A federal appeals court has struck down a rule adopted last year by the Securities and Exchange Commission that gave shareholders more power to nominate board directors.

The U.S. Court of Appeals for the District of Columbia Circuit said the SEC was "arbitrary and capricious" in implementing the rule, which was widely supported by investor advocates. Judge Douglas Ginsburg said the SEC failed to estimate the cost to companies to campaign against investors' nominations.

The U.S. Chamber of Commerce and the Business Roundtable, a trade group of CEOs for the nation's largest companies, had challenged the rule, which was mandated under the financial overhaul passed by Congress last year.

A spokesman for the SEC said the agency is reviewing the decision and considering its options.

Supporters of the rule said it was necessary because risky corporate behavior, particularly on Wall Street, was a leading cause of the 2008 financial crisis. Getting candidates on the board would give investors a better shot at influencing company policy.

The rule would have allowed investors owning at least 3 percent of a company's stock to put their nominees for board seats on the annual proxy ballot sent to all shareholders. Before the Securities and Exchange Commission acted on the rule, investors had to appeal to shareholders at their own expense.