Trinity Wall Street v. Wal-Mart Stores, Inc.

“[T]he secret of successful retailing is to give your

customers what they want.” Sam Walton, SAM WALTON:

MADE IN AMERICA 173 (1993). This case involves one

shareholder’s attempt to affect how Wal-Mart goes about

doing that.

Appellant Wal-Mart Stores, Inc., the world’s largest

retailer, and one of its shareholders, Appellee Trinity Wall

Street—an Episcopal parish headquartered in New York City

that owns Wal-Mart stock—are locked in a heated dispute. It

stems from Wal-Mart’s rejection of Trinity’s request to

include its shareholder proposal in Wal-Mart’s proxy

materials for shareholder consideration.

Trinity’s proposal, while linked to Wal-Mart’s sale of

high-capacity firearms (guns that can accept more than ten

rounds of ammunition) at about one-third of its 3,000 stores,

is nonetheless broad. It asks Wal-Mart’s Board of Directors

to develop and implement standards for management to use in

9

deciding whether to sell a product that (1) “especially

endangers public safety”; (2) “has the substantial potential to

impair the reputation of Wal-Mart”; and/or (3) “would

reasonably be considered by many offensive to the family and

community values integral to the Company’s promotion of its

brand.” Standing in Trinity’s way, among other things, is a

rule of the Securities and Exchange Commission (“SEC” or

“Commission”), known as the “ordinary business” exclusion.

17 C.F.R. § 240.14a-8(i)(7) (“Rule 14a-8(i)(7)”). As its name

suggests, the rule lets a company omit a shareholder proposal

from its proxy materials if the proposal relates to its ordinary

business operations.

Wal-Mart obtained what is known as a “no-action

letter” from the staff of the SEC’s Division of Corporate

Finance (the “Corp. Fin. staff” or “staff”), thus signaling that

there would be no recommendation of an enforcement action

against the company if it omitted the proposal from its proxy

materials. See Wal-Mart Stores, Inc., SEC No-Action Letter,

2014 WL 409085, at *1 (Mar. 20, 2014). Trinity thereafter

filed suit in federal court, seeking to enjoin Wal-Mart’s

exclusion of the proposal. See Trinity Wall Street v. Wal-

Mart Stores, Inc., --- F. Supp. 3d ----, No. 14-405-LPS, 2014

WL 6790928 (D. Del. Nov. 26, 2014). The core of the

dispute is whether the proposal was excludable under the

ordinary business exclusion. Although the District Court

initially denied Trinity’s request, it handed the church a

victory on the merits some seven months later by holding

that, because the proposal concerned the company’s Board

(rather than its management) and focused principally on

governance (rather than how Wal-Mart decides what to sell),

it was outside Wal-Mart’s ordinary business operations. Wal-

Mart appeals, seeking a ruling that it could exclude Trinity’s

proposal from its 2015 proxy materials and did not err in

excluding the proposal from its 2014 proxy materials.

10

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. For the

reasons that follow, we hold that it is excludable under Rule

14a-8(i)(7) and reverse the ruling of the District Court.1

II. FACTS & PROCEDURAL HISTORY

Public companies publish and circulate a proxy

statement in advance of their annual shareholders’ meeting.

The statement “includes information about items or initiatives

on which the shareholders are asked to vote[.]” Apache Corp.

v. Chevedden, 696 F. Supp. 2d 723, 727 (S.D. Tex. 2010)

(citation omitted). It can also include shareholder

proposals—a device that allows shareholders to ask for a vote

on company matters. Predictably, companies don’t easily

surrender control of their proxy statement and often lean on

an SEC rule to justify excluding a given shareholder proposal.

But doing so can trigger a protracted legal battle that escalates

from an exchange of views before the SEC to a federal

lawsuit. This is one such case.

A. Trinity Objects to Wal-Mart’s Sale of Assault

Rifles.

Trinity’s roots extend back centuries. Its St. Paul’s

Chapel is the oldest public building in continuous use in New

York City and is where George Washington worshipped after

his first inauguration. In 1705, the church was the beneficiary

of the lower Manhattan farm of Queen Anne of England,

instantly making it very wealthy.

1 Because of the time-sensitive nature of this appeal, we were

unable to give a full rationale for a ruling on the date we

entered judgment in favor of Wal-Mart. This opinion does

so.

11

The story isn’t much different today. Trinity continues

to be one of the wealthiest religious institutions in the United

States, with a balance sheet of over $800 million in assets and

real estate valued at approximately $3 billion. See Letter

from Trinity Wall Street CFO Accompanying Trinity’s 2013

Financial Statements (undated), available at

https://www.trinitywallstreet.org/sites/default/files/miscellane

ous/LetterfromtheCFOaccompanyingthe2013FinancialStatem

ents.pdf. Its strong financial footing, according to Trinity,

empowers it to “pursue a mission of good works beyond the

reach of other religious institutions.” Trinity Br. 16. Part of

that mission is to reduce violence in society.

Alarmed by the spate of mass murders in America, in

particular the shooting at Sandy Hook Elementary School in

December 2012, Trinity resolved to use its investment

portfolio to address the ease of access to rifles equipped with

high-capacity magazines (the weapon of choice of the Sandy

Hook shooter and other mass murderers). Its principal focus

was Wal-Mart.

During its review of Wal-Mart’s merchandising

practices, Trinity discovered what it perceived as a major

inconsistency. Despite the retailer’s stated mission to “make

a difference on the big issues that matter to us all,” Trinity Br.

11, it continued in some states to sell the Bushmaster AR-15

(a model of assault rifle). Trinity also perceived Wal-Mart as

taking an unprincipled approach in deciding which products

to sell. For example, despite its position on the AR-15, Wal-

Mart does not sell adult-rated movie titles (i.e., those rated

NC-17) or similarly rated video or computer games. Nor

does it sell to children under 17 “‘R’ rated movies or ‘Mature’

rated video games.” Trinity Br. 12. Wal-Mart also doesn’t

sell “music bearing a ‘Parental Advisory Label’” because of

concerns about the music containing “strong language or

depictions of violence, sex, or substance abuse.” Id. And

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apparently due to safety concerns, it has stopped selling (1)

handguns in the United States; (2) high-capacity magazines

separate from a gun; and (3) guns through its website. Trinity

Br. 13. Trinity attributes these perceived inconsistencies to

the “lack of written policies and Board oversight concerning

its approach to products that could have momentous

consequences for both society and corporate reputation and

brand value[.]” Trinity Br. 16.2

B. Trinity’s Shareholder Proposal.

Trinity pressed Wal-Mart to explain its continued sale

of the Bushmaster AR-15. Wal-Mart’s response was as

follows:

There are many viewpoints on this topic and

many in our country remain engaged in the

conversations about the sale and regulation of

certain firearms. In areas of the country

where we sell firearms, we have a long

standing commitment to do so safely and

2 In its brief and again at oral argument, Wal-Mart answered

Trinity’s characterization of its sales practices and referred us

to its “Safe and Compliant Product Policy” and its “Product

Safety and Compliance” division, which “administers

programs to identify, mitigate, and monitor risks associated

with general merchandise.” Reply Br. 4. Wal-Mart also

noted that a Board Committee is already tasked with

“reviewing the Company’s reputation with external

constituencies and recommending to the Board any proposed

changes to the Company’s policies, procedures, and programs

as a result of such review.” Id. (citing J.A. 47) (alterations

omitted).

13

responsibly. Over the years, we’ve been very

purposeful about finding the right balance

between serving hunters and sportsmen and

ensuring that we sell firearms responsibly.

Wal-Mart’s merchandising decisions are

based on customer demand and we recognize

that most hunters and sportsmen use firearms

responsibly and wish to continue to do so . . . .

While there are some like you, Rev. Cooper,

who ask us to stop selling firearms, there are

many customers who ask us to continue to sell

these products in our stores.

J.A. 255–56.

Unmoved, Trinity drafted a shareholder proposal

aimed at filling the governance gap it perceived. The

proposal, which is the subject of this appeal,

provides:

Resolved:

Stockholders request that the Board

amend the Compensation, Nominating

and Governance Committee charter . . .

as follows:

“27. 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:

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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 values integral to the

Company’s promotion of its brand.”

J.A. 268.

The narrative part of the proposal makes

clear it is intended to cover Wal-Mart’s sale of

certain firearms. It provides that the

oversight and reporting is intended to cover

policies and standards that would be

applicable to determining whether or not the

company should sell guns equipped with

magazines holding more than ten rounds of

ammunition (“high capacity magazines”)

and to balancing the benefits of selling such

guns against the risks that these sales pose to

the public and to the Company’s reputation

and brand value.

Id.

The proposal also included a supporting statement

asserting in relevant part that

[t]he company respects family and community

interests by choosing not to sell certain

15

products such as music that depicts violence

or sex and high capacity magazines separately

from a gun, but lacks policies and standards to

ensure transparent and consistent

merchandizing decisions across product

categories. This results in the company’s sale

of products, such as guns equipped with high

capacity magazines, that facilitate mass

killings, even as it prohibits sales of passive

products such as music that merely depict

such violent rampages.

. . . .

While guns equipped with high capacity

magazines are just one example of a product

whose sale poses significant risks to the public

and to the company’s reputation and brand,

their sale illustrates a lack of reasonable

consistency that this proposal seeks to address

through Board level oversight. This

responsibility seems appropriate for the

Compensation, Nominating and Governance

Committee, which is charged with related

responsibilities.

J.A. 268–69.3

3 In this context, the proposal is similar to that of a

shareholder proposal submitted to Wal-Mart in December

2000 to halt its sale of “handguns and their accompanying

ammunition, in any way (e.g.[,] by special order).” Wal-Mart

Stores, Inc., SEC No-Action Letter, 2001 WL 253625, at *1

(Mar. 9, 2001). Like Trinity, the submitting shareholder

maintained that it was “inappropriate for a ‘family store’ to

16

The purpose of the proposal, as explained by

the Reverend James H. Cooper, Trinity’s Rector, is

to

allow[] the company to make a transparent

choice considering both the business and

ethical (community impact) aspects of the

matter. Anti-violence concerns can be

broadly considered, including for example the

sale of video games glorifying violence, as

well as other merchandising decisions that are

inconsistent with the well-being of the

community and/or Wal-Mart’s brand value

and desired reputation.

Trinity Br. 18–19 (citation omitted).

