On Wednesday, business groups filed a lawsuit against the Securities and Exchange Commission in an attempt to reverse the recently passed proxy access rule allowing shareholders to nominate candidates for their company's board of directors.
According to the groups filing the lawsuit, the U.S. Chamber of Commerce and the Business Roundtable, the proxy access rule will give activists, labor unions and special interest groups too much power over corporations.
The Financial Times' website reported on the lawsuit earlier this week in a story titled, "Business groups sue SEC on 'proxy access.'" According to FT.com, if everything proceeds on schedule, the new rule will go into effect next month and investors will be able to nominate directors in the next proxy season, unless a court ruling indicates otherwise.
The new rule stems from the Dodd-Frank Act which empowered the SEC to allow investors proxy access. The SEC set a steep hurdle for investors wishing to nominate a board member. It requires 3 percent ownership in the company, and the shares must have been held for 3 years.
As I wrote in August, even though the proxy access rule allows investors to pool their shares to reach 3 percent, hitting that threshold in large corporations will be difficult. Companies considered large cap have a market capitalization of $10 billion and up. Three percent of $10 billion -- $300,000,000 -- is nothing to sneeze at.
The SEC has deferred applying the proxy access rule to the smallest public companies for 3 years.
Supporters feel that the rule is vital to protecting shareholders' interests. Opponents say it will erode job growth and harm the economy. What do you think?
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