With the United States Court of Appeals for the District of Columbia Circuit having struck down Rule 14a-11 in Business Roundtable et al v. Securities and Exchange Commission (No. 10-1305, July 22, 2011), the question is where does proxy access now stand and what can now be expected?

The Court overturned the SEC’s attempt to give shareholders the right under the federal proxy rules to have their director nominees included in management’s proxy materials because of the SEC’s failure to adequately justify Rule 14a-11 on a cost-benefit basis. The SEC has several alternatives which undoubtedly are being considered. It could seek rehearing either by the panel or en banc or appeal the decision to the U.S. Supreme Court, it could amplify its analysis of the economic justification for Rule 14a-11 and readopt the rule, it could modify Rule 14a-11 and seek to justify the modification in a way that it believes will pass judicial scrutiny, or it could do nothing on Rule 14a-11 and let it disappear. Under any of these alternatives, the question is what will the SEC do about the amendment of Rule 14a-8, which offers another route to proxy access through shareholder proposals. The amendment has been stayed pending resolution of the court action challenging Rule 14a-11 and further notice from the SEC. Again, the SEC has several alternatives – it could lift the stay and let the amendment take effect as adopted or it could revisit the Rule 14a-8 amendment. I will not presume to predict what the SEC will do, or worse, tell it what it should do regarding Rule 14a-11. However, I have some observations regarding a path forward.

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