C. Wal-Mart Seeks a No-Action Letter from the SEC.4

On January 30, 2014, Wal-Mart notified Trinity and

the Corp. Fin. staff of its belief that it could exclude the

sell handguns in any way.” Id. at *4. As here, the Corp. Fin.

staff issued a no-action letter allowing Wal-Mart to exclude

the proposal from its proxy materials because it related to its

“ordinary business operations (i.e., the sale of a particular

product).” Id. at *6.

4 In the words of the SEC, a “no-action letter is one in which

an authorized staff official indicates that the staff will not

recommend any enforcement action to the Commission if the

proposed transaction described in the incoming

correspondence is consummated.” Procedures Utilized by the

Division of Corporate Finance for Rendering Informal

Advice, Release No. 6,253, 1980 WL 25632, at *1 n.2 (Oct.

28, 1980).

17

proposal from its 2014 proxy materials under Rule 14a-

8(i)(7). Trinity predictably disagreed, stating that its proposal

didn’t “meddl[e] in ordinary course decision-making” but

focused on “big picture oversight and supervision that is the

responsibility of the Board.” J.A. 280. In support of that

assertion, Trinity offered three reasons why its proposal was

not excludable:

1. [it] addresses corporate governance

through Board oversight of important

merchandising policies and is

substantially removed from

particularized decision-making in the

ordinary course of business;

2. [it] concerns the Company’s standards

for avoiding community harm while

fostering public safety and corporate

ethics and does not relate exclusively

to any individual product; and

3. [it] raises substantial issues of public

policy, namely a concern for the safety

and welfare of the communities served

by the Company’s stores.

J.A. 280. Trinity also touted the proposal as: not dictating

“the specifics of how that Board oversight will operate or

how best to report publically on the policies being followed

by the Company and their implementation,” J.A. 281; not

seeking to “determine what products should or should not be

sold by the Company,” id.; allowing policy development “not

by shareholders, but by management, using its knowledge and

discretion,” id.; and addressing “the ethical responsibility of

the Company to take account of public safety and well-being,

18

and the related risks of damage to the Company’s reputation

and brand,” J.A. 283.

On March 20, 2014, the Commission’s Corp. Fin. staff

issued a “no-action” letter siding with Wal-Mart. It noted that

“there appears to be some basis for [Wal-Mart’s] view that

[it] may exclude the proposal under rule 14a-8(i)(7), as

relating to [its] ordinary business operations[,]” because

“[p]roposals concerning the sale of particular products and

services are generally excludable under [the rule].” Wal-Mart

Stores, Inc., SEC No-Action Letter, 2014 WL 409085, at *1

(Mar. 20, 2014). Consequently, the staff would “not

recommend enforcement action to the Commission if

Walmart [sic] omits the proposal from its proxy materials in

reliance on rule 14a-8(i)(7).” Id.

Because no-action letters are not binding—they reflect

only informal views of the staff and are not decisions on the

merits—Trinity’s proposal still had life.

D. Trinity Takes its Fight to Federal Court: Round

One.

On April 1, 2014, and just 17 days before Wal-Mart’s

proxy materials were due at the printer, Trinity filed a

declaratory judgment action against Wal-Mart in the District

of Delaware. It sought a declaration that “Wal-Mart’s

decision to omit the proposal from [its] 2014 Proxy Materials

violates Section 14(a) of the 1934 Act and Rule 14a-8.”

Trinity, 2014 WL 6790928, at *2 (internal citation omitted).

The relief it requested was twofold:

1. A permanent injunction to prevent

Wal-Mart from excluding its proposal

from its 2015 proxy materials; and

19

2. A preliminary injunction to prevent it

from printing, issuing, filing, mailing

or otherwise transmitting proxy

materials in connection with its 2014

Annual Meeting that do not contain the

shareholder proposal submitted by

Trinity.

Id.

Because of the April 17 deadline, the District Court

held an emergency hearing on Trinity’s preliminary

injunction request. At the hearing the Court described

Trinity’s burden as “heavy,” the remedy it was seeking as

“extraordinary,” and the time frame within which it had to

rule as “highly expedited.” Id. It didn’t help Trinity’s cause

that the SEC had already sided with Wal-Mart.

It’s very clear that the SEC has had

hundreds of opportunities to consider

questions like this. I have not. While the

SEC may only have a few hours or whatever

to put into each of these, I have roughly the

same amount of time. You come to what

you know is an extremely busy court. We

have given this expedited attention. It comes

to us with a no action conclusion from the

SEC staff . . . You come to me, you have the

burden [of] asking for extraordinary relief,

and I need to find that it’s likely that at the

end of the trial, whenever we get there, I’m

going to disagree with the SEC staff.

Id. at *3 (brackets omitted).

20

Viewing the proposal as one dealing “with guns on the

shelves and not guns in society,” the Court, in a ruling from

the bench, held that the proposal related to an “ordinary

business matter” and was thus excludable under Rule 14a-

8(i)(7). Id. It explained that

[t]he proposal [] expressly and . . .

importantly states that the requested

“oversight and/or reporting is intended to

cover policies and standards that would be

applicable [to] determining whether or not

the company should sell guns equipped with

magazines holding more than 10 rounds of

ammunitions, high capacity magazines.”

And I tried to emphasize it’s my added

emphasis on “sell.”

. . . .

While the specific proposal is crafted as one

directed solely to policy and oversight and

therefore arguably arises in the difficult and

seemingly novel perhaps intersection

between ordinary business . . . on the [one]

hand [and corporate governance] on the

other hand, ultimately I’m not persuaded

that I’m likely to conclude at the end of the

day on the merits that it therefore does not

fall within the exception given the rule for

ordinary business.

21

Id. (emphases omitted). The Court also gave weight to the

SEC’s “expertise” and “lengthy experience” involving proxy

contests. Id.5

Although the favorable ruling allowed Wal-Mart to

exclude Trinity’s proposal from its 2014 proxy materials, it

had not yet prevailed on the merits.

E. Round Two.

Wal-Mart thereafter moved to dismiss both counts of

Trinity’s amended complaint. It contended that Trinity’s

challenge to Wal-Mart’s exclusion of the proposal from the

retailer’s 2014 proxy materials (count 1) was moot, see id. at

*4, and the challenge to Wal-Mart’s “reasonably anticipated

2015 violation of Section 14(a) and Rule 14a-8” (count 2)

wasn’t ripe, id. at *5 (emphasis added). The District Court

granted Wal-Mart’s motion only in part. It disagreed on

mootness, but agreed on ripeness. Most notably, however,

and in direct tension with its earlier decision, the Court on

summary judgment held that the proposal was not excludable

under Rule 14a-8(i)(7).

With more time to deliberate, the Court concluded

that, although the proposal “could (and almost certainly

would) shape what products are sold by Wal-Mart,” it is “best

viewed as dealing with matters that are not related to Wal-

Mart’s ordinary business operations.” Id. at *8 (emphasis

added). Thus Rule 14(a)-8 could not block its inclusion in

Wal-Mart’s proxy materials. The Court fastened its holding

5 To be sure, the Court did not suggest that staff no-action

letters get automatic deference; just that “under the

circumstances, . . . some deference [was] merited.” J.A. 110

(emphasis added).

22

to the view that the proposal wasn’t a directive to

management but to the Board to “oversee the development

and effectuation of a Wal-Mart policy.” Id. at *9. In this

way, “[a]ny direct impact of adoption of Trinity’s proposal

would be felt at the Board level; it would then be for [it] to

determine what, if any, policy should be formulated and

implemented.” Id. Stated differently, the day-to-day

responsibility for implementing whatever policies the Board

develops was outside the scope of the proposal.

In the alternative, the Court held that even if the

proposal does tread on the core of Wal-Mart’s business—the

products it sells—it “nonetheless ‘focuses on sufficiently

significant social policy issues’” that “transcend[] the day-today

business matters” of the company, making the proposal

“appropriate for a shareholder vote.” Id. at *9 (brackets &

emphasis omitted). Among the policy issues the District

Court noted are “the social and community effects of sales of

high capacity firearms at the world’s largest retailer and the

impact this could have on Wal-Mart’s reputation, particularly

if such a product sold at Wal-Mart is misused and people are

injured or killed as a result.” Id.

The Court also found helpful how “Trinity [] carefully

drafted its proposal . . . to not dictate what products should be

sold or how the policies regarding sales of certain types of

products should be formulated or implemented.” Id. at *10.

It stressed the difference between Trinity’s proposal and the

generally excludable proposals that ask a company to report

on its “policies and reporting obligations regarding possible

toxic and hazardous products offered for sale.” See id.

(“Each of these proposals requested policies or information—

such as information on the companies’ efforts to minimize

exposure to toxic substances, attempts by the companies to

secure supply chains, options for alternative safer products,

and encouraging suppliers to reduce or eliminate harmful

23

substances—which directly impacted the ordinary business

operations of the companies involved far more than Trinity’s

proposal would directly impact Wal-Mart.”).6

Finally, the District Court addressed Wal-Mart’s

secondary argument that Trinity’s proposal is excludable

under Rule 14a-8(i)(3) for being “so inherently vague or

6 As to Wal-Mart’s reliance on the Corp. Fin. staff’s grant of

its no-action request, “a factor to which the Court [] accorded

significant weight at the preliminary injunction stage,” it

declined to accord the staff’s action any weight because “[i]t

is undisputed that the final determination as to the

applicability of the ordinary business exception is for the

Court alone to make.” Id. (citation omitted). It also

explained the shift from its earlier ruling:

At that earlier time Trinity was seeking

“extraordinary relief” and the Court’s analysis

was . . . rushed as well as truncated. In fact, a

mere ten days passed between the filing of the

motion and the oral argument and the Court’s

ruling on it. Under the tight time constraints,

the Court did not even permit full briefing on

the preliminary injunction motion. As . . .

noted at that time, “one hopes that if the case

proceeds, I’ll at least have more time to reflect

further on the argument.” Having now had

the benefit of that time for reflection, as well

as the invaluable assistance of additional

briefing and oral argument, the Court sees the

issues in the way it has explained here.

Id. at *11.

24

indefinite that neither the stockholders voting on the proposal,

nor the company in implementing the proposal (if adopted),

would be able to determine with any reasonable certainty

exactly what actions or measures the proposal requires.” Id.

at *11 (quoting SEC Staff Legal Bulletin No. 14B, 2004 WL

3711971, at *4 (Sept. 15, 2004)). It acknowledged that “Wal-

Mart is undoubtedly correct that the ‘broad variety of

products offered by [it] and the numerous customers,

employees and communities around the world with whom [it]

works’ mean that ‘there is no single set of ‘family and

community values’ that would be readily identifiable as being

‘integral to the company’s promotion of its brand.’” Id.

