May 8, 2023
Proxy Advisors: Court Dismisses BRT Lawsuit That Challenged SEC’s ’22 Rules
A Tennessee court has ruled against the US Chamber of Commerce and the Business Roundtable in a lawsuit that they brought last July to stop the SEC’s 2022 rulemaking on proxy advisors.
In that 2022 rulemaking, the SEC had rescinded parts of its 2020 rules and related guidance that would have required proxy advisors to provide voting reports to the subject companies at or before the time the reports went to investor clients, and to provide the investor clients with notice of any written statements by subject companies about the proxy advisor’s voting advice. Those provisions were favorable to companies in that they gave more of a chance to catch and correct perceived inaccuracies.
The business organizations accused the SEC of not properly following the Administrative Procedures Act in rolling back the 2020 rules. In granting the SEC’s motion for summary judgment, the court said:
Neither argument has any merit, because the plaintiffs have not identified any way in which similarly situated parties have actually been treated differently. Rather, they have identified two extraordinarily abstract questions that come up in countless settings and that, unremarkably, are often answered differently in different circumstances.
Nearly every regulatory decision involves making a choice between using government power to coerce the regulated parties or leaving those parties to their own devices. And nearly every regulation involving the exchange and/or production of information requires the relevant agency to favor more or less transparency. The fact that the SEC often favors transparency and oversight does not mean that it is locked into a policy of maximal transparency and maximal oversight every time it promulgates a rule. Such an approach would have no basis in caselaw, the text of the APA, or the text of the Exchange Act.
The 2022 iteration of the proxy advisor rules isn’t out of the woods quite yet. The National Association of Manufacturers also challenged the SEC’s 2022 rules, and that lawsuit is still pending.
– Liz Dunshee