The Business Roundtable and the Chamber of Commerce will argue their case against the Securities and Exchange Commission implementing a proxy access rule this Thursday in a Washington D.C. appeals court, according to court documents.

The petitioners first asked the SEC to review the rule and to put a hold on it in September, a couple weeks after the final rule was published in the Federal Register. The rule, which the SEC had to approve under the Dodd-Frank Act, would require a corporation to include on its proxy director nominees from shareholders who have owned at least 3 percent of stock for at least three years.

The Commission agreed to the stay in October. “Among other things, a stay avoids potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity,” said the Commission in the order granting the hold.

How quickly a decision is made after an oral argument depends largely on the circuit and the panel—and given that the District of Columbia is relatively responsive, it's not unreasonable to expect a decision over the summer, says Carol Stubblefield, a partner in the law firm Baker & McKenzie. “I would be very optimistic to expect a decision in time to plan adequately for the 2012 proxy season,” she says.

The court's decision, in the short term, will largely determine whether shareholders who qualify in 2012 have access to a company's proxy to nominate their own candidates, says Stubblefield. “How significant this decision really is depends, in part, on the grounds on which they make their decision,” she says. The arguments that were presented to the court range: some are technical, highly administrative law arguments, others are more substantive arguments.

In the final reply brief filed by the petitioners in February, they argued that the rule would cost companies—and ultimately shareholders—at least $14 million. “The SEC's brief tacitly concedes that the shareholders most likely to use the rules are union and government pension funds,” the Business Roundtable and Chamber of Commerce said in the brief. “These funds, while not typically cited for sound financial management, have a history of using shareholder activism to pursue non-investment-related objectives that depart from other shareholders' interests.”

Sixteen groups filed notices that they would supply information for the court as amici curiae, including the Council of Institutional Investors, the California Public Employees' Retirement System, and the California State Teachers' Retirement System. The amicus briefs can be found here.

“The court could actually rule on very narrow, technical grounds, such as that the SEC didn't adequately consider cost—which is one of the requirements under administrative law that they have to do, and which the SEC could do rather easily,” says Stubblefield. “Then there are more substantive arguments, which would produce a potentially longer-term result.”

Topics