(emphasis in original, bold omitted). But it doesn’t “follow

from this that shareholders voting on the proposal, or the

Committee in implementing it (if approved), would be unable

to determine with reasonable certainty what the Committee

needs to do.” Id. “Instead, it merely illustrates . . . that the

[p]roposal properly leaves the details of any policy

formulation and implementation to the discretion of the

Committee, showing once more that [it] does not dictate any

particular outcome or micro-manage Wal-Mart’s day-to-day

business.” Id.

Wal-Mart appeals from both of the Court’s holdings

on the merits.

The District Court had jurisdiction under 28 U.S.C.

§ 1331 and 15 U.S.C. § 78aa. We have jurisdiction under 28

U.S.C. § 1291. Trinity’s request to enjoin Wal-Mart from

excluding the proposal from its 2015 proxy materials is ripe,

as Trinity resubmitted its proposal for inclusion in Wal-

Mart’s 2015 proxy materials and Wal-Mart again rebuffed its

request. We review the District Court’s order granting

Trinity’s motion for summary judgment de novo. As it did

below, Wal-Mart bears the burden of establishing as a matter

of law that it properly excluded the proposal under an

25

exception to Rule 14a-8. See AFSCME v. Am. Int’l Grp.,

Inc., 462 F.3d 121, 125 (2d Cir. 2006).

III. REGULATORY BACKGROUND

A. The Proxy Statement

A shareholder that is unable to attend a company’s

annual meeting isn’t disenfranchised. It can vote its shares by

proxy by empowering an attending shareholder to do so on its

behalf. Vote by proxy has “become an indispensable part of

corporate governance because the ‘realities of modern

corporate life have all but gutted the myth that shareholders in

large publicly held companies personally attend annual

meetings.’” Amalgamated Clothing & Textile Workers Union

v. Wal-Mart Stores, Inc., 821 F. Supp. 877, 881 (S.D.N.Y.

1993) (brackets omitted) (quoting Stroud v. Grace, 606 A.2d

75, 86 (Del. 1992)); see also Proposed Amendments to Rule

14a-8, Exchange Act Release No. 19,135, 1982 WL 600869,

at *2 (Oct. 14, 1982) (“1982 Proposing Release”) (noting that

“with the increased dispersion of security holdings in public

companies, the proxy solicitation process rather than the

shareholder’s meeting itself [] [became] the forum for

shareholder suffrage”).

As discussed above, a public company that solicits

proxies must distribute a proxy statement to each of its

shareholders in advance of the annual shareholder meeting.

The statement is an informational package that tells

shareholders “about items or initiatives on which [they] are

asked to vote, such as proposed bylaw amendments,

compensation or pension plans, or the issuance of new

securities.” Apache Corp., 696 F. Supp. at 727 (citation

omitted). “The proxy card, on which the shareholder may

submit its proxy, and the proxy statement together are the

‘proxy materials.’” Id. (citing 17 C.F.R. § 2401.14a-8(j)).

26

B. Proxy Solicitation

Through its proxy materials, a company solicits

proxies—hence the term “proxy solicitation.” Congress,

under the Securities Exchange Act of 1934, gave the SEC

oversight of the proxy context. See 3 Thomas Lee Hazen,

Treatise on the Law of Securities Regulation § 10.1[1] (6th

ed. 2009) (describing the 1934 Act as a congressional

response to the uptick of “great corporate frauds [that] had

been perpetrated through management solicitation of proxies

that did not indicate to the shareholders the nature of any

matters to be voted upon”). “Section [] 14(a) of the [1934

Act] renders unlawful the solicitation of proxies in violation

of the SEC’s rules and regulations, which are codified at 17

C.F.R. § 240.14a-1 et seq.” Amalgamated Clothing & Textile

Workers Union, 821 F. Supp. at 881; see also J.I. Case v.

Borak Co., 377 U.S. 426, 431 (1964) (“The purpose of

§ 14(a) is to prevent management or others from obtaining

authorization for corporate action by means of deceptive or

inadequate disclosure in proxy solicitation.”).

The SEC’s “proxy rules are concerned with assuring

full disclosure to investors of matters likely to be considered

at shareholder meetings.” Hazen at § 10.2[1]. To that end,

the SEC adopted “Rule 14a-9, which prohibits ‘false or

misleading’ statements made in any proxy statement, form of

proxy, notice of meeting or other communication.”

Amalgamated Clothing & Textile Workers Union, 821 F.

Supp. at 882 (citing 17 C.F.R. § 240.14a-9(a)). It has

interpreted the rule to “require companies to provide

shareholders with the opportunity to submit proposals to

management for inclusion in the corporation’s proxy

materials.” Id.

To complement Rule 14a-9, the Commission

promulgated Rule 14a-8 “to catalyze what many hoped would

27

be a functional ‘corporate democracy.’” Alan R. Palmiter,

The Shareholder Proposal Rule: A Failed Experiment in

Merit Regulation, 45 Ala. L. Rev. 879, 879 (1994). The rule

mandates subsidized shareholder access to a company’s proxy

materials, requiring “reporting companies . . . to print and

mail with management’s proxy statement, and to place on

management’s proxy ballot, any ‘proper’ proposal submitted

by a qualifying shareholder.” Id. at 886; cf. Roosevelt v. E.I.

Du Pont de Nemours & Co., 958 F.2d 416, 421 (D.C. Cir.

1992) (R.B. Ginsburg, J.) (maintaining that Rule 14a-8’s

“right to be informed” is complementary to but distinct from

Rule 14a-9’s “ban on misleading statements in proxy

solicitations”). The idea was to provide shareholders a way to

“bring before their fellow stockholders matters of

[shareholder concern]” that are “proper subjects for

stockholders’ action under the laws of the state under which

[the Company] was organized,” 1982 Proposing Release,

1982 WL 600869, at *3, and to “have proxies with respect to

such proposals solicited at little or no expense to the security

holder,” id. at *2.

C. Shareholder Proposals

A primary means to urge corporate reform is the

shareholder proposal, which “communicate[s] not only

[shareholders’] interest[] in a company’s financial

performance, but also their interests and preferences

concerning a wide range of issues, such as the board’s

structure and oversight of important policies, sustainability,

and ethical performance.” Brief of amici curiae Corporate

and Securities Law Professors 2. The hard part, however, is

soliciting votes to pass a proposal—especially where the

motivation is to raise awareness of a policy issue. See James

R. Copeland, Getting the Politics Out of Proxy Season, Wall

St. J., A11 (Apr. 23, 2015) (“Not one of the 1,150 shareholder

proposals concerning social or policy issues since 2006 got

28

the support of a majority of voting shareholders over board

opposition.”).

A shareholder can garner support in one of two ways.

It can “pay to issue a separate proxy statement, which must

satisfy all the disclosure requirements applicable to

management’s proxy statement.” Apache Corp., 696 F. Supp.

2d at 727 (citation omitted). Or the shareholder can go the

Rule 14a-8 route and have the company include its proposal

(and a supporting statement) in the proxy materials at the

company’s expense. See id. at 728.

D. Exclusion of Shareholder Proposals

Though the Rule 14a-8 option is financially

advantageous, it does not “create an open forum for

shareholder communication.” Palmiter at 886. Rule 14a-8

restricts the company-subsidy to “shareholders who offer

‘proper’ proposals.” Id. at 879; see also 17 C.F.R. § 240.14a-

8 (“This section addresses when a company must include a

shareholder’s proposal in its proxy statement and identify the

proposal in its form of proxy when the company holds an

annual or special meeting of shareholders.”). A “proper”

proposal is one that doesn’t fit within one of Rule 14a-8’s

exclusionary grounds—which are both substantive and

procedural.

The procedural exclusions of the rule “protect the

solicitation process without regard to a proposal’s content[.]”

Palmiter at 886. For example, the proponent “must have

continuously held at least $2,000 in market value, or 1%, of

the company’s securities entitled to be voted on the proposal

at the meeting for at least one year by the date [it] submit[s]

the proposal.” 17 C.F.R. § 240.14a-8(b)(1). It can “submit

no more than one proposal to a company for a particular

shareholders’ meeting.” Id. at § 240.14a-8(b)(2)(i). And the

29

“proposal, including any accompanying supporting statement,

may not exceed 500 words.” Id. at § 240.14a-8(d).

The rule’s substantive exclusions, by contrast, are “the

most frequently used (and most litigated).” Palmiter at 890.

They include (1) the “proper subjects” exclusion, which exists

“[i]f the proposal is not a proper subject for action by

shareholders under the law of the jurisdiction of the

company’s organization,” 17 C.F.R. § 240.14a-8(i)(1); (2) the

“false or misleading” exclusion, which allows companies to

bar proposals that are too vague, id. at § 240.14a-8(i)(3); (3)

the “substantially related” exclusion, which says that a

proposal is excludable if it “relates to operations which

account for less than 5 percent of the company’s total assets

[and net earnings and gross sales] at the end of its most recent

fiscal year . . . , and is not otherwise significantly related to

the company’s business,” id. at § 240.14a-8(i)(5); and, most

relevant for purposes of this opinion, (4) the “ordinary

business” exclusion, which disallows a proposal that “deals

with a matter relating to the company’s ordinary business

operations,” id. at § 240.14a-8(i)(7). See Palmiter 890.

If a company wants to invoke one of these grounds to

exclude a proposal, the process is as follows. First, it must

notify the shareholder in writing of the problem with the

proposal within 14 days of receiving it and inform the

shareholder that it has 14 days to respond. Id. at § 240.14a-

8(f)(1). If the company finds the shareholder’s response

unpersuasive and still wants to exclude the proposal, it then

must file with the Corp. Fin. staff the reasons why it believes

the proposal is excludable no later than 80 days before the

company files its proxy materials with the SEC. Id. at §

240.14a-8(j)(1). In this letter, the company may also ask the

staff for a no-action letter to support the exclusion of a

proposal. See Donna M. Nagy, Judicial Reliance on

Regulatory Interpretation in S.E.C. No-Action Letters:

30

Current Problems and a Proposed Framework, 83 Cornell L.

