Chamber of Commerce v. SEC

Case Updates

Click here to view the opinion.

Click here to view the brief.

Click here to read the memorandum in support of plaintiffs’ motion for summary judgment.

The U.S. Chamber of Commerce filed a lawsuit, with co-plaintiffs Business Roundtable and the Tennessee Chamber of Commerce & Industry, against the Securities and Exchange Commission (SEC) for not following proper procedures or providing adequate justification for its decision to roll back the 2020 Proxy Advisor Rule before it was allowed to take effect.

The Proxy Advisor Rule, finalized in 2020, created key investor protections regarding proxy voting advice, eliminated conflicts of interest and required new transparency and accountability measures for proxy advisory firms. The 2020 rule was rooted in a decade of evidentiary based deliberations at the SEC that spanned multiple administrations and led to common-sense reforms designed to ensure the accuracy of information informing proxy vote recommendations and establishing mechanisms to protect against bias and conflicts of interest.

“The 2020 Proxy Advisor Rule was put in place to protect investors and to boost the competitiveness of the U.S. public capital markets. 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,” said U.S. Chamber President and CEO Suzanne P. Clark. “Public companies are a key source of growth and innovation for our economy and an important source of wealth creation for main street investors. However, the SEC’s recent actions will deteriorate the public company model, ultimately depriving main street investors and everyday Americans dynamic growth opportunities to help build wealth and save for retirement.”

Over the last two decades the number of public companies declined by roughly 50%. There are a number of reasons for the decline in public companies, but an increase in the number of activists who have seized upon the proxy process is a chief concern. Robust capital formation and strong corporate governance are critical in order to promote the long-term performance of public companies. The 2020 Proxy Advisor Rule is an important part of the solution in reinvigorating the public company model.

The U.S. Chamber is suing the SEC for not following the proper procedures under the Administrative Procedure Act (APA) as mandated by Congress when reversing the 2020 Proxy Advisor Rule. Specifically:

• The SEC failed to provide serious evidence of new or changed circumstances to justify its actions. Rather, the SEC deferred to completely voluntary disclosure rules that proxy advisors recently adopted, which do not match the disclosure requirements of the 2020 Rule and can be abandoned at any time.
• The SEC failed to provide enhanced justifications for its policy reversal. Given the Amended Rule’s contradiction of factual findings underlying the 2020 Rule, as well as the Amended Rule’s impact on serious reliance interests, the SEC was required under the APA to provide these justifications.
• The Amended Rule’s cost-benefit analysis is opportunistically framed. The analysis focuses on benefits to proxy advisors’ profitability while ignoring the substantial costs to companies and investors, in violation of the APA and the Securities Exchange Act of 1934.

“The SEC has failed to engage in reasoned decision-making and provided no serious evidence of new or changed circumstances to justify its actions. The Chamber will continue to fight on behalf of businesses to ensure the SEC holds proxy advisors accountable and does not move forward with regulation that harms companies, investors, and the capital markets." Clark said.

The U.S. Chamber's full complaint against the SEC can be found here.