Business Roundtable v. Securities And Exchange Commission

647 F.3d 1144 (D.C. Cir. 2011)


The proxy process is the means by which shareholders of a publicly traded corporation elect the company's board of directors. Incumbent directors nominate a candidate for each vacancy prior to the election, which is held at the company's annual meeting. Before the meeting the company puts information about each nominee in the set of 'proxy materials' - usually comprising a proxy voting card and a proxy statement - it distributes to all shareholders. The proxy statement concerns voting procedures and background information about the board's nominee(s); the proxy card enables shareholders to vote for or against the nominee(s) without attending the meeting. A shareholder who wishes to nominate a different candidate may separately file his own proxy statement and solicit votes from shareholders, thereby initiating a 'proxy contest.' Rule 14a-11 would allow shareholders an alternative path for nominating and electing directors. After responding to public comments, the Commission (D) amended the proposed rule and, by a vote of three to two, adopted Rule 14a-11. Companies must now include in its proxy materials 'the name of a person or persons nominated by a [qualifying] shareholder or group of shareholders for election to the board of directors.' To use Rule 14a-11, a shareholder or group of shareholders must have continuously held 'at least 3% of the voting power of the company's securities entitled to be voted' for at least three years prior to the date the nominating shareholder or group submits notice of its intent to use the rule, and must continue to own those securities through the date of the annual meeting. D concluded that Rule 14a-11 could create improved board and company performance and shareholder value sufficient to justify potential costs. D also concluded that Rule 14a-11 would reduce collective-action and free-rider concerns. The rule would impose costs upon companies and shareholders and might have an adverse effect by distracting management. Ps sought review.