No-Action Letter for American Express Company Allowed Exclusion of Proposal Requesting CEO and Named Directors Not to Serve Other Companies with Payment

In American Express Co., 2016 BL 429743 (Dec. 22, 2016), American Express Co. (“AmEx”) asked the staff of the Securities and Exchange Commission (“SEC”) to permit exclusion of a proposal submitted by shareholder Jing Zhao (“Zhao”) requesting that AmEx require the CEO and other named executive officers not to serve on the board or within the organizations of other companies for payment. The SEC agreed to issue a no-action letter allowing exclusion of the proposal under Rule 14a-8(i)(7).

Zhao submitted a proposal providing that:

     RESOLVED: “Shareholders recommend that American Express Company request the CEO not to serve   other companies with payment. This policy should also apply to other Named Executive Officers.”

AmEx sought exclusion of the proposal from its proxy materials under subsection (i)(7) of Rule 14a-8.

Rules 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, proposals may be excluded under one or more of the thirteen substantive exclusions. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC.

Rule 14a-8(i)(7) permits the exclusion of proposals dealing with matters relating to the company’s “ordinary business” operations. The term “ordinary business” refers to those business matters confined to resolution by management and the board of directors. Thus, proposals relating to “ordinary business” matters are not subjected to shareholder oversight. For additional explanation of this exclusion see Megan Livingston, The “Unordinary Business” Exclusion and Changes to Board Structure, 93 DU Law Rev. Online 263 (2016), and Adrien Anderson, The Policy of Determining Significant Policy under Rule 14a-8(i)(7), 93 DU Law Rev. Online 183 (2016).

AmEx argued for exclusion under Rule 14a-8(i)(7) because the proposal interfered with daily operations and micromanaged the company by identifying specific qualifications for officers. AmEx also emphasized that the staff had long recognized “limits on employees’ board service” as a matter of ordinary business. Additionally, AmEx argued the proposal did not “transcend the day-to-day business matters” of the company, and therefore did not address significant policy issues warranting inclusion in its proxy materials.

Zhao disagreed, arguing his proposal did not pertain to ordinary business matters. Zhao also  contended that the proposal raised significant policy issues because the CEO’s alleged conduct as a member of other boards violated AmEx’s Code of Conduct regarding Conflicts of Interest.

The SEC agreed with AmEx and concluded it would not recommend enforcement action if AmEx omits the proposal from its proxy materials in reliance on rule 14a-8(i)(7). The SEC noted “the proposal relates to specified employees’ ability to serve outside organizations.”

The primary materials for this case may be found on the SEC website.

Susan Lloyd