The U.S. Chamber of Commerce and the Business Roundtable had sued to overturn the rule, issued by a divided SEC last August, arguing the agency failed to properly analyze its costs.
A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of the business groups Friday.
The court said the SEC acted "arbitrarily and capriciously" in issuing the rule and contradicted itself when it presented the costs and benefits of the rule.
The ruling marks the fourth time in recent years the same court has thrown out an SEC rule based on similar grounds.
The SEC's proxy access rule would force companies to print the names of shareholder board nominees directly onto corporate ballots as long as certain conditions are met. Investors currently must foot the cost for mailing ballots if they want to run their own board nominees in corporate elections, a proposition that is too costly for most.
The rule, issued last August, has been put on hold pending the outcome of the suit.