* 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 (Reuters) - 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 meetings.
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.
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)