A US appeals court has rejected a new Securities and Exchange Commission rule designed to make it easier for shareholders to nominate directors to corporate boards. In a major blow to the SEC, the US Court of Appeals for the District of Columbia Circuit said the SEC's rule was "arbitrary and capricious" and that the agency had failed to properly weigh the economic consequences of the new regulations.
The SEC delayed implementing the rule after the US Chamber of Commerce and the Business Roundtable filed their lawsuit, charging that the SEC had failed to adequately assess the rule's costs.
"We are reviewing the decision and considering our options," said SEC spokesman Kevin Callahan.
The business groups fear minority shareholders could use the rule to unduly influence board composition and cost companies millions of dollars in contested board elections.
The rule required companies to include a shareholder candidate in their voting materials as long as the nominating shareholders held at least 3 percent of the voting power in the corporate stock for three years.
The court's decision threw out the rule, although the SEC could try to revive it if it wishes.
The agency lost twice to the Chamber of Commerce before the same appeals court over a rule requiring independent representation on mutual funds boards in 2005 and 2006.
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