Noting that proxy access remains its number one priority, the Council of Institutional Investors has urged the SEC to seek a rehearing en banc of a DC Circuit panel’s recent ruling vacating the proxy access rule, Exchange Act Rule 14a-11, because it was adopted in an arbitrary and capricious manner. In a letter to the SEC, the Council said that the panel’s failure to follow established precedent provides a strong basis for the Commission to pursue a petition for rehearing before the full DC Circuit in the proxy access case. The panel’s decision does not merely delay the implementation of a critically important rule designed to benefit long-term investors and the markets, said the Council, it also imposes unnecessary costs on the Commission by requiring it to consider anew issues it already fully and reasonably examined.
More broadly, the Council emphasizede that the panel’s decision could have long-term negative consequences on the ability of the SEC and other agencies to effectively and efficiently promulgate rules that improve the regulation of the markets. This is particularly troubling given the extraordinarily high demands that are being placed on the SEC staff at this time.
The panel explicitly rejected the Commission’s conclusions about the benefits to shareowners of Rule 14a-11 because, in the court’s view, the empirical evidence was mixed. But, said the Council, it is precisely the role of expert agencies like the SEC, and not the courts, to reach reasoned conclusions based on such mixed evidence. So long as the agency considers the relevant factors and articulates a reasoned basis for its decision, noted the CII, a standard plainly met by the final proxy access rule, the agency’s determination should not be disturbed.
According to the Council, the panel’s decision reflects a failure to abide by the standards applicable to judicial review of agency determinations and, in particular, agency cost-benefit analysis. It is well-settled that a court is not to substitute its judgment for that of the agency, especially when the agency is called upon to weigh the costs and benefits of alternative polices. Cost-benefit analyses epitomize the types of decisions that are most appropriately entrusted to the expertise of an agency. The panel ignored these well-established principles, said the CII.