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The nation's largest retailer, of both discount goods and guns, doesn't have to include a proposal from shareholders in its proxy materials, the Third Circuit ruled on Tuesday. A lower court had ruled that Walmart violated securities law when it refused to include a proposal by a shareholder and one of the nation's oldest churches, Trinity Wall Street.
The case is a reminder of the fine line between shareholder proposals which seek to change a business's social policy, which are permissible, and those which seek to change its day-to-day operations, which a company may ignore.
Pick up a Loaf of Bread and an Automatic Rifle
Trinity had proposed new oversight requirements for Walmart for determining whether to sell products which were a danger to public safety, risked impairing the company's reputation, or offended values integral to its brand. The church singled out high-capacity guns as an example of a product that would require more scrutiny under the proposal.
Walmart refused to put the proposal on the ballot. The store argued that it could exclude it under SEC rules that allow companies to omit shareholder resolutions which relate to their "ordinary business" operations. Impacting how products are selected falls under that provision, Walmart argued -- and the SEC agreed.
Social Policy or Ordinary Business?
Trinity brought its case to the federal district court in Delaware. Its opinion focused on the SEC's own guidance for the 'ordinary business' exclusion. Under that guidance, proposals relating to "sufficiently significant social policy issues" are not excusable just because they "transcend the day-to-day business matters."
According to the district court, the shareholder vote would not be about the daily management of the company, but the policies and standards used to determine whether the company should sell a certain product.
Walmart's proxy materials go out in late April, making the Third Circuit's decision particularly time sensitive. Presumably to decide the issue before the materials were to be sent out, the court released only a terse order reversing the district court. An opinion is forthcoming, but for the moment the reasons for reversal are unclear. The court could have decided that the proposal fell directly within the ordinary business exclusion, agreeing with Walmart and the SEC that it was too closely tied to the daily operations of the retailer. Or, it may have agreed with one of the several jurisdictional arguments that Walmart advanced on appeal.
In any event, for GCs, the case means that the board room continues to retain more power than the shareholders when it comes to controlling the company.