Rev. 921, 939 (1998) (“Although Rule 14a-8 merely

prescribes notification and filing requirements, virtually all

companies that decide to omit a shareholder proposal seek a

no-action letter in support of their decision.”). If the

shareholder wants to respond, it can file a submission noting

why exclusion would be improper. 17 C.F.R. § 240.14a-8(k).

The staff will respond in one of two ways: (1) with a

no-action letter, specifying that the company may omit the

shareholder proposal under the exclusion(s) it relied on; or (2)

that it is “unable to concur” with the company.7 A

shareholder dissatisfied with the staff’s response can, as

Trinity did here, pursue its rights against the company in

federal court.8

7 “[B]efore the SEC staff makes a decision on Rule 14a-8 noaction

requests, there are at least three levels of attorney

review by a ‘task force’ dedicated to reviewing Rule 14a-8

no-action requests[.]” See Wal-Mart Br. 37–38 (outlining

layers of review); see also Apache Corp. v. New York City

Emps.’ Ret. Sys., 621 F. Supp. 2d 444, 448 n.3 (S.D. Tex.

2008) (describing no-action review process) (citing Thomas

P. Lenke, The SEC No-Action Letter Process, 42 Bus. Law.

1019, 1027–28 (1987)).

8 Although rare, the Commission itself may choose to review

a no-action letter. Even then, its determination would become

a final order only if it “impose[d] an obligation, den[ied] a

right or fix[ed] some legal relationship as a consummation of

the administrative process.” Amalgamated Clothing &

Textile Workers Union v. S.E.C., 15 F.3d 254, 257 (2d Cir.

1994) (citations & internal quotation marks omitted); see also

31

E. SEC Interpretive Releases on the “Ordinary

Business” Exclusion

The ordinary business exclusion has been called the

“most perplexing” of all the 14a-8 bars. See Daniel E.

Lazaroff, Promoting Corporate Democracy and Social

Responsibility: The Need to Reform the Federal Proxy Rules

on Shareholder Proposals, 50 Rutgers L. Rev. 33, 94 (1997).

This stems from the opaque term “ordinary business,” which

is neither self-defining nor consistent in its meaning across

different corporate contexts. Neither the courts nor Congress

have offered a corrective. Rather, and “[f]rom the beginning,

Rule 14a-8 jurisprudence—both in quality and quantity—has

rested almost exclusively with the [SEC] . . . .” Palmiter at

880. In both its role as umpire and rule-maker, the SEC has

provided various iterations of formal interpretive guidance.9

Because they inform our analysis, we discuss each in turn.

Hazen, supra at §10.8[1][A][2] (noting that Commission

review is appropriate only where it involves “matters of

substantial importance and where the issues are novel or

highly complex”).

9 Each of the SEC’s interpretive releases was adopted after

notice and comment and thus merits our deference. As the

Supreme Court has explained, “[j]ust as we defer to an

agency’s reasonable interpretation of the statute when it

issues regulations in the first instance, . . . the agency is

entitled to further deference when it adopts a reasonable

interpretation of the regulations it has put in force.” Fed.

Express v. Holowecki, 552 U.S. 389, 397 (2008); see also

Dep’t of Labor v. E. Associated Coal Corp., 54 F.3d 141, 147

(3d Cir. 1995) (“We accord greater deference to an

32

1. The 1976 Proposing Release

The Commission’s initial frustration with the ordinary

business exclusion was management’s reliance on it to omit

proposals “that involve matters of considerable importance to

the issuer [i.e., the company] and its security holders.”

Proposed Amendments to Rule 14a-8 Under the Securities

Exchange Act of 1934 Relating to Proposals by Security

Holders, Release No. 9,343, 1976 WL 160410, at *7 (July 7,

1976) (“1976 Proposing Release”). It proposed two

modifications to address this concern. The first was a textual

alteration to clarify that a proposal is excludable “only if it

deals with a ‘routine, day-to-day matter relating to the

conduct of the ordinary business operations of the issuer.’”

Id. at *8. (The rule’s then-extant language provided that a

proposal was excludable if it consisted of a “recommendation

or request that [] management take action on a matter relating

to the conduct of the ordinary business operations of the

issuer.” Id. at *7 (internal quotation marks omitted).) The

second was a new standard to distinguish “routine”

(excludable) from “important” matters (not excludable). See

id. at *8. In the SEC’s view, management teams generally

handle “mundane matters” while boards of directors are

responsible for high level decision-making. It thus proposed

the following standard: “Will it be necessary for the board of

directors . . . to act on the matter involved in the proposal?”

Id. If the answer was no, the proposal dealt with a routine

business matter and was thus excludable. See id.

2. The 1976 Adopting Release

Commenters attacked the textual modification and new

standard as unworkable. As to the new language, the

administrative agency’s interpretation of its own regulations

than to its interpretation of a statute.”) (citations omitted).

33

criticism was that many routine, day-to-day business matters

“would necessarily deal with ordinary business matters of a

complex nature that shareholders, as a group, would not be

qualified to make an informed judgment on, due to their lack

of business expertise and their lack of intimate knowledge of

the issuer’s business.” Adoption of Amendments Relating to

Proposals by Security Holders, Release No. 12, 999, 1976

WL 160347, at *10 (Nov. 22, 1976) (“1976 Adopting

Release”). It also “would be difficult to administer because

of the subjective judgments that necessarily would be

required in interpreting it.” Id. Regarding the new standard,

the Commission relented to the criticism that “board practices

relating to the delegation of authority to management

personnel vary greatly, and there would, therefore, be no

consistency in applying such a standard.” Id. at *11; see also

id. (“The potential lack of consistency of the proposed

standard is a fatal drawback, in the Commission’s view. And,

since no other reasonable standard for making the requisite

distinctions is readily apparent, the Commission believes that

the provision would be difficult, if not impossible, to

administer on a satisfactory basis.”). It thus opted for a tweak

of the text of the exclusion and offered fresh interpretive

guidance.

For the former, it deleted any reference to

management; the exclusion thus read, much like it does now,

that a proposal is excludable if it “deals with a matter relating

to the conduct of the ordinary business operations of the

issuer.” Id. Regarding the new guidance, the SEC

maintained that the exclusion should be “interpreted

somewhat more flexibly than in the past” and reaffirmed that

the term “ordinary business operations” has been wrongly

interpreted to “include certain matters which have significant

policy, economic or other implications inherent in them. For

instance, a proposal that a utility company not construct a

nuclear power plant has in the past been [wrongly]

34

considered” to be excludable. Id. Therefore, “proposals of

that nature, as well as others that have major implications,

will in the future be considered beyond the realm of an

issuer’s ordinary business operations.” Id.

3. The 1982 Proposing Release

The SEC took a fresh look at the ordinary business

exclusion in 1982 in reviewing the staff’s then-prevailing

view on proposals that ask a company to (1) prepare a report

to shareholders or (2) recommend that a special committee be

formed to examine a particular area of its business. See 1982

Proposing Release, 1982 WL 600869, at *17. The staff

asserted that, as a category, such proposals were not

excludable even if the subject matter of the report or

examination involved an ordinary business matter because, in

its view, a company doesn’t disseminate reports to

shareholders or establish special committees as part of its

ordinary business operations. See id.

The SEC agreed to address the objection launched by

commenters that the staff’s “interpretation [] rais[es] form

over substance.” Id. It thus proposed for consideration

“whether it would be more appropriate to consider in each

instance whether the type of information sought by the

proposal involves the ordinary business operations of the

issuer and to disregard whether a proposal requests the

preparation and distribution of a report or the formation of a

special committee.” Id.

4. The 1983 Adopting Release

After notice and comment, the Commission formalized

its adoption of the proposed “significant change in the staff’s

interpretation” of the exclusion. Amendments to Rule 14a-8

Under the Securities Exchange Act of 1934 Relating to

35

Proposals by Security Holders, Release No. 20,091, 1983 WL

33272, at *7 (Aug. 16, 1983) (“1983 Adopting Release”)

(“Because [the staff’s] interpretation raises form over

substance and renders the provisions of [the ordinary business

exclusion] largely a nullity, the Commission has determined

to adopt the interpretive change set forth in the Proposing

Release.”). It thus directed the staff to “consider whether the

subject matter of a special report or the committee involves a

matter of ordinary business; where it does, the proposal will

be excludable.” Id.

5. The 1997 Proposing Release

The SEC revisited the ordinary business exclusion in

the late 1990s to tackle proposals “relating simultaneously to

both an ‘ordinary business’ matter and a significant social

policy issue.” Amendments to Rules on Shareholder

Proposals, Release No. 39,093, 1997 WL 578696, at *12

(Sept. 18, 1997) (the “1997 Proposing Release”). The

interpretive snag was that the “fairly straightforward mission”

of the rule was ill-suited to address contemporary social

issues and “provided no guidance” on how to treat proposals

raising such issues. Id. This difficulty showed itself when

the staff allowed a company (Cracker Barrel Old Country

Stores) to exclude a proposal that asked it to “prohibit

discrimination on the basis of sexual orientation.” New York

City Emps.’ Ret. Sys. v. S.E.C., 45 F.3d 7, 9 (2d Cir. 1995).

In handling the proposal, the staff espoused the view, which

the Commissioners of the SEC deemed untenable, that

employment-related proposals—regardless whether they raise

a social issue—are categorically excludable. See Cracker

Barrel Old Country Store, Inc., SEC No-Action Letter, 1992

WL 289095, at *1 (Oct. 13, 1992) (“[T]he Division has

determined that the fact that a shareholder proposal

concerning a company’s employment policies and practices

for the general workforce is tied to a social issue will no

36

longer be viewed as removing the proposal from the realm of

ordinary business operations of the registrant. Rather,

determinations with respect to any such proposals are

governed by the employment-based nature of the proposal.”).

To end this practice, the SEC declared that “employmentrelated

proposals focusing on significant social policy issues

could not automatically be excluded under the ‘ordinary

business’ exclusion.” 1997 Proposing Release, 1997 WL

578686, at *13. And going forward, “the ‘bright line’

approach for employment-related proposals established by the

Cracker Barrel position would be replaced by a case-by-case

analysis that prevailed previously.” Id.

In a final note of guidance, the Commission

summarized the two considerations that guide how to apply

the ordinary business exclusion. “The first relates to the

subject matter of the proposal. Certain tasks are so

fundamental to management’s ability to run a company on a

day-to-day basis that they could not, as a practical matter, be

subject to direct shareholder oversight.” Id. at *14.

