Excluding Shareholder Proposals—Trinity Wall Street v. Wal-Mart Stores, Inc.: Third Circuit Provides Guidance on When Shareholder Proposals Raising Significant Social Policy Issues Do Not Transcend the Day-to-Day Business Matters and May be Excluded

Sullivan & Cromwell LLP - July 10, 2015

On Monday, the U.S. Court of Appeals for the Third Circuit released its opinion in Trinity Wall Street v. Wal-Mart Stores, Inc.  The Court had issued an earlier order, without an opinion, that Wal-Mart could exclude Trinity’s Rule 14a-8 shareholder proposal relating to the sale of firearms with high-capacity magazines from Wal-Mart’s proxy materials because it related to “ordinary business operations.” At the time, the Court stated it would subsequently issue a more detailed opinion explaining its rationale.

In Monday’s opinion, the Court held that a company may exclude a Rule 14a-8 shareholder proposal that relates to ordinary business operations but raises a significant social policy issue, if the subject matter of the proposal “targets day-to-day decision-making” or is “enmeshed with [the company’s] day-to-day business.”  In these instances, the social policy issues do not “transcend a company’s ordinary business” and are excludable.  On the other hand, a proposal that “is disengaged from the essence” of a company’s business is more likely to “transcend its daily business dealings” and not be excludable.  Because the Court found that “the essence of a retailer’s business is deciding what products to put on its shelves,” it concluded Trinity’s proposal did not transcend ordinary business and was properly excluded. The Court noted the ordinary business exclusion remained hard to define and recommended that the SEC issue new interpretive guidance.