WASHINGTON (Reuters)—Business groups sued the top U.S. securities regulator on Wednesday, seeking to overturn a newly adopted rule that gives shareholders greater power to influence corporate decisionmaking.

The U.S. Chamber of Commerce and Business Roundtable called the rule "arbitrary and capricious" and asked the U.S. Securities and Exchange Commission to delay implementing it pending the outcome of the legal challenge.

The SEC said it believes the so-called proxy access rules are lawful and that it would consider and respond to the motion for a stay. Institutional investors vowed to fight the lawsuit and called it an assault on a fundamental shareholder right.

The lawsuit, filed in the U.S. Court of Appeals for the District of Columbia Circuit, comes about one month after a divided SEC approved the rule, giving shareholders the ability to nominate corporate directors if the shareholders hold at least 3% of the company's stock for at least three years.

The business groups said the SEC failed to properly assess the rule's effects on "efficiency, competition and capital formation as required by law."

The rule is slated to go into effect in mid-November so that shareholders will be able to put forth proposals in the spring, when many publicly traded companies hold their annual meetings.

If the SEC, led by Chairman Mary Schapiro, does not delay implementing the rule, shareholders could take their chances, nominate directors and wait for the court decision.

Dodd-Frank

In the past decade, two other SEC chairmen have tried to adopt proxy access rules with no success. This time, the SEC had backing from the Dodd-Frank financial reform bill, which affirms the agency's authority to adopt proxy access rules.

The legislation is expected to help shield the SEC from some legal challenges, but it is not clear if that will be enough to withstand the lawsuit filed on Wednesday.

Activist shareholders have long sought the ability to place their director nominees' names on company proxy statements. That demand increased after the government used billions of tax dollars to prop up companies like American International Group Inc. and Bank of America Corp.

"Proxy access will make companies more responsive to their shareowners," said the Council of Institutional Investors, which represents big investors.

"The Council fought long and hard for U.S. shareowners to gain the right to have their board candidates considered alongside those of management," the group said.

Republican SEC Commissioner Kathleen Casey, who voted against the proxy access rule in 2007 and again this year, has said the rule is fundamentally flawed and she does not expect it to survive court scrutiny.

The case is Business Roundtable et al vs. SEC, D.C. Circuit Court of Appeals.