The Securities and Exchange Commission confirmed yesterday that it will not seek a rehearing in the U.S. Court of Appeals in Washington D.C., which vacated its proxy access rule in July. In addition, the agency has also confirmed that it will not seek any judicial review of the appeals court's decision at the Supreme Court level. The decision came amidst investor advocates' demands for the regulator to challenge the Court's prior ruling.

In a statement, SEC Chairman Mary Schapiro said although the agency has decided not to pursue the decision further, the regulator is committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards. “I firmly believe that providing a meaningful opportunity for shareholders to exercise their right to nominate directors at their companies is in the best interest of investors and our markets,” she said.

Addressing the reason for the agency's decision, she said, “At the same time, I want to be sure that we carefully consider and learn from the Court's objections as we determine the best path forward.” Schapiro added that she has asked the SEC staff to continue reviewing the decision as well as the comments that they previously received from interested parties. 

The SEC's Proxy Access Rule Section 14a-11 was overturned on July 22 in a decision by a three-judge appellate court in the D.C. circuit. Siding with the plaintiffs, the U.S. Chamber of Commerce, and the Business Roundtable, the judges held that the SEC failed to do an adequate study of the costs the proxy access rule would impose on businesses before the agency adopted the rule earlier this year.

When the regulator adopted the rule, it also adopted amendments to Rule 14a-8, the shareholder proposal rule, which was not contested in court. Under the amendments, eligible shareholders are permitted to ask companies to include shareholder proposals regarding proxy access procedures in their proxy materials. The rule gives further opportunity to shareholders to establish proxy access standards based on individual companies rather than a one-size-fits-all approach as prescribed in Rule 14a-11.

The Commission had earlier voluntarily postponed the effective date of Rule 14a-8 while the other rule was subject to judicial review. The stay order on Rule 14a-8 is expected to expire on Sept. 13 and will go into effect if there is no further action taken by the SEC. A notice will be published when the rule becomes effective.

Meanwhile, the Council of Institutional Investors expressed their disappointment over the regulator's decision not to revive the vacated rule.  “The SEC's decision not to request an en banc rehearing of the D.C. Court of Appeals' opinion is disappointing to shareowners,” said the council's executive director, Ann Yerger in a statement. The council has been a strong advocate of the proxy access rule.  

Yerger said it is a fundamental right of shareowners to have a meaningful voice in the election of directors to public company boards. “The Council urges the SEC to address the court's concerns and re-propose a rule that sets uniform standards and requirements for proxy access at all U.S. companies,” she said.