Business groups and financial regulators are going head-to-head in court over a rule adopted by the Securities and Exchange Commission that would give shareholders more say in a company’s leadership. Shareholders who were disappointed that such a rule was omitted from this year's financial reform law scored a victory in August when the SEC voted to adopt what’s known as a proxy access rule.

But any celebration on the part of investor groups may have been premature. After the U.S. Chamber of Commerce and the Business Roundtable – two of the largest business trade groups – fought to overturn the SEC’s new rule, the SEC agreed this week to put the new rule on hold while awaiting a court ruling on the matter.

As we noted at the time of the rulemaking, the proxy access rule gave shareholders more power to nominate directors to the board of publicly traded companies by requiring companies to include outside candidates on the company’s corporate ballots, or proxy materials. Shareholders currently have to mail out separate ballots to nominate their own candidates, and that takes more time, effort, and expense. (To be eligible to nominate a director, a shareholder or a group of shareholders must own at least 3 percent of the company’s stock and have held the shares for at least three years.)

Former SEC Chairman Arthur Levitt told us after the passage of the Dodd-Frank bill that proxy access was the most important omission from the bill because “as the system has been structured, shareholders have no say in the management of the company except in very, very unusual circumstances.”

Investor groups seem to agree. The Council of Institutional Investors called the Chamber and the Business Roundtable’s lawsuit “an assault on a fundamental shareholder right,” and said it planned to file a legal brief in support of the rule [PDF].  

The Chamber of Commerce, however, has argued that the rule gives “special interests the ability to hold the board hostage on narrow issues at the expense of other shareholders.