	Introduction and Recent Developments

After the recent financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203 , which overhauled financial sector regulation. The 112 th Congress is actively involved in overseeing the act's implementation, including provisions involving corporate governance, the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm's relationship with its stakeholders. Substantive corporate governance matters have traditionally been delegated to the states. Proxy materials and proxy statements are used to inform shareholders and to solicit votes for corporate decisions (such as the election of directors) and other corporate actions (including official management and shareholder corporate proposals for shareholder consideration). Shareholders interested in fellow shareholders consideration of an alternative slate of board nominees outside of inclusion in proxy materials must bear the distribution and printing costs of getting their slate to the dispersed corporate shareholders. In September 2011, shortly after the SEC rulemaking, two major business trade groups, the Business Roundtable (Roundtable) and the United States Chamber of Commerce (Chamber) filed a petition for review of the new but yet to be implemented SEC rulemaking under which proxy access would be provided to large investors meeting minimum continuous stock ownership requirements and ownership thresholds with the United States Court of Appeals for the District of Columbia Circuit on the grounds, among other things, that the rule was arbitrary and capricious. On July 22, 2011, in Business Roundtable and Chamber of Commerce v. Securities and Exchange Commission , No. This report examines: key aspects and the potential impact of the proxy access rules that the SEC adopted in August 2010; a provision in the Dodd-Frank Act that affirms the SEC's authority to make proxy access rules; congressional opposition to that provision; and the aforementioned court case that resulted in the SEC tabling the implementation of a key part of its proxy access rules. The SEC's August 2010 Proxy Access Rules

The proxy access rules adopted by the SEC involved two basic initiatives under Regulation 14, which the SEC adopted in 1935 pursuant to Section 14(a) of the Exchange Act: (1) the creation of a new rule, Rule 14a-11, which would permit individual investors or investor groups with a certain threshold percentage of the total voting power of a company's securities to put forward board nominees on a company's proxy materials; and (2) a new amendment to Rule 14a-8(i)(8) which would loosen historical limits on the ability of shareholders to make proposals related to contested director elections. To nominate directors under the rule, a shareholder would be required to own and have continuously held for at least three years, at least 3% of the total voting power of the company's voting securities during its annual meetings to elect directors. An eligible shareholder would be able to include only one director nominee, or several nominees who represent no more than 25% of the members of a company's board, whichever is greater. If a board has eight members, up to two shareholder nominees could be included in the proxy materials.) The Exchange Act permits companies to exclude shareholder proposals regarding elections. Several derive from labor unions and pension fund groups that have advocated for proxy access for many years. A major concern of critics of proxy access, including the Chamber and the Roundtable, was that the reform will enable select numbers of large shareholders with particular agendas to use the threat of proxy access as a bargaining tool to pressure companies into pursuing parochial interests that may have little to do with the goal of maximizing shareholder returns. The SEC Decides Not to Appeal the Court's Ruling

On September 6, 2011, the SEC announced that it would not be pursuing an appeal of the court's ruling to vacate Rule 14a-11. It is a process that helps make boards more accountable for the risks undertaken by the companies they manage.
In response to the financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protections Act (P.L. 111-203) overhauled the nation's financial sector regulation. The 112th Congress is actively involved in overseeing the act's implementation, including provisions involving corporate governance such as expanding the role played by shareholders in the selection of public company corporate boards. While some regarded this as a change that would help make boards more sensitive to market developments and thus shareholder interests, others see it as a change that would place too much potentially abusable power in the hands of large shareholders.
Members of public company boards are supposed to play key fiduciary and management watchdog roles for the shareholders. At annual public company shareholder meetings, incumbent boards submit slates of board nominees for shareholder consideration as part of the official corporate proxy materials and statement sent to shareholders in advance of the meeting. Whereas states like Delaware (the state of incorporation for a large proportion of sizeable public firms) have largely governed substantive corporate matters for firms that they incorporate, the Securities and Exchange Commission (SEC) oversees matters related to the content of proxy materials.
Historically, the SEC has interpreted applicable federal securities laws as allowing companies to exclude from their proxy materials shareholder proposals involving the nomination of persons to their boards. Shareholders interested in pushing an alternative slate of nominees for fellow shareholder consideration must bear the printing and distribution costs themselves, which many believe poses a significant obstacle. Proxy access would reduce these cost barriers by allowing shareholder nominations to be included in the corporate proxy materials.
A provision in the Dodd-Frank Act (P.L. 111-203) enacted on July 21, 2010, explicitly authorizes the SEC to adopt proxy access rules. In August 2010, with the Republican commissioners dissenting, the SEC did so. The central and most controversial change, the adoption of Rule 14a-11 under Regulation 14, which the agency adopted in 1935 pursuant to Section 14(a) of the Securities Exchange Act of 1934, would permit individual investors or investor groups with at least 3% of the total voting power of a company's securities to put forward no more than one nominee, or several that will constitute up to one-fourth of a company's board, whichever is greater, via the company's proxy material at the annual meeting. Shareholders would also be required to have held their shares for at least three years and will not be eligible to use the proxy access rule if their securities are held for the purpose of changing corporate control. Some longtime advocates of proxy access, including various labor unions such as the AFL-CIO and pension fund groups such as the Council of Institutional Investors, claim that the rules should help improve management as well as enhance investor returns. Some opponents of proxy access as formulated, including various business interests such as the Business Roundtable and the United States Chamber of Commerce, criticized the access rulemaking. A major criticism was that the SEC's rules would empower large investors, such as unions, at the expense of the small investors, giving them unfair leverage over corporate activities.
On September 29, 2010, the Chamber and the Roundtable jointly filed a petition with the United States Court of Appeals for the District of Columbia Circuit alleging that Rule 14a-11 violated several federal statutes. On October 4, 2010, pending a judicial decision, the SEC agreed to stay implementation of the rule. On July 22, 2011, calling the rule arbitrary and capricious, the appeals court voted to vacate Rule 14a-11, a ruling that the SEC decided not to appeal. This report will be updated as events dictate.