The Securities and Exchange Commission is being sued by the U.S. Chamber of Commerce, the nation’s biggest business lobby, and the Business Roundtable. The suit seeks to overturn a rule that makes it easier for corporate shareholders to remove corporate directors.

San Diego shareholders’ rights attorneys note that the new rule allows shareholders owning three percent of a company to nominate board members on corporate ballots. It was passed by a divided SEC last month.

The fear is that labor unions and public pension funds would hijack companies and push political agendas if given more power to nominate directors, according to the Chamber. In response, the SEC says the 2008 credit crisis shows that shareholders need more clout in picking board members to oversee companies.

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Previously, shareholders could nominate dissident directors only by mailing a separate ballot and persuading other investors to vote with them. Activist investors such as Carl Icahn and Nelson Peltz have waged proxy fights to get their candidates elected to boards of companies they said were underperforming.

Under the new regulation, shareholders would be able to nominate at least one director and as much as 25 percent of a board. Investors couldn’t use the rule if their intent is to oust a majority of board members and take over a company.

A new law signed by the President in July authorized the SEC to let investors place director nominees on corporate proxies. The law’s language was meant to make it easier for the SEC to withstand legal challenges like the one it faces now.

The rule is scheduled to take effect Nov. 15.

Source: Bloomberg “Business Groups Sue SEC Over Proxy-Access Rule” 9/29/2010