A recent court decision and no-action letter have brought to light new issues surrounding issuer requests for Securities and Exchange Commission no-action relief with respect to the ability to exclude shareholder proposals from the issuer’s proxy statement.
On November 26, the US District Court for the District of Delaware ruled that Wal-Mart Stores, Inc. improperly excluded a shareholder proposal from its 2014 proxy statement even though Wal-Mart had previously been granted no-action relief by the Office of Chief Counsel of the SEC’s Division of Corporation Finance (Office of Chief Counsel).
Prior to Wal-Mart’s 2014 annual meeting, a shareholder requested the inclusion in Wal-Mart’s proxy statement of a proposal that would require Wal-Mart’s Compensation, Nominating and Governance Committee to evaluate whether Wal-Mart should sell a product that endangers public safety, has the substantial potential to impair Wal-Mart’s reputation or would be considered offensive to the values that are integral to Wal-Mart’s brand. Wal-Mart applied to the SEC for no-action relief with respect to the exclusion of such proposal from its proxy statement on the grounds that it related to ordinary business operations, a position that is consistent with prior views of the SEC staff. Such SEC no-action relief was granted, and Wal-Mart accordingly excluded the proposal.
The District Court ruled, however, that the shareholder’s proposal was not related to ordinary business matters because it intended to cause Wal-Mart’s board of directors to oversee the development and implementation of a policy. The District Court distinguished between the policy that, if implemented, may have an impact on the products that Wal-Mart sold in its business and the proposal itself, which the District Court ruled would not have such an impact. The District Court noted that while in the past it had given substantial deference to the SEC’s staff no-action process, the determination of whether the ordinary business exemption applied was ultimately in the purview of the District Court. The District Court’s relief provides that Wal-Mart may not exclude the shareholder’s proposal from Wal-Mart’s 2015 proxy materials.
On December 4, the Office of Chief Counsel granted no-action relief with respect to Whole Foods Market, Inc.’s determination to exclude a shareholder “proxy access” proposal from Whole Foods’ proxy materials because of the intention of the board of directors of Whole Foods to seek shareholder approval for a competing proposal.
The shareholder’s proposal would have asked Whole Foods’ shareholders to vote to allow any shareholder or group of shareholders that collectively own at least three percent of the company’s outstanding shares continuously for a period of three years to nominate director candidates for inclusion in Whole Foods’ proxy materials. Whole Foods’ proposal, on the other hand, would require a shareholder or group of shareholders to collectively own at least nine percent of the company’s outstanding shares continuously for a period of five years before they could nominate director candidates for inclusion in Whole Foods’ proxy materials. The SEC staff, in its first decision regarding exclusion of a shareholder proxy access proposal, granted Whole Foods’ no-action relief request on the basis of Whole Foods’ contention that its plan to include a more restrictive proposal regarding proxy access conflicted with the shareholder’s proposal and that the inclusion of both proposals would present alternative and conflicting decisions for Whole Foods’ shareholders.