According to the SEC, examples of this “include the

management of the workforce, such as the hiring, promotion,

and termination of employees, decisions on production

quality and quantity, and the retention of suppliers.” Id. Yet

“proposals relating to such matters but focusing on significant

social policy issues generally would not be considered to be

excludable, because such issues typically fall outside the

scope of management’s prerogative.” Id. “The second

consideration relates to the degree to which the proposal

seeks to ‘micro manage’ the company by probing too deeply

into ‘matters of a complex nature that shareholders, as a

group, would not be qualified to make an informed judgment

on, due to their lack of business expertise and lack of intimate

knowledge of the (company’s) business.’” Id. It comes into

play where “the proposal seeks intricate detail, or seeks to

37

impose specific time-frames or methods for implementing

complex policies.” Id.

6. The 1998 Adopting Release

Yet again the SEC declined to modify the language of

the rule, perhaps afraid to unleash unintended consequences.

Although “the legal term-of-art ‘ordinary business’ might be

confusing to some shareholders and companies,” it posited,

the risk that practitioners “might misconstrue [a] revision[] as

signaling an interpretive change” was too great to ignore.

Amendments to Rules on Shareholder Proposals, Release No.

23, 200, 1998 WL 254809, at *2 (May 21, 1998) (“1998

Adopting Release”); see also id. (“Indeed, since the meaning

of the phrase ‘ordinary business’ has been developed by the

courts over the years through costly litigation and essentially

has become a term-of-art in the proxy area, we recognize the

possibility that the adoption of a new term could inject

needless costs and other inefficiencies into the shareholder

proposal process.”). It elected simply to reverse the staff’s

1992 Cracker Barrel no-action letter, thus “return[ing] to a

case-by-case analytical approach,” id. at *4, and commented

that

[w]hile we acknowledge that there is no

bright-line test to determine when

employment-related shareholder proposals

raising social issues fall within the scope of

the “ordinary business” exclusion, the staff

will make reasoned distinctions in deciding

whether to furnish “no-action” relief.

Although a few of the distinctions made in

those cases may be somewhat tenuous, we

believe that on the whole the benefit to

shareholders and companies in providing

guidance and informal resolutions will

38

outweigh the problematic aspects of the few

decisions in the middle ground.

Id. It also reaffirmed that the term “ordinary business”

continues to “refer[] to matters that are not necessarily

‘ordinary’ in the common meaning of the word” and “is

rooted in the corporate law concept providing management

with flexibility in directing certain core matters involving the

company’s business and operations.” Id. at *2 (emphasis

added).

With that background, we move to the merits of Wal-

Mart’s appeal.

IV. ANALYSIS

The principal issue we address is whether Trinity’s

proposal was excludable because it related to Wal-Mart’s

ordinary business operations. In doing so, we evaluate the

District Court’s primary and alternative holdings. To repeat,

it held that Trinity’s proposal doesn’t meddle in the nuts-andbolts

of Wal-Mart’s business because it was a directive to the

Board (rather than management) to set standards to guide

certain merchandising decisions. And in the alternative the

proposal is not excludable because it implicates a significant

social policy—the sale of high-capacity firearms by the

world’s largest retailer —that transcends Wal-Mart’s ordinary

business. In this case (and we agree with the Commission

that our determination counsels a case-by-case inquiry) we

conclude that the proposal is excludable under the ordinary

business proviso and that the significant social policy

39

intended by the proposal is here no exception to that

exclusion.10

A. Trinity’s Proposal Relates to Wal-Mart’s Ordinary

Business Operations.

We employ a two-part analysis to determine whether

Trinity’s proposal “deals with a matter relating to the

company’s ordinary business operations[.]” 17 C.F.R.

§ 240.14a-8(i)(7). Under the first step, we discern the

“subject matter” of the proposal. See 1983 Adopting Release,

1983 WL 33272, at *7. Under the second, we ask whether

that subject matter relates to Wal-Mart’s ordinary business

operations. Id. If the answer to the second question is yes,

Wal-Mart must still convince us that Trinity’s proposal does

not raise a significant policy issue that transcends the nuts and

bolts of the retailer’s business.

1. What is the subject matter of Trinity’s proposal?

Beginning with the first step, we are mindful of the

Commission’s consistent nod to substance over form and its

distaste for clever drafting. As it reaffirmed in the 1982 and

1983 Releases, it matters little how a shareholder styles its

proposal; the emphasis should always be on its substance. To

10 A majority of the members of this panel (Judges Shwartz

and Vanaskie) also hold that the proposal (which Trinity

declined to divide into separate parts) is excludable for being

unduly vague under Rule 14a-8(i)(3). I decline to join that

holding. Wal-Mart’s vagueness objection was first raised in

the District Court and not before the SEC in seeking a noaction

letter. And before us it devoted little attention to the

argument. I thus think it not prudent to reach the vagueness

question in this instance.

40

illustrate its point, the SEC invoked the staff’s disparate

treatment of two proposals where the Commission thought

the outcome should have been the same:

[T]he staff, in a letter to Castle & Cooke . . .

agreed with the company that a proposal

requesting that it alter its food production

methods in underdeveloped countries could

be excluded under [the ordinary business

exclusion] since [it] specified the steps

management should take to implement the

action requested . . . . [Years later],

however, the proponent instead asked the

company to appoint a committee to review

foreign agricultural operations with

emphasis on the balance between labor and

capital intensive production. The staff

refused to apply the rule to this provision

because the appointment of a special

committee to study the company’s foreign

agricultural operations is a matter of policy.

1982 Proposing Release, 1982 WL 600869, at *17 n.49

(emphases added). In the SEC’s view, a directive to Castle &

Cooke to alter its food production methods in underdeveloped

countries was the functional equivalent of a request for

committee review of those methods. See id. Because the

staff concurred that the former was excludable, it should have

reached the same result as to the latter. Thus, even though

Trinity’s proposal asks for the development of a specific

merchandising policy—and not a review, report or

examination—we still ask whether the subject matter of the

action it calls for is a matter of ordinary business.

Applying that principle, we part ways with the District

Court. We perceive it put undue weight on the distinction

41

between a directive to management and a request for Board

action. In the District Court’s view, if the proposal had

directed management to arrange its product assortment in a

certain way, it would have been excludable. But because it

merely asked the “Board [to] oversee the development and

effectuation of a Wal-Mart policy,” it was not. Trinity, 2014

WL 6790928, at *9 (emphasis and bold in original); see also

id. (“Any direct impact of adoption of Trinity’s proposal

would be felt at the Board level; it would then be for the

Board to determine what, if any, policy should be formulated

and implemented.”). The concern with this line of reasoning

is that the SEC in its 1976 Adopting Release rejected the

proposed bright line whereby shareholder proposals involving

“matters that would be handled by management personnel

without referral to the board . . . generally would be

excludable,” but those involving “matters that would require

action by the board would not be.” 1976 Proposing Release,

1976 WL 160410, at *8. Thus, though the District Court’s

rationale and holding are not implausible, we do not adopt

them.

Distancing itself from the District Court’s formal

approach, Trinity argues that the subject matter of its proposal

is the improvement of “corporate governance over strategic

matters of community responsibility, reputation for good

corporate citizenship, and brand reputation, none of which

can be considered ordinary business,” Trinity Br. 39, and the

focus is on the “shortcomings in Wal-Mart’s corporate

governance and oversight over policy matters,” id. at 33. We

cannot agree. As the National Association of Manufacturers

points out, Trinity’s contention, like the District Court’s

analysis, relies “on how [the proposal] is framed and to

whom, rather than [its] substance.” Brief of amicus curiae

Nat’l Assoc. of Mfrs. 15. Contrary to what Trinity would

have us believe, the immediate consequence of the adoption

of a proposal—here the improvement of corporate

42

governance through the formulation and implementation of a

merchandising policy—is not its subject matter. If it were,

then, analogizing to the review context, the subject matter of

a review would be the review itself rather than the

information sought by it. See 1982 Proposing Release, 1982

WL 600869, at *17. For example, under Trinity’s position,

the subject matter of a proposal that calls for a report on how

a restaurant chain’s menu promotes sound dietary habits

would be corporate governance as opposed to important

matters involving the promotion of public health. Yet that is

the analysis the SEC disavowed in adopting the suggestions

made in the 1982 Proposing Release. The subject matter of

the proposal is instead its ultimate consequence—here a

potential change in the way Wal-Mart decides which products

to sell. Indeed, as even the District Court acknowledged, if

the company were to adopt Trinity’s proposal, then, whatever

the nature of the forthcoming policy, it “could (and almost

certainly would) shape what products are sold by Wal-

Mart[.]” Trinity, 2014 WL 6790928, at *9.

This view of the subject matter of Trinity’s proposal

finds support in a well-established line of SEC no-action

letters.11 The most instructive is the no-action letter issued to

11 Wal-Mart argues that although no-actions letters are

generally not entitled to deference, the staff’s no-action letter

here is because it is “consistent with both the SEC’s guidance

on Rule 14a-8(i)(7) and the SEC staff’s prior no-action

letters.” Reply Br.13. Although we disagree with the view

that the letter holds any persuasive value, we do give the

staff’s body of no-action letters “careful consideration as

‘representing the views of persons who are continuously

working with the provisions of the statute [the regulation in

our case] involved.” Donaghue v. Accenture Ltd., No. 03-

8329, 2004 WL 1823448, at *3 (S.D.N.Y. Aug. 16, 2004)

43

Sempra Energy in January 2012. The proposal there urged

the Board “to conduct an independent oversight review each

year of the Company’s management of political, legal, and

financial risks posed by [its] operations in any country that

may pose an elevated risk of corrupt practices.” Sempra

Energy, SEC No-Action Letter, 2011 WL 6425347, at *2

(Jan. 12, 2012). As Trinity does here, the proposing

shareholder framed the subject matter of its proposal as

targeting the company’s governance of a certain type of risk:

“the political, legal, and financial risks” inherent in the

company’s operations in countries “posing an elevated risk of

corrupt practices,” id., which could ultimately trigger a

Foreign Corrupt Practices Act prosecution. Cf. Trinity Br. 40

(maintaining that its proposal addresses the governance of the

“risks to society and Wal-Mart should a product, after it is

sold, cause harm to [its] customers or its brand and

reputation”) (quotation marks omitted). But, as here, the staff

granted no-action relief because, “although the proposal

requests the board to conduct an independent oversight

review of Sempra’s management of particular risks, the

underlying subject matter of these risks appears to involve

ordinary business matters.” Sempra Energy, 2011 WL

6425347, at *1; see also The Home Depot, Inc., SEC No-

Action Letter, 2008 WL 257307, at *1, *2 (Jan. 25, 2008)

(granting no-action relief where the proposal asked Home

Depot’s Board to publish a report outlining the company’s

product safety policies and describing what management is

(brackets, citation & quotation marks omitted); see also Nagy

supra at 1002 (maintaining that whether “the staff has

consistently maintained a particular regulatory interpretation

in no-action letters over a long period of time is relevant” to

whether the interpretation should merit some deference, as

“consistent, longstanding staff positions may signal

Commission approval of these positions”).

