* Groups call rule 'arbitrary and capricious'
* SEC passed proxy access rule in late August
* Dodd-Frank Act gives SEC some protection from lawsuits
(Recasts. Adds detail on proxy season, comment from SEC)
By Rachelle Younglai
WASHINGTON, Sept 29 Business groups sued the
top U.S. securities regulator on Wednesday, seeking to overturn
a newly adopted rule that gives shareholders greater power to
influence corporate decision-making.
The U.S. Chamber of Commerce and Business Roundtable called
the rule "arbitrary and capricious" and asked the Securities
and Exchange Commission to delay implementing the rule pending
the outcome of the legal challenge.
The SEC said it believed its so-called proxy access rules
are lawful and that it would carefully consider and timely
respond to the motion for a stay.
The lawsuit, filed in the U.S. Court of Appeals for the
District of Columbia Circuit, comes about one month after a
divided SEC passed the rule, giving shareholders the ability to
nominate directors if they hold at least 3 percent of the
company's stock for at least three years.
The business groups said the SEC failed to properly assess
the rule's effects on "efficiency, competition and capital
formation as required by law."
The rule is slated to go into effect mid-November so that
shareholders will be able to put forth proposals in the spring,
when many publicly traded companies hold their annual
If the SEC does not delay the rule implementation,
shareholders could take their chances and nominate their board
directors and wait for the court decision.
In the past decade, two other SEC chairmen have tried to
adopt proxy access rules with no success. This time, the SEC
had backing from the Dodd-Frank financial reform bill, which
affirms the agency's authority to adopt proxy access rules.
The legislation is expected to help shield the SEC from
some legal challenges, but it is not clear if that will be
enough to withstand the lawsuit filed on Wednesday.
Activist shareholders who want more say on how companies
are run have long sought the ability to place their nominees'
names on company proxy statements.
That demand increased after the government used billions of
tax dollars to prop up companies like American International
Group Inc (AIG.N) and Bank of America Corp (BAC.N).
Republican SEC Commissioner Kathleen Casey, who voted
against the proxy access rule in 2007 and again this year, has
said the rule is fundamentally flawed and she does not expect
it to survive court scrutiny.
(Reporting by Rachelle Younglai; Editing by Lisa Von Ahn, John
Wallace and Steve Orlofsky)