No Action Letter for Ford Motor Company Permitted Exclusion Under Ordinary Business Activity
In Ford Motor Company., 2018 BL 424 (Jan. 2, 2018), Ford Motor Company (“Ford”) asked the staff of the Securities and Exchange Commission (“SEC”) for permission to exclude a shareholder proposal submitted by Martin Harangozo (“Shareholder”) requesting that Ford issue a report outlining the costs and benefits of feeding its employees, specifically regarding the effects on employee health, productivity, and company profitability. The SEC issued the requested no action letter allowing for the exclusion of the proposal under Rule 14a-8(i)(7).
Shareholder submitted a proposal providing that:
This proposal recommends that Ford prepare a report, following all applicable laws, at reasonable expense, outlining the costs and benefits of feeding its employees, with the intention to promote health, productivity, and profitability.
Ford argued the proposal may be excluded from the company’s proxy materials under Rule 14a-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 and The Shareholder Proposal Rule and the SEC (Part II).
Rule 14a-8(i)(7) allows for the exclusion of a proposal if it “deals with a matter relating to the company’s ordinary business operations.” When a company cites this exclusion, the SEC must determine whether the proposal implicates the normal operations of the company. The SEC, however, will generally weigh a proposal implicating business operations against potential social policy implications. For additional explanation of the exclusion, see Adrien Anderson, The Policy of Determining Significant Policy under Rule 14a-8?, 93 DU Law Rev. Online 183 (2016), and Megan Livingston, The “Unordinary Business” Exclusion and Changes to Board Structure, 93 DU L. Rev. Online 263 (2016).
Ford argued Shareholder’s proposal should be excluded under Rule 14a-8(i)(7) because the proposal would allow shareholders to circumscribe whether and how Ford should feed its employees. Ford contended the decision whether or not to feed its employees is a clear business decision. Ford stated that because providing free food to employees would involve complex decision-making processes regarding employee compensation and Ford facility operations, it would relate to the ordinary business operations of the company. The SEC agreed with Ford’s basis for exclusion, concluding that the staff would not recommend enforcement action if Ford omitted Shareholder’s proposal from its proxy materials. The staff agreed the subject matter of the proposal related to the company’s ordinary business operations.
The primary materials for this case may be found on the SEC website.