44

doing to address recent product safety concerns because it

related to “Home Depot’s ordinary business operations (i.e.,

the sale of particular products)”); Family Dollar Stores, Inc.,

SEC No-Action Letter, 2007 WL 3317923, at *1 (Nov. 6,

2007) (same where proposal asked for a report “evaluating

Company policies and procedures for systematically

minimizing customers’ exposure to toxic substances and

hazardous components in its marketed products” because it

relates to Family Dollar’s “ordinary business operations (i.e.,

sale of particular products)”); Walgreen Co., SEC No-Action

Letter, 2006 WL 5381376, at *1 (Oct. 13, 2006) (same for

proposal asking for a report “characterizing the extent to

which the company’s private label cosmetics and personal

care products lines contain carcinogens, mutagens,

reproductive toxicants, and chemicals that affect the

endocrine system and describing options for using safer

alternatives,” because the subject matter of the proposal

related to Walgreen’s “ordinary business operations (i.e., the

sale of particular products)”).12

The staff’s consistent focus on the underlying subject

matter of a proposal is instructive. So too is Trinity’s failure

to cite any authority for its view of the subject matter of its

proposal. See Trinity Br. 37–42. For us, the subject matter of

Trinity’s proposal is how Wal-Mart approaches

12 In keeping with its emphasis on the subject matter of a

proposal, the staff often denies no-action relief where the

proposal merely calls for the Board to establish a committee

to oversee risk generally. See, e.g., PepsiCo, Inc., SEC No-

Action Letter, 2012 WL 542708, at *1 (Feb. 16, 2012)

(denying no-action relief where the proposal merely asked the

company to establish “a Risk Oversight Committee of the

Board of Directors”).

45

merchandising decisions involving products that (1)

especially endanger public-safety and well-being, (2) have the

potential to impair the reputation of the Company, and/or (3)

would reasonably be considered by many offensive to the

family and community values integral to the company’s

promotion of the brand. A contrary holding—that the

proposal’s subject matter is “improved corporate

governance”—would allow drafters to evade Rule 14a-

8(i)(7)’s reach by styling their proposals as requesting board

oversight or review. See Reply Br. 10. We decline to go in

that direction.

2. Does Wal-Mart’s approach to whether it sells

particular products relate to its ordinary business

operations?

Reaching the second step of the analysis, we ask

whether the subject matter of Trinity’s proposal relates to

day-to-day matters of Wal-Mart’s business. Wal-Mart says

the answer is yes because, even though the proposal doesn’t

demand any specific changes to the make-up of its product

offerings—a point on which Trinity hangs its hat, see Trinity

Br. 38 (“[The proposal] is not a ‘stop selling’ proposal. Nor

does it require intricate reports on Wal-Mart’s products.”)—it

“seeks to have a [B]oard committee address policies that

could (and almost certainly would) shape what products are

sold by Wal-Mart.” Reply Br. 9 (internal quotation marks

omitted). That is, Trinity’s proposal is just a sidestep from “a

shareholder referendum on how [Wal-Mart] selects its

inventory.” Brief of amicus curiae the Nat’l Assoc. of Mfrs.

at 11. And thus its subject matter strikes at the core of Wal-

Mart’s business.

We agree. A retailer’s approach to its product

offerings is the bread and butter of its business. As amicus

the National Association of Manufacturers notes, “Product

46

selection is a complicated task influenced by economic

trends, data analytics, demographics, customer preferences,

supply chain flexibility, shipping costs and lead-times, and a

host of other factors best left to companies’ management and

boards of directors.” Id. at 12; see also Brief of amicus

curiae Retail Litig. Ctr., Inc. 11 (“The understanding of

consumer behavior and careful tailoring of product mix is

central to the success or failure of a given retailer.”). Though

a retailer’s merchandising approach is not beyond shareholder

comprehension, the particulars of that approach involve

operational judgments that are ordinary-course matters.

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. See Trinity Br. 38;

Trinity, 2014 WL 6790928, at *10 (“Trinity has carefully

drafted its Proposal. . . . not [to] dictate which products

should be sold or how the policies regarding sales of certain

types of products should be formulated or implemented.”). A

proposal need only relate to a company’s ordinary business to

be excludable. Cf. 17 C.F.R. § 240.14a-8(i)(7) (exclusion is

proper where a proposal deals with a matter “relating to the

company’s ordinary business operations”) (emphasis added).

It need not dictate any particular outcome. To make the point

even clearer, suppose that Trinity’s proposal had merely

asked Wal-Mart’s Board to reconsider whether to continue

selling a given product. Though the request doesn’t dictate a

particular outcome, we have no doubt it would be excludable

under the SEC’s 1983 Adopting Release, as the action sought

relates to Wal-Mart’s ordinary business operations. This is so

even though it doesn’t suggest any changes. The same is true

here. In short, so long as the subject matter of the proposal

relates—that is, bears on—a company’s ordinary business

operations, the proposal is excludable unless some other

exception to the exclusion applies.

47

Failing all of this, Trinity retreats to friendlier territory.

It contends that, even if the subject matter of its proposal

concerns Wal-Mart’s ordinary business operations, it focuses

on a significant and transcendent social policy issue: Wal-

Mart’s approach to the risk that the sale of a product can

cause “harm to [its] customers or its brand and reputation.”

Trinity Br. 40; see also id. at 44 (“There are various products

especially dangerous to reputation, brand value, or the

community that a family retailer such as Wal-Mart should

carefully consider whether or not to sell, and the proposal

addresses the transcendent policy issue of under what policies

and standards and with what Board oversight Wal-Mart

handles these merchandising decisions.”). We address that

issue next.

B. Trinity’s Proposal Does Not Focus on a Significant

Policy Issue that Transcends Wal-Mart’s Day-to-

Day Business Operations.

As discussed above, there is a significant social policy

exception to the default rule of excludability for proposals

that relate to a company’s ordinary business operations. For

the SEC staff this means that when “a proposal’s underlying

subject matter transcends the day-to-day business matters of

the company and raises policy issues so significant that it

would be appropriate for a shareholder vote, the proposal

generally will not be excludable under Rule 14a-8(i)(7).”

SEC Staff Legal Bulletin No. 14E, 2009 WL 4363205, at *2

(Oct. 27, 2009).

The difficulty in this case is divining the line between

proposals that focus on sufficiently significant social policy

issues that transcend a company’s ordinary business (not

excludable) from those that don’t (excludable). Even the

Commission admits that the social-policy exception “raise[s]

difficult interpretive questions.” 1997 Proposing Release,

48

1997 WL 578696, at *13. No doubt that is because the

calculus is complex. Yet we cannot sidestep what some may

deem an unreckonable area. Thus we wade in.

We think the inquiry is again best split into two steps.

The first is whether the proposal focuses on a significant

policy (be it social or, as noted below, corporate). If it

doesn’t, the proposal fails to fit within the social-policy

exception to Rule 14a-8(i)(7)’s exclusion. If it does, we reach

the second step and ask whether the significant policy issue

transcends the company’s ordinary business operations.

1. Does Trinity’s proposal raise a significant social

policy issue?

We first turn to whether Trinity’s proposal focuses on

a “sufficiently significant” policy issue like “significant

[employment] discrimination.” 1998 Adopting Release, 1998

WL 254809, at *4. The District Court said yes because the

proposal at its core dealt with “the social and community

effects of sales of high capacity firearms at the world’s largest

retailer.” Trinity, 2014 WL 6790928, at *9. However, even

Trinity concedes its proposal “is not directed solely to Wal-

Mart’s sale of guns.” Trinity Mot. for Summ. J. 17 (ECF No.

38, filed Jun. 18, 2014). Rather it asks Wal-Mart’s Board to

oversee merchandising decisions for all “products especially

dangerous to reputation, brand value, or the community that a

family retailer such as Wal-Mart should carefully consider

whether or not to sell.” Trinity Br. 44. See also Brief of

amici curiae Corporate and Securities Law Professors 14–15

(arguing that the “ethical and social policy implications” of

“[s]elling products that endanger public safety, Wal-Mart’s

reputation, and [its] core values,” are “easily on par with

employment discrimination, which the SEC’s 1998 Release

deemed a sufficiently significant policy issue to warrant

inclusion of shareholder proposals relating to it”).

49

Wal-Mart, on the other hand, contends that neither the

Commission nor its staff has ever countenanced “such a broad

and nebulous concept of significant policy issue.” Reply Br.

21. We disagree. True enough, the Commission has adopted

what can only be described as a “we-know-it-when-we-see-it”

approach, see Palmiter at 910 (describing the Commission’s

“shifting approach to social/political proposals” as the “most

dramatic and prominent example of SEC inconstancy” under

Rule 14a-8). Yet it is hard to counter that Trinity’s proposal

doesn’t touch the bases of what are significant concerns in

our society and corporations in that society. Thus we deem

that its proposal raises a matter of sufficiently significant

policy.

Our concurring colleague, Judge Shwartz, would allow

Wal-Mart to exclude Trinity’s proposal because it doesn’t

focus on the retailer’s sale of guns with high-capacity

magazines. As she points out, it instead focuses on the

broader issue of the company’s commitment to public safety

through the sale of products that can be especially dangerous

to the community. Concurring Op. at 6–7 (“The ‘public

safety’ component of the proposal could cover many

products, especially in light of the amount of products Wal-

Mart offers, and thus might require [it] to develop policies

and standards for thousands of goods.”). And because this

policy issue has the potential to bring “thousands” of products

under its umbrella—not just guns with high-capacity

magazines—it does not “as a whole ‘focus’” on a significant

policy issue. Id. at 7 (alterations omitted).

