Corporate Governance/Shareholder Activism -- 2015

Trinity Wall Street v. Wal-Mart Stores, Inc.   (3rd Circuit)

Shareholder activists expand "ordinary business operations" exception

On January 21, 2015 the NAM filed an amicus brief in this case asking the Court to reverse the lower court’s ruling. As way of background, SEC Rule 14a-8, the shareholder proposal rule, requires a public company to include a shareholder proposal in its proxy statement for action at the company’s annual meeting if the shareholder proponent satisfies various procedural and substantive requirements. Although the rule gives shareholders wide latitude to make proposals, their rights are not unlimited when seeking to access the company’s proxy statement. Of critical importance here, a shareholder proposal under Rule 14a-8 cannot relate to the “ordinary business” operations of the company.

In this case, Trinity’s proposal targeted products for exclusion from Wal-Mart that Trinity claims will have the “substantial potential to impair the reputation of the Company and/or would reasonably be considered by many offensive to the family and community values integral to the Company’s promotion of its brand.”

The NAM brief argued that this subject matter is inherently subjective and open-ended, particularly for retailers selling a wide variety of products to an array of consumers. It should be assumed that many products may be offensive to the views or values of one of countless constituencies in the domestic or even global marketplace. The shareholder proposal rules were not intended to allow a shareholder referendum on how a retailer selects its inventory. If the mix of products a retailer chooses to stock and sell is not subject to the ordinary business exception, that exception is rendered a nullity. The District Court erred because a proposal attempting to influence the types of products a retailer may sell clearly relates to an “ordinary business” matter.

The District Court’s analysis has troubling ramifications for public companies and manufacturers because it opens the door to the possibility that any lawful product that could draw some social objection is ripe for shareholder consideration.

On April 14, 2015 the 3rd Circuit Court of Appeals affirmed the NAM position ruling that the District Court order entered on December 8, 2014 granting Appellee’s motion for summary judgment with respect to Count I of the Verified Amended Complaint is reversed and the permanent injunction it entered is vacated.

Related Documents:
NAM amicus brief  (January 21, 2015)


© 2019 National Association of Manufacturers