The U.S. Securities and Exchange Commission’s (SEC) volte-face on proxy voting rules is facing a legal challenge from the U.S. Chamber of Commerce.
The chamber filed a lawsuit alleging the regulator didn’t follow procedure in scrapping certain provisions of its new proxy advisor rules before they took effect.
Earlier this month, the SEC announced it was abandoning certain rule changes that were adopted by the previous regime in 2020.
Those changes — which were favoured by industry trade groups but opposed by proxy advisory firms — would have given issuers an opportunity to review and challenge proxy voting recommendations.
Proponents of the rule argued that it would have curbed the power of proxy advisory firms and given issuers a greater voice with shareholders.
However, in reversing course, the SEC said that institutional investors were worried the new rules would harm the independence and timeliness of recommendations to shareholders from proxy advisors while increasing compliance costs for the advisory firms.
On Thursday, the U.S. chamber launched a legal challenge to that policy shift.
Along with co-plaintiffs the Business Roundtable and the Tennessee Chamber of Commerce & Industry, the chamber filed a lawsuit in U.S. district court alleging the the SEC hasn’t justified its decision to reverse course on the new rules and didn’t follow proper policymaking procedure.
“The SEC has failed to engage in reasoned decision-making and provided no serious evidence of new or changed circumstances to justify its actions,” said Suzanne Clark, president and CEO of the U.S. Chamber of Commerce, in a release.
Instead, the lawsuit alleged the decision largely reflects a change in the leadership at the commission, calling it “the by-product of political objectives.”
“But a change in the political winds does not excuse the commission from its obligation to engage in rational rulemaking,” it said.
As a result, it asked the court to declare the new policy unlawful, to block the SEC from implementing it, and to order the regulator to reinstate and enforce the 2020 rule.
“The SEC’s harmful decision to roll back these reforms will allow proxy advisors to operate as a black box, as they have for decades, and create disincentives for companies to go, and stay, public,” Clark said.