Our colleague also believes that the second and third

parts of Trinity’s proposal do not raise issues of significant

import. She claims that Wal-Mart’s management of risk to its

brand value (the proposal’s second part) and its reputation as

a family retailer (the third part) relate to matters that, “while

certainly important to shareholders seeking a return on their

50

investment,” are “not of broad societal concern.” Concurring

Op. at 7. Thus, she posits, these parts of the proposal relate to

policy issues the exception doesn’t deem significant. The

trouble is the social-policy exception—despite its name—is

not so limited.

The good news is we come to the ultimate conclusion

of Judge Shwartz—that Trinity’s proposal is excludable under

the ordinary business bar—but take a different path. We are

more persuaded by the view that, because the proposal relates

to a policy issue that targets the retailer-consumer interaction,

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.

2. Even if Trinity’s proposal raises a significant

policy issue, does that issue transcend Wal-

Mart’s ordinary business operations?

To repeat, where “a proposal’s underlying subject

matter transcends the day-to-day business matters of the

company and raises policy issues so significant that it would

be appropriate for a shareholder vote, the proposal generally

will not be excludable under Rule 14a-8(i)(7).” SEC Staff

Legal Bulletin No. 14E, 2009 WL 4363205, at *2 (Oct. 27,

2009) (emphasis added). What this means is that, to shield its

proposal from the ordinary business exclusion, a shareholder

must do more than focus its proposal on a significant policy

issue; the subject matter of its proposal must “transcend” the

company’s ordinary business. See 1998 Adopting Release,

1998 WL 254809, at *4. The Commission used the latter

term, we believe, to refer to a policy issue that is divorced

from how a company approaches the nitty-gritty of its core

business. See SEC Staff Legal Bulletin No. 14E, 2009 WL

4363205, at *3 (maintaining that CEO succession-planning

“raises a significant policy issue regarding the governance of

51

the corporation that transcends the day-to-day business matter

of managing the workforce”). Thus, and contrary to the

position of our concurring colleague, we think the

transcendence requirement plays a pivotal role in the socialpolicy

exception calculus. Without it shareholders would be

free to submit “proposals dealing with ordinary business

matters yet cabined in social policy concern.” Apache Corp.

v. New York City Emps.’ Ret. Sys., 621 F. Supp. 2d 444, 451

n.7 (S.D. Tex. 2008) (rejecting the argument that “whether a

proposal implicates significant social policy is the dispositive

inquiry”).

For major retailers of myriad products, a policy issue

is rarely transcendent if it treads on the meat of

management’s responsibility: crafting a product mix that

satisfies consumer demand. This explains why the

Commission’s staff, almost as a matter of course, allows

retailers to exclude proposals that “concern[] the sale of

particular products and services.” Rite Aid Corp., SEC No-

Action Letter, 2015 WL 364996, at *1 (Mar. 24, 2015). On

the other hand, if a significant policy issue disengages from

the core of a retailer’s business (deciding whether to sell

certain goods that customers want), it is more likely to

transcend its daily business dealings.

To illustrate the distinction, a proposal that asks a

supermarket chain to evaluate its sale of sugary sodas because

of the effect on childhood obesity should be excludable

because, although the proposal raises a significant social

policy issue, the request is too entwined with the

fundamentals of the daily activities of a supermarket running

its business: deciding which food products will occupy its

shelves. So too would a proposal that, out of concern for

animal welfare, aims to limit which food items a grocer sells.

Cf., e.g., Amazon.com, Inc., SEC No-Action Letter, 2015 WL

470145, at *1 (Mar. 27, 2015) (allowing Amazon to exclude

52

proposal that asked it to “disclose to shareholders any

reputational and financial risks that it may face as a result of

negative public opinion pertaining to the treatment of

animals used to produce products it sells” because the

“proposal relates to the products and services offered for sale

by the company”); Papa John’s Int’l, Inc., SEC No-Action

Letter, 2014 WL 7406254, at *1 (Feb. 13, 2015) (same for

proposal that encouraged the pizza franchise to “expand its

menu offerings to include vegan cheeses and vegan meats in

order to advance animal welfare, reduce its ecological

footprint, expand its healthier options and meet growing

demand for plant-based foods”).

By contrast, a proposal raising the impropriety of a

supermarket’s discriminatory hiring or compensation

practices generally is not excludable because, even though

human resources management is a core business function, it is

disengaged from the essence of a supermarket’s business.

See Wal-Mart Stores, Inc., SEC No-Action Letter, 2004 WL

326494, at *1 (Feb. 17, 2004) (denying no-action relief where

proposal asked for a report documenting “the distribution of

[] equity compensation by the recipient’s race and gender and

discuss[ing] recent trends in equity compensation granted to

women and employees of color”). The same goes for

proposals asking for information on the environmental effect

of constructing stores near environmentally sensitive sites.

See, e.g., Jenny Staletovich, Developer Defends Walmart in

Rare Forest, The Miami Herald (Sept. 12, 2014), available at

http://www.miamiherald.com/news/local/environment/article

2092364.html.13

13 Our concurring colleague says our suggested test is

untenable for deciding whether a proposal fits within the

social-policy exception because she believes our test requires

that a proposal be “completely” divorced from a company’s

53

With those principles in mind, we turn to Trinity’s

proposal. Trinity says it focuses on “both corporate policy

and social policy”—specifically, the “transcendent policy

issue of under what policies and standards and with what

Board oversight Wal-Mart handles [] merchandising

decisions” for products that are “especially dangerous to [the

company’s] reputation, brand value, or the community.”

Trinity Br. 44 (emphasis in original). “In an age of mass

shootings, increased violence, and concerns about product

safety,” Trinity argues, “the [p]roposal goes to the heart of

Wal-Mart’s impact on and approach to social welfare as well

as the risks such impact and approach may have to Wal-

Mart’s reputation and brand image and its community.” Id. at

43.

But is how a retailer weighs safety in deciding which

products to sell too enmeshed with its day-to-day business?

We think it is in this instance. As we noted before, the

essence of a retailer’s business is deciding what products to

put on its shelves—decisions made daily that involve a

careful balancing of financial, marketing, reputational,

competitive and other factors. The emphasis management

places on safety to the consumer or the community is

fundamental to its role in managing the company in the best

interests of its shareholders and cannot, “as a practical matter,

be subject to direct shareholder oversight.” 1998 Adopting

ordinary business. Concurring Op. at 3. Nowhere do we

suggest that to come within the exception a proposal must

raise a policy issue that is completely unrelated to a day-today

business matter. If that were so, then a proposal relating

to a retailer’s discriminatory hiring practices would be

excludable, as hiring is a fundamental business decision. We

agree with the Commission that such a proposal is not

excludable.

54

Release, 1998 WL 254809, at *4. Although shareholders

perform a valuable service by creating awareness of social

issues, they are not well-positioned to opine on basic business

choices made by management.

It is thus not surprising that the Corp. Fin. staff

consistently allows retailers to omit proposals that address

their product menu. For example, it has indicated that a

proposal trying to stop a retailer from selling or promoting

products that connote negative stereotypes is excludable. See,

e.g., Federated Dep’t Stores, Inc., SEC No-Action Letter,

2002 WL 975596, at *13 (Mar. 27, 2002) (allowing the

retailer to omit a proposal asking for a report on its “efforts to

identify and disassociate from any offensive imagery to the

American Indian community in products, adverting [sic],

endorsements, sponsorships and promotions”). It has done

the same for proposals aiming to restrict a retailer’s

promotion of products that pose a threat to public health, see

e.g., Wal-Mart Stores, Inc., SEC No-Action Letter, 2002 WL

833445, at *1 (Apr. 1, 2002) (agreeing with Wal-Mart that it

could exclude a proposal asking it to explain “its rationale for

not adopting in developing nations the same policies

restricting the promotion and marketing of tobacco products

as in the United States”); Walgreen Co., SEC No-Action

Letter, 2006 WL 5381376, at *1–2 (Oct. 13, 2006) (same for

proposal asking for a report regarding “the extent to which

the company’s private label cosmetics and personal care

product lines contain carcinogens, mutagens, reproductive

toxicants, and chemicals that affect the endocrine system”), as

well as those proposals targeting a retailer’s approach to

product safety. See, e.g., Wal-Mart Stores, Inc., SEC No-

Action Letter, 2008 WL 670182, at *1 (Mar. 11, 2008) (Wal-

Mart may exclude a proposal requesting a “report on the

company’s policies on nanomaterial product safety”); The

Home Depot, Inc., SEC No-Action Letter, 2008 WL 257300,

at *2 (allowing company to exclude a proposal encouraging it

55

“to end its sale of glue traps because they are cruel and

inhumane to the target animals and pose a danger to

companion animals and wildlife”); The Home Depot, Inc.,

SEC No-Action Letter, 2008 WL 257307, at *7 (same for

proposal asking for an “evaluation of company policies and

practices relating to product safety”).

For further support of the view that a policy issue does

not transcend a company’s ordinary business operations

where it targets day-to-day decision-making, we look to the

difference in treatment of stop-selling proposals sent to

retailers and those sent to pure-play manufacturers. A policy

matter relating to a product is far more likely to transcend a

company’s ordinary business operations when the product is

that of a manufacturer with a narrow line. Here the staff often

will decline a no-action request. See, e.g., Phillip Morris

Companies, Inc., SEC No-Action Letter, 1990 WL 286063, at

*1 (Feb. 22, 1990) (denying no-action relief as to proposal

that requests the Board to amend the company’s charter to

provide that it “shall not conduct any business in tobacco or

tobacco products”); Sturm, Ruger & Co., Inc., SEC No-

Action Letter, 2001 WL 258493, at *1 (Mar. 5, 2001) (same

where proposal asks the Board to provide a report on

company policies and procedures focused on reducing gun

violence in the United States).

But the outcome changes where those same policy

proposals are directed at retailers who sell thousands of

products. See Wal-Mart Stores, Inc., SEC No-Action Letter,

2001 WL 253625, at *6 (Mar. 9, 2001) (allowing Wal-Mart to

exclude a proposal aimed at stopping its sale of handguns and

accompanying ammunition[] in any way (e.g. by special

order)” because it relates to “Wal-Mart’s ordinary business

operations (i.e., the sale of a particular product)”); see also

Rite Aid Corp., SEC No-Action Letter, 2009 WL 829472, at

*1 (Mar. 26, 2009) (same for proposal asking for a report on

56

the company’s response “to rising regulatory, competitive and

public pressures to halt sales of tobacco products”); Walgreen

Co., SEC No-Action Letter, 1997 WL 599903, at *1 (Sept.

