Two business advocacy groups filed a lawsuit today against a new Securities and Exchange Commission rule requiring public companies to publicize the candidacy of challengers seeking seats on their boards of directors.
The rule would allow any shareholder or group of shareholders that has held at least 3 percent of a company's stock for three years or more to place nominees for board seats on the proxy statement that the company pays to distribute to shareholders.
Supporters tout the rule, approved by a 3-2 vote in August, as a victory for shareholders' rights because it provides exposure for a broader swath of candidates. Detractors say the requirement will force corporations to spend money on potentially costly proxy battles while strengthening the hands of unions and outsiders who may not have the company's best interests at heart.
In today's filing in the U.S. Court of Appeals for the D.C. Circuit, the U.S. Chamber of Commerce and the Business Roundtable objected to the rule as "arbitrary and capricious," and alleged that the SEC did not properly address its effects on "efficiency, competition and capital formation," as required by law.
The SEC defended the rule in a statement released shortly after the suit was filed: "We believe that the commission's proxy access rules are both lawful and in the best interests of the public and shareholders."
The rule is scheduled to go into effect on Nov. 15, but in light of the litigation, the two business groups have asked the SEC to stay further action. The SEC will "carefully consider and timely respond" to that request, according to the commission's statement.
Representatives from the business groups said they would turn to the courts for an injunction if the commission rejects their request.