Trinity Wall Street v. Wal-Mart Stores, Inc: Judicial Rewriting of the Proxy Rules (Part 1)

In Trinity Wall Street v. Wal-Mart Stores, Inc   792 F.3d 323 (3rd Cir. 2015), a majority of the Third Circuit upheld the exclusion of a proposal submitted to Wal Mart because the proposal involved the ordinary business of the company and did not "transcend" the day to day business.  In doing so, the court invented a new test that effectively eliminated the public policy exception for broad categories of ordinary business matters.  

Shareholders submitted a proposal to Wal-Mart that requested that the board to "amend the Compensation, Nominating and Governance Committee charter ... as follows: 

  • Providing oversight concerning [and the public reporting of] the formulation and implementation of ... policies and standards that determine whether or not the Company should sell a product that:
  • 1) especially endangers public safety and well-being;
  • 2) has the substantial potential to impair the reputation of the Company; and/or
  • 3) would reasonably be considered by many offensive to the family and community *330 values integral to the Company's promotion of its brand.” 

The staff granted no action relief finding that the proposal implicated the company's ordinary business and did not fall into the public policy exception.  Shareholders sued, alleging that the omission of the proposal violated Rule 14a-8.  In effect, the case asserted that the staff of the SEC was wrong in allowing exclusion.

The district court agreed with shareholder but the Third Circuit reversed.  The Third Circuit found that the proposal implicated the company's ordinary business.  The court suggested that the proposal raised public policy considerations.  Nonetheless, the court upheld the exclusion of the proposal because the public policy implications did not "transcend" the company's business.  

We will discuss the reasoning in the next post.

J Robert Brown Jr.