(Bloomberg News) The U.S. Chamber of Commerce, the nation's biggest business lobby, and the Business Roundtable have sued the Securities and Exchange Commission to overturn a rule that makes it easier for shareholders to oust corporate directors.
The two groups decided to sue after completing a legal analysis of the regulation, they said today at a news conference in Washington. The rule, which allows investors owning 3 percent of a company to nominate board members on corporate ballots, was passed by a divided SEC last month.
"These rules are wholly unnecessary," said David Hirschmann, president of the chamber's Center for Capital Markets Competitiveness. "This special interest-driven rule will give small groups of special-interest activist investors significant leverage over a business' activities."
The chamber has said that labor unions and public pension funds would hijack companies and push political agendas if given more power to nominate directors. SEC Chairman Mary Schapiro has said the 2008 credit crisis, which cost financial firms more than $1.82 trillion, shows shareholders need more clout in picking board members to oversee companies.
Before the SEC approved its rule, shareholders could nominate dissident directors only by mailing a separate ballot and persuading other investors to vote along with them. Activist investors such as Carl Icahn and Nelson Peltz have waged proxy fights to get their candidates elected to boards of companies they said were underperforming.
The SEC, in a 3-2 vote, stipulated that investors or groups of shareholders who have owned 3 percent of a company for three years could have board candidates on proxy statements.
Under the regulation, shareholders would be able to nominate at least one director and as much as 25 percent of a board. Investors couldn't use the rule if their intent is to oust a majority of board members and take over a company.
The law revamping financial regulation signed by President Barack Obama in July authorized the SEC to let investors nominate directors on corporate proxies. The law's language was meant to make it easier for the SEC to withstand a legal challenge.