Minnesota Law Review

Note, Rule 14a-11 and the Administrative Procedure Act: It’s Better to Have Had and Waived, than Never to Have Had at All

A dramatic sequence of events starting in the summer of 2007 caused the United States’ banking and financial systems to collapse and thrust the country into the worst financial crisis since the Great Depression. It was not just one thing, but a confluence of factors that led to the collapse and the resultant crisis. Of particular note, though, commentators have pointed to risky lending coupled with inadequate personal savings, collateralized debt obligations backed by subprime mortgages, and flawed economic and monetary policy as the driving forces of the crisis. But the causes of the crisis were not solely the underlying fundamentals of the market, but also its participants. To be sure, chief executive officers and other corporate and institutional managers, whose recklessness and excessive risk taking allowed the crisis to burgeon, have taken the brunt of the criticism. Commentators, however, have also attacked boards of directors—tasked with overseeing some of the United States’ largest corporations—for failing to monitor closely the immoderation of corporate officers, and thereby letting down the shareholders of U.S. corporations.

In response, the Securities and Exchange Commission (SEC) adopted Rule 14a-11 on August 25, 2010, which, in a lim­ited manner, opens up a corporation’s proxy statement to its shareholders to nominate their own directors for the board. Rule 14a-11, as adopted by the SEC, is a sensible and appropriate response to the status quo in U.S. corporate law. In promulgating Rule 14a-11, the SEC soundly explained its rationale for proposing the Rule and, in effect, satisfied the arbitrary and capricious standard under the Administrative Procedure Act. Nevertheless, to partially negate some scholars’ concerns over the Rule’s mandatory proxy access, the SEC should amend and adopt parameters within which shareholders could tailor proxy access to a level that is appropriate for their respective corporations.

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