* SEC has no plans to seek re-hearing on proxy access
* SEC will also not seek Supreme Court review
* Appeals court had shot down proxy access in July
* Schapiro says still committed to proxy access
* SEC will continue to review how to proceed (Adds comments from attorneys for Council of Institutional Investors, Chamber of Commerce and Business Roundtable; details on separate proxy-related rule still going into effect)
By Sarah N. Lynch
WASHINGTON, Sept 6 The U.S. Securities and Exchange Commission will not challenge an appeals court decision striking down the agency's rule to make it easier for shareholders to nominate directors to corporate boards.
The announcement, made late on Tuesday by SEC Chairman Mary Schapiro, marks a major blow to investor advocacy groups who had championed the so-called "proxy access" rule.
It comes more than a month after the U.S. Court of Appeals for the District of Columbia Circuit rejected the rule, saying the SEC had failed to properly weigh the economic consequences of the rule. The defeat marked the first successful legal challenge to a provision in last year's Dodd-Frank financial overhaul law.
In a statement, Schapiro said the SEC has no plans to seek a rehearing before the appeals court or a Supreme Court review. But she said she remains "committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards."
The SEC rule would have required companies to include a shareholder candidate on corporate ballots known as "proxies" provided that the nominating shareholders held at least 3 percent of the voting power in the corporate stock for three years.
Schapiro had pushed for a rule on proxy access, saying it would give long-term shareholders greater voice by making it easier for them to nominate directors to the boards of the companies they own.
The U.S. Chamber of Commerce and the Business Roundtable, which filed the lawsuit challenging the rule, feared it would give minority shareholders too much power and could have cost companies millions of dollars in contested board elections.
On July 22, the three-judge panel sided with the business groups. Judge Douglas Ginsburg, who wrote the opinion for the court, said the SEC "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments," and "contradicted itself," among other things.
Cornish F. Hitchcock, an attorney who has represented the Council of Institutional Investors on this issue, said he was disappointed by the agency's decision.
"There are answers to the concerns raised by the court, and we hope that the commission will promptly seek public comment on those issues," he said.
With the SEC now having ruled out any legal options for challenging the court's decision, its only recourse is to essentially start the rule-making process over again or drop the rule.
Schapiro said on Tuesday that while she still supports the rule, she also wants to "carefully consider and learn from" the court's rejection of it.
"I have asked the staff to continue reviewing the decision as well as the comments that we previously received from interested parties," she said.
Eugene Scalia, a partner at Gibson, Dunn & Crutcher who argued the case for the business groups, lauded the SEC's decision on Tuesday.
"The commission has chosen the right course by accepting the court's ruling and resolving to learn from the court's decision," he said, adding that he hopes other regulators will pay attention to this as well.
Although the future of the more uniform proxy access plan for all public companies now remains in doubt, a separate companion piece of regulation approved by the SEC that allows shareholders on an individual company-by-company basis to propose their own proxy access regimes is still in play.
The companion rule, which was not challenged by the business groups, has been on hold by the SEC pending the court action. On Tuesday, the SEC said it expects the court's decision to be completed on Sept. 13, and it will announce the effective date of the rule shortly thereafter. (Reporting by Sarah N. Lynch; Editing by Gary Hill)
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