Staying Access

The SEC granted the stay requested by the Chamber of Commerce on the implementation of the access rule.  The Chamber (and the Business Roundtable) have filed a legal challenge in the DC Circuit seeking to strike down the rule, mostly alleging that the Commission's decision was arbitrary and capricious under Section 706 of the APA.

The decision was quick (the Chamber's petition was only filed last week; the stay issued this Monday).  What reason did the Commission give for the stay?

• The Commission finds that, under all of the circumstances of this matter, a stay of Rule 14a-11 and related rule amendments is consistent with what justice requires. 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. Because the Commission and petitioners will seek expedited review of petitioners’ challenge, questions about the rules’ validity will be resolved as quickly as possible. 

The stay is not based upon the merits of the claims.  The case for an arbitrary exercise of authority by the Commission is at best modest.  The stay is, however, justified based upon a broader policy ground.

As we have noted, access is the beginning of a paradigm shift in corporate governance.  Opposition to the provision has been powerful and unabated, particularly from the issuer community.  The opposition is understandable.  It will ultimately contribute to a more shareholder centric approach to governance, altering the way things are done inside the boardroom.

The SEC is ushering in access in a very careful and deliberate way.  The rule was not adopted until Congress clarified the Agency's authority.  The rule ultimately put in place included a three year holding period, a time period that reduced the viability of access.  Now the SEC is staying application pending the outcome of the legal challenge raised by the Chamber.

We are confident of the outcome of the legal challenge.  At the same time, for such an important step, implementation can wait until all legal doubts have been eliminated.