficient, the rules must be vacated.

The reply brief is available here.

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One Comment

  1. Kate
    Posted Thursday, March 10, 2011 at 11:01 am | Permalink

    Funny that in arguing in favor of corporate free speech, those would constrain that speech only to topics involving share price maximization.

    Which sounds quite un-free.

    If corporate free speech rights are founded upon the free speech rights of the individuals comprising the corporation, does it not make sense to allow those individuals a say in what kind of speech the corporation makes?