Business Roundtable v. SEC

United States Court of Appeals for the District of Columbia Circuit · 2011 · Corporations

Updated August 22, 2026

CorporationsAdministrative LawSecurities RegulationProxy AccessAPAarbitrary and capriciousSEC rulemakingeconomic analysis

Facts

The SEC adopted Rule 14a-11, which required public companies, including registered investment companies, to include qualifying shareholder nominees for director in company proxy materials. To use the rule, a shareholder or group had to hold at least 3% of the company's voting securities continuously for at least three years and continue holding through the annual meeting. The SEC concluded that the rule's potential benefits, including improved board performance and shareholder value and reduced costs compared with traditional proxy contests, justified its costs. Petitioners challenged the rule, arguing the SEC failed adequately to assess its economic consequences and arbitrarily applied it to investment companies.

Issue

Whether the SEC acted arbitrarily and capriciously in promulgating Rule 14a-11 by failing adequately to assess the rule's economic effects, including its effects on efficiency, competition, and capital formation, and by inadequately justifying the rule's application to investment companies.

Rule

An SEC rule is arbitrary and capricious if the Commission fails adequately to assess and explain the rule's economic consequences, including effects on efficiency, competition, and capital formation; inconsistently frames costs and benefits; fails to quantify likely costs or explain why quantification is impossible; relies on unsupported predictive judgments; contradicts itself; or fails to respond to substantial comments. The SEC must determine as best it can the economic implications of the rule and provide a rational connection between the facts found and the choices made.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

The Securities and Exchange Commission adopts a rule requiring public issuers to place certain shareholder proposals on the company’s own voting card. In the release, the Commission says issuers "may simply choose not to oppose" these proposals because directors have fiduciary duties, but it offers no evidence that boards in Chicago, Dallas, or elsewhere have ever declined to oppose comparable challenges in practice.

If a trade association petitions for review, which argument is strongest under the governing doctrine?

Explanation. The majority requires the SEC to support predictive judgments with evidence and reasoned explanation. A bare assertion that boards may refrain from opposition because of fiduciary duties, without evidence that such forbearance occurs in practice, is speculative and inadequate. The problem is not merely uncertainty; it is the absence of support for the prediction.