In a decision that could help large institutional investors put representatives on corporate boards, a federal appeals court ruled Tuesday that the American International Group must take a step that will make it easier for shareholder-nominated candidates to run for director positions.

With the decision, the 2nd U.S. Circuit Court of Appeals overturned the Securities and Exchange Commission’s practice of permitting companies to exclude from proxy materials proposed amendments that would force those companies to include shareholder-nominated candidates for director positions. The decision reverses a district court judge, Louis Stanton, who decided the case in favor of AIG last year.

The case pitted one of the largest public service employee unions in the country, the American Federation of State, County & Municipal Employees, against AIG, one of the largest insurance and financial services companies in the world. Through its pension plan, AFSCME owns nearly 27,000 shares of AIG, according to the decision.

One legal observer, a law school professor at Columbia University, John Coffee, said that the case had broad implications for corporate governance.

“This is not limited AIG,” Mr. Coffee said. The ruling, Mr. Coffee said, could make it far easier for large institutional investors to place “a watchdog or a monitor” on the board of directors.

Companies often send out only the names of candidates for board positions that have been nominated by the existing board of directors. The SEC has allowed companies, including AIG, to exclude from its printed materials shareholder proposals that would alter the bylaws to require companies to also send out the names of shareholder-nominated candidates, according the decision.

Currently it is extremely costly for shareholders to nominate candidates. At the very least, a shareholder faces the enormous mailing costs that come from sending out heavy envelopes of printed material to every single shareholder, Mr. Coffee said.

The three judges on the panel that unanimously decided the case are James Oakes, Guido Calabresi, and Richard Wesley.

In other AIG-related news, Attorney General Spitzer has dropped two of six civil charges against former AIG CEO Maurice “Hank” Greenberg, the Associated Press reported.

“The heart of the case remains,” the chief of Mr. Spitzer’s Investment Protection Bureau, David Brown, told the Associated Press.

Earlier this year, AIG settled civil charges against it for $1.64 billion. Mr. Spitzer had accused the company of misleading investors through deceptive accounting practices.