Wal-Mart Assault Rifle Proposal Sputters

     (CN) – Shareholder concerns about gun violence do not “transcend” Wal-Mart’s interest in managing its daily business operations, including its decision to sell assault rifles, the Third Circuit ruled Monday.
     Three months after vacating an injunction against Wal-Mart, the federal appeals court explained why the superstore’s 2015 proxy materials need not include a proposal advocating for board oversight of dangerous products.
     Trinity Wall Street, a large Episcopal parish in New York City and one of the wealthiest religious institutions in America, had sought such relief as an owner of Wal-Mart stock.
     Claiming that it wants to use its investment portfolio to advance its values, particularly focusing on the reduction of violence, the church sought to include a proposal in Wal-Mart’s proxy materials regarding sales of the Bushmaster AR-15, a high-capacity rifle.
      Dubbed “The Most Wanted Gun in America” by The New York Times in 2013, the AR-15 is the civilian version of the military’s standard M-16 rifle.
     James Holmes, the man on trial for the 2012 movie theater shooting in Aurora, Colo., used the weapon, as did Adam Lanza in his shooting spree at Sandy Hook Elementary School, which took the lives of 20 children and six adults.
     Trinity’s proposal did not ask Wal-Mart to stop selling the weapon.
     Instead, it wanted shareholders to vote on whether Wal-Mart’s board of directors should implement standards for deciding whether to sell a product that “especially endangers public safety,” “has the substantial potential to impair the reputation of Wal-Mart,” and/or “would reasonably be considered by many offensive to the family and community values integral to the company’s promotion of its brand.”
     Despite such broad language, however, the Third Circuit noted Monday that the proposal has a deeper message.
     “Stripped to its essence, Trinity’s proposal – although styled as promoting improved governance – goes to the heart of Wal-Mart’s business: what it sells on its shelves,” Judge Thomas Ambro wrote for a three-person panel.
     Last year, the Securities and Exchange Commission issued a no-action letter, indicating that Wal-Mart would not face an enforcement action for excluding the church’s submission from its filings.
     The Third Circuit notes that federal law allows a company to exclude a shareholder proposal from its proxy materials if it “deals with a matter relating to the company’s ordinary business operations.”
     In this case, the subject of the church’s proposal “strikes at the core of Wal-Mart’s business,” the ruling states.
     “A retailer’s approach to its product offerings is the bread and butter of its business,” Ambro added.
     Merchandising approaches hardly go over shareholders’ heads, but “the particulars of that approach involve operational judgments that are ordinary-course matters,” the decision continues.
     “Moreover, that the proposal doesn’t direct management to stop selling a particular product or prescribe a matrix to follow is, we think, a straw man,” Ambro wrote. “A proposal need only relate to a company’s ordinary business to be excludable. It need not dictate any particular outcome.” (Emphasis in original.)
     There is a “significant social policy” exception to the default rule of excluding proposals relating to ordinary business operations – but this exception does not apply here, the court found.
     Gun control raises a significant social policy concerns, but the church’s proposal here “relates to a policy issue that targets the retailer-consumer interaction,” Ambro wrote.
     “It doesn’t raise an issue that transcends in this instance Wal-Mart’s ordinary business operations, as product selection is the foundation of retail management,” he added (emphasis in original).
     Shareholders perform an important function in raising corporate awareness of social issues impacting the business, but they are not in a position to make management decisions, the court held.
     “The relevant question to us is whether Wal-Mart’s consideration of the risk that certain products pose to its ‘economic success’ and ‘reputation for good corporate citizenship’ is enmeshed with the way it runs its business and the retailer-consumer interaction,” the 69-page opinion states. “We think the answer is yes.”

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