SEC Makes Sure New Rule Is Legal Before Implementing It

The Securities and Exchange Commission won’t be implementing a new rule that makes it easier for shareholders to replace directors at companies until a federal appeals court decides whether the rule is legal.

Lobbying organizations the U.S. Chamber of Commerce and the Business Roundtable have filed a legal challenge to the SEC rule, which forces corporations to put board nominees on the ballot for election by shareholders if a nominee is announced by a shareholder or group of shareholders that has owned 3 percent or more of the company for at least three years.

Here’s how the Chamber of Commerce explains why it’s bad that shareholders gain additional say over how a company does business. “This special interest-driven rule will give small groups of special interest activist investors significant leverage over a business’ activities. This will undermine a company’s ability to grow and create jobs,” said David Hirschmann, president and CEO of the U.S. Chamber’s Center for Capital Markets Competitiveness. That, and, “The SEC’s proxy access rule empowers unions and other special interests at the expense of the vast majority of retail shareholders.”

The Chamber of Commerce also said that although Congress gave the SEC the authority to see whether or not the proxy rule would be a good idea, the SEC still has to do a cost-benefit analysis before it can just start regulating all over corporate America. The Chamber apparently believes that the SEC will determine that allowing shareholders to break into corporations’ clubby boardrooms will somehow make America worse.

mtaylor@observer.com

Twitter: @mbrookstaylor SEC Makes Sure New Rule Is Legal Before Implementing It