NEW YORK, Feb 9 (Reuters Breakingviews) - Wal-Mart Stores’ gun sales are shareholders’ business. The U.S. mega-retailer claims a Wall Street church’s request for an arms-peddling policy is overly meddlesome. Add that to the list of excuses companies use to keep investor ideas off proxy ballots. True, lots of proposals are far out, but ones that raise issues that can affect investors deserve a vote. It’s up to the Securities and Exchange Commission to define the difference.
Proxy materials must generally include shareholder submissions, with at least three big exceptions. Proposals can’t be misleading, conflict with management items or intrude on ordinary business. The rules weren’t controversial until activist investors started inundating companies with suggestions on everything from governance to the environment.
Harvard Law School’s Shareholder Rights Project, for example, has cited academic studies to persuade more than 100 companies that annual board elections boost a firm’s value. An SEC commissioner and other prominent critics now claim the project’s shareholder proposals are misleading - and should be squelched - because they don’t cite contradictory evidence.
Whole Foods Market, meanwhile, ditched an investor proposition last year by ginning up a conflicting one of its own. The SEC approved the dodgy tactic in December but reversed itself last month after outraged shareholders protested.
The Wal-Mart case could break new ground. In 2013, investor Trinity Church asked the retailer’s board to adopt policies for selling dangerous products like the assault weapon used in the 2012 massacre at Connecticut’s Sandy Hook Elementary School. With SEC consent, Wal-Mart blocked the proposal as interfering with operations. In November, though, a federal judge in Delaware ordered the measure back on the ballot, because it may “transcendbusiness matters” and addresses board policies, not operations. Wal-Mart has appealed.
Trade groups squawk that the ruling upends SEC precedent and encourages lawsuits, and they have a point. Persistent shareholders might credibly threaten litigation if proposals advancing their narrow interests are excluded from corporate ballots.
That’s not an argument against Trinity’s submission, which addresses an issue of national importance that directly affects Wal-Mart’s reputation with customers. It is, however, reason to question the SEC. Waffling on Whole Foods and failing to define a company’s ordinary business operations adds uncertainty to already complex rules. Investors and issuers deserve a lot better.
- Wal-Mart Stores on Feb. 13 is scheduled to file a U.S. appeals court brief arguing that a shareholder proposal intrudes on ordinary business operations and can be excluded from the company’s 2015 proxy ballot. The shareholder, Trinity Church in New York, filed its brief in opposition on Feb. 4.
- Trinity’s proposal calls for the governance committee of Wal-Mart’s board to implement policies for determining whether the company should sell guns and other products that may endanger public safety and potentially harm the company’s reputation. Wal-Mart obtained the Securities and Exchange Commission’s permission to exclude the proposal from the 2014 ballot.
- But a federal court in November overruled the commission, ordering the proposal included in 2015 proxy materials because it involves public policy issues that transcend ordinary operations like selling products. Wal-Mart appealed the decision, and a ruling is expected in April, well before the company’s annual meeting in June. (The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)