No-Action Letter for Starbucks Corporation Allowed Exclusion of Charitable Contributions Report Proposal
In Starbucks Corp., 2018 BL 2480 (January 4, 2018), Starbucks Corp. (“Starbucks” or “Company”) asked the staff of the Securities and Exchange Commission (“SEC”) to permit the omission of a proposal submitted by Thomas Strobhar (“Proponent”) requesting the board issue a report disclosing Starbucks’ standards and process for making charitable contributions. The SEC issued the requested no action letter allowing for the exclusion of the proposal under Rule 14a-8(i)(7).
Proponent submitted a proposal providing that:
RESOLVED: The Proponent requests that the Board of Directors consider issuing a semiannual report on the Company website, omitting proprietary information and at reasonable cost, disclosing: the Company’s standards for choosing which organizations receive the Company’s assets in the form of charitable contributions, the rational, if any, for such contributions, the intended purpose of each of the charitable contributions and, if appropriate, the benefits to others of the Company’s charitable works.
Starbucks argued the proposal may be excluded from the company’s proxy materials under 14(a)-8(i)(7).
Rule 14a-8 provides shareholders with the right to insert a proposal in the company’s proxy statement. 17 CFR 240.14a-8. The shareholders, however, must meet certain procedural and ownership requirements. In addition, the Rule includes thirteen substantive grounds for exclusion. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC.
Under Rule 14a-8(i)(7), a company may exclude from its proxy materials a proposal dealing with a matter relating to a company’s ordinary business operations. The purpose of the “ordinary business” exclusion is “to confine the resolution of the ordinary business problem to management and the board of directors since it is impracticable for shareholders to decide how to solve problems at an annual shareholders meeting.” “Ordinary business” refers to those issues that are fundamental to management’s ability to run the company on a day-to-day basis. For additional discussion on this exclusion, see Megan Livingston, The “Unordinary Business” Exclusion and Changes to Board Structure, 93 DU Online L. Rev. 263 (2016), and Adrien Anderson, The Policy of Determining Significant Policy under Rule 14a-8(i)(7), 93 DU Online L. Rev. 183 (2016).
Starbucks argued Proponent’s proposal should be excluded under 14a-8(i)(7) because the proposal relates to contributions to specific types of organizations and this related to a company’s ordinary business operations. Furthermore, Starbucks argued that even where a resolution itself is facially neutral, the SEC has consistently permitted the exclusion of proposals where the statements surrounding a facially neutral proposed resolution indicate the proposal would serve as a shareholder referendum on charitable contributions to particular types of charitable organizations or groups. Starbucks claimed that when read with Proponent’s supporting statements, the proposal simply represented the Proponent’s opposition to particular types of organizations while masquerading as a facially neutral proposal regarding charitable contributions.
The SEC agreed with Starbucks that the proposal did relate to contributions to specific types of organizations, and concluded it would not recommend enforcement action if Starbucks omitted the proposal from its proxy materials in reliance on Rule 14a-8(i)(7).
The Primary materials for this case may be found on the SEC website.