UPDATE 1-US SEC will not seek rehearing on proxy access rule

by Sarah N. Lynch, in.reuters.com
September 6th 2011 10:28 PM

* SEC has no plans to seek re-hearing on proxy access

* SEC will also not seek Supreme Court review

* Appeals court had shot down proxy access in July

* Schapiro says still committed to proxy access

* SEC will continue to review how to proceed

(Adds SEC comment, background, byline)

By Sarah N. Lynch

WASHINGTON, Sept 6 (Reuters) - The U.S. Securities and Exchange Commission will not challenge an appeals court decision striking down the agency's rule to make it easier for shareholders to nominate directors to corporate boards.

The announcement, made late on Tuesday by SEC Chairman Mary Schapiro, marks a major blow to investor advocacy groups who had championed the so-called "proxy access" rule.

It comes more than a month after the U.S. Court of Appeals for the District of Columbia Circuit rejected the rule, saying the SEC had failed to properly weigh the economic consequences of the rule. The defeat marked the first successful legal challenge to a provision in last year's Dodd-Frank financial overhaul law.

In a statement, Schapiro said the SEC has no plans to seek a rehearing before the appeals court or a Supreme Court review. But she said she remains "committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards."

The SEC rule would have required companies to include a shareholder candidate on corporate ballots known as "proxies" provided that the nominating shareholders held at least 3 percent of the voting power in the corporate stock for three years.

Schapiro had pushed for a rule on proxy access, saying it would give long-term shareholders greater voice by making it easier for them to nominate directors to the boards of the companies they own.

The U.S. Chamber of Commerce and the Business Roundtable, which filed the lawsuit challenging the rule, feared it would give minority shareholders too much power and could have cost companies millions of dollars in contested board elections.

On July 22, the three-judge panel sided with the business groups. Judge Douglas Ginsburg, who wrote the opinion for the court, said the SEC "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments," and "contradicted itself," among other things.

With the SEC now having ruled out any legal options for challenging the court's decision, its only recourse is to redo the rule from scratch.

Schapiro said on Tuesday that while she still supports the rule, she also wants to "carefully consider and learn from" the court's rejection of it.

"I have asked the staff to continue reviewing the decision as well as the comments that we previously received from interested parties," she said.