Business Roundtable v. SEC: The SEC Responds

The SEC filed its response in Business Roundtable v. SEC.  We've posted a copy on the DU Corporate Governance web site. 

Typical of the appellate division in the General Counsel's Office, the brief is a very straightforward discussion of the SEC's path in adopting Rule 14a-11.  In addition to noting the receipt of almost 600 comment letters, the brief contains a lengthy discussion of the reasons for the rule and the analysis given to the alternatives.  It is this "thorough analysis" that in the end dictates the outcome.

• Petitioners argue (Br. 46) that it was “arbitrary” for the Commission to adopt Rule 14a-11 without giving shareholders “the authority to institute alternative, more demanding requirements for proxy access, or to bar it altogether.”  The Adopting Release, however, contains a thorough analysis of this issue (see 75 FR 56,679-80; 56,758-60) and the Commission’s determination not  to adopt petitioners’ preferred policy was reasonable.

The brief challenges a number of assertions made by Petitioners ("disagreeing that congressional authority to adopt access "represented a 'limited foray' into an area of law traditionally left to the states or that a proxy rule must defer to state law") and rightfully characterizes the case as "a disagreement with the Commission’s policy choice not to rely exclusively on private ordering."  

As for consistency with state law, the brief notes that access deals with disclosure in the proxy statement, not the substantive ability to elect directors.  See Brief, at 33 ("If a candidate who does not meet a company’s director qualifications is elected, state law would determine whether the candidate is seated."). 

The second half of the brief contains a discussion of the cost/competition analysis conducted by the Commission in adopting the rule.  Given the extraordinary detail in the adopting release, the General Counsel's Office had an easy time showing the existence of extensive analysis of these issues.  If the DC Circuit were to strike this rule down based upon inadequate competition/cost analysis, it would impose on the Commission an unreasonable, if not impossible burden for future rulemaking efforts of this kind. 

Primary materials, including all of the briefs, are posted on the DU Corporate Governance web site.