Business Roundtable v. Securities and Exchange Commission Case Brief Summary | Law Case Explained

Business Roundtable v. Securities and Exchange Commission | 647 F.3d 1144 (2011)

The Securities and Exchange Commission, or S E C, creates rules to regulate markets and protect investors. But like any agency, the S E C can’t create rules that are arbitrary or capricious. In Business Roundtable versus Securities and Exchange Commission, the court looks at whether the S E C created an arbitrary and capricious rule when it failed to evaluate the economic impact of the rule.

The S E C created Rule Fourteen A Eleven, which gave shareholders a new means of nominating and electing directors in a proxy process that closely replicated in-person shareholder meetings. Under Rule Fourteen A Eleven, shareholders could nominate their own choice for directors, and then the company would have to include that nominee on the proxy voting card. The S E C claimed that this new method would save companies and their shareholders money by reducing printing and postage costs associated with the proxy materials. However, the S E C didn’t provide substantive data on the projected benefits. In contrast, many companies believed this new rule would actually cost additional money, including substantial amounts spent on campaigns to oppose candidates nominated by shareholders. The S E C failed to quantify these potential costs that companies could incur. The Business Roundtable, a lobbyist association, presented data and studies to the S E C explaining that Rule Fourteen A Eleven wouldn’t improve company performance or increase shareholder value. The S E C discounted the studies based on its concerns over the methodology and scope of the studies.

The Business Roundtable petitioned the United States Court of Appeals for the District of Columbia Circuit to review Rule Fourteen A Eleven.

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