29, 1997) (same for proposal requesting that Walgreen stop

the sale of tobacco in its stores, as it “is directed at matters

relating to the conduct of the Company’s ordinary business

operations (i.e., the sale of a particular product)”).

The reason for the difference, in our view, is that a

manufacturer with a very narrow product focus—like a

tobacco or gun manufacturer—exists principally to sell the

product it manufactures. Its daily business deliberations do

not involve whether to continue to sell the product to which it

owes its reason for being. As such, a stop-selling proposal

generally isn’t excludable because it relates to the seller’s

very existence. Quite the contrary for retailers. They

typically deal with thousands of products amid many options

for each, precisely the sort of business decisions a retailer

makes many times daily. Thus, and in contrast to the

manufacturing context, a stop-selling proposal implicates a

retailer’s ordinary business operations and is in turn

excludable. Although Trinity’s proposal is not strictly a stopselling

proposal, it still targets the same basic business

decision: how to weigh safety risks in the merchandising

calculus.14

14 We recognize that in “extrapolat[ing] an interpretive

rationale from a [line of] [] no-action letter[s], [we] risk[]

setting a legal precedent based on a rationale that the SEC

never in fact advocated.” Nagy at 1006. Fortunately, our

word is not the last. If our interpretation is flawed, the

Commission can issue new (binding) interpretative guidance

to correct us. Cf. Levy v. Sterling Holding Co., LLC, 544 F.3d

493, 502 (3d Cir. 2008) (explaining that a court of appeals is

not free to ignore the SEC’s interpretation of one of its

57

Trinity’s claim that its proposal raises a

“significant” and “transcendent” corporate policy is likewise

insufficient to fit that proposal within the social-policy

exception to exclusion. See Trinity Br. 47. 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. We think the answer is yes. Decisions relating to

what products Wal-Mart sells in its rural locations versus its

urban sites will vary considerably, and these are

quintessentially calls made by management. Wal-Mart serves

different Americas with different values. Its customers in

rural America want different products than its customers in

cities, and that management decides how to deal with these

differing desires is not an issue typical for its Board of

Directors. Indeed, catering to “small-town America” is how

Wal-Mart built its business. See Sam Walton, SAM WALTON:

MADE IN AMERICA 50 (1993) (“It turned out that the first big

lesson we learned was that there was much, much more

business out there in small-town America than anybody,

including me, had ever dreamed of.”). And whether to put

emphasis on brand integrity and brand protection, or none at

all, is naturally a decision shareholders as well as directors

entrust management to make in the exercise of their

experience and business judgment.

We also agree with Wal-Mart’s contention (and

seemingly the position of the Corp. Fin. staff) that a company

ambiguous rules even where the court of appeals had

previously interpreted the rule and its interpretation is at odds

with that of the Commission) (citing Nat’l Cable &

Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 976

(2005)).

58

can omit a shareholder proposal concerning its reputation or

brand when what the proposal seeks is woven with the way

the company conducts its business. Cf. FedEx Corp., SEC

No-Action Letter, 2014 WL 2358714, at *1 (July 11, 2014)

(allowing FedEx to omit a proposal that asked for a report

addressing how the company “can better respond to

reputational damage from its association with the Washington

D.C. NFL franchise team name controversy” because it

“relates to the manner in which FedEx advertises its products

and services”); see also Equity Lifestyle Props., Inc., SEC

No-Action Letter, 2012 WL 6723114, at *1 (Feb. 6, 2013)

(same for proposal asking the Board to prepare a report on,

among other things, “the reputational risks associated with the

setting of unfair, inequitable and excessive rent increases that

cause undue hardship to older homeowners on fixed

incomes,” as “the setting of prices for products and services is

fundamental to management’s ability to run a company on a

day-to-day basis”); Bank of America Corp., SEC No-Action

Letter, 2010 WL 4922465, at *1 (Feb. 24, 2010) (same for

proposal asking Bank of America’s Board to publish a report

describing the bank’s policy regarding the “funding of

companies engaged predominantly in mountain top removal

coal mining and an assessment of the policy’s efficacy in

reducing [greenhouse gas] emissions and in protecting [its]

reputation,” as it “addresses matters beyond the

environmental impact of [its] project finance decisions, such

as [its] decisions to extend credit or provide other financial

services to particular types of customers”); Dean Foods Co.,

SEC No-Action Letter, 2007 WL 754960, at *1 (Mar. 9,

2007) (same for proposal requesting that an independent

committee of the Board “review the company’s policies and

procedures for its organic dairy products and report to

shareholders on the adequacy of the policies and procedures

to protect the company’s brands and reputation and address

consumer and media criticism,” because this concerns the

59

company’s “ordinary business operations (i.e., customer

relations and decisions relating to supplier relationships)”).

We thus hold that, even if Trinity’s proposal raises

sufficiently significant social and corporate policy issues,

those policies do not transcend the ordinary business

operations of Wal-Mart. For a policy issue here to transcend

Wal-Mart’s business operations, it must target something

more than the choosing of one among tens of thousands of

products it sells. Trinity’s proposal fails that test and is

properly excludable under Rule 14a-8(i)(7).

V. CONCLUSION

Although a core business of courts is to interpret

statutes and rules, our job is made difficult where agencies,

after notice and comment, have hard-to-define exclusions to

their rules and exceptions to those exclusions. For those who

labor with the ordinary business exclusion and a social-policy

exception that requires not only significance but

“transcendence,” we empathize. Despite the substantial

uptick in proposals attempting to raise social policy issues

that bat down the business operations bar, the SEC’s last

word on the subject came in the 1990s, and we have no hint

that any change from it or Congress is forthcoming. As one

former SEC commissioner has opined, “it is neither fair nor

reasonable to expect securities experts [like the Commission

and its staff] to deduce the prevailing wind on public policy

issues that have yet to be addressed by Congress in any

decisive fashion.” Commissioner Criticizes Subjectivity,

Inconsistency in SEC Review of Proposals, BNA Corp.

Couns. Wkly., 2-3 (Mar. 31, 1993) (quoting remarks of

Comm. Richard Y. Roberts). That remains true today.

We have no doubt that the Commission is equipped to

collect “relevant data and views regarding the best direction

60

for its regulatory policy.” Nagy at 993. We thus suggest that

it consider revising its regulation of proxy contests and issue

fresh interpretive guidance. In the meantime, we hold here

that Trinity’s proposal is excludable from Wal-Mart’s proxy

materials under Rule 14a-8(i)(7).

1

SHWARTZ, Circuit Judge, with whom Judge VANASKIE

joins as to Part III, concurring in the judgment.

I agree with the Majority that Wal-Mart may omit

Trinity’s proposal from the company’s proxy materials. I

write separately, however, for two reasons. First, while I

agree with my colleagues that the proposal is excludable

based on the ordinary business exclusion, I believe that the

test that it has fashioned for determining when an exception

to this exclusion applies may remove many company actions

over which shareholders should have a say from shareholder

oversight. Second, I write to explain that both the ordinary

business and the vagueness exclusions support exclusion of

the entire proposal.1

I

SEC Rule 14a-8 requires a public company to include

a shareholder proposal “in its proxy statement . . . when [the

company] holds an annual or special meeting of

shareholders,” 17 C.F.R. § 240.14a-8, in recognition of the

fact that, “with the increased dispersion of security holdings

in public companies, the proxy solicitation process rather than

the shareholder’s meeting itself ha[s] become the forum for

shareholder suffrage,” Proposed Amendments to Rule 14a-8,

Exchange Act Release No. 19135, 1982 WL 600869, at *2

(Oct. 14, 1982) (the “1982 Proposing Release”). The rule thus

1Trinity declined to omit any component of the

proposal, Tr. of Oral Arg. at 39-40, and thus sought approval

of the proposal in its entirety. Accordingly, each component

of the proposal must be nonexcludable for it to comply with

SEC Rule 14a-8.

2

“affords shareholders access to management proxy

solicitations,” both “to sound out management views and to

communicate with other shareholders on matters of major

import.” Amalgamated Clothing & Textile Workers Union v.

Wal-Mart Stores, Inc., 821 F. Supp. 877, 882 (S.D.N.Y.

1993) (internal quotation marks, citation, and alteration

omitted). Such access, however, is not unfettered. In

addition to eligibility and procedural requirements, SEC Rule

14a-8 is “limited by thirteen content-based exceptions,” id.,

two of which Wal-Mart argues apply here: Rule 14a-8(i)(7)

and Rule 14a-8(i)(3).

Rule 14a-8(i)(7) allows a company to exclude

proposals that “deal[] with a matter relating to the company’s

ordinary business operations.” 17 C.F.R. § 240.14a-8(i)(7).

The SEC has explained that the determination of whether a

particular shareholder proposal implicates a company’s

ordinary business operations “rests on two central

considerations”: (1) whether the “subject matter” of the

proposal involves “tasks . . . fundamental to management’s

ability to run a company on a day-to-day basis”; and (2) “the

degree to which the proposal seeks to ‘micro-manage’ the

company by probing too deeply into matters of a complex

nature upon which shareholders . . . would not be in a position

to make an informed judgment.” Amendments to Rules on

Shareholder Proposals, Release No. 23200, 1998 WL 254809,

at *4-5 (May 21, 1998) (“1998 Adopting Release”).

There is an exception to this exclusion. Specifically,

proposals “relating to” ordinary business operations “but

focusing on sufficiently significant social policy issues . . .

generally would not be considered excludable,”

notwithstanding their relationship to ordinary business,

3

“because the proposals would transcend the day-to-day

business matters and raise policy issues so significant that it

would be appropriate for a shareholder vote.” Id. at *4. The

Majority would limit proposals invoking the “significant

social policy exception” to only those concerning matters that

are “disengaged from the essence of” a company’s business,

Maj. Op. at 52, and reads the 1998 Adopting Release to

require a proposal that focuses on a significant social policy

issue to be completely “divorced from how a company

approaches the nitty-gritty of its core business,” Maj. Op. at

50; see also id. (“[T]o shield its proposal from the ordinary

business exclusion, a shareholder must do more than focus its

proposal on a significant policy issue; the subject matter of its

proposal must ‘transcend’ the company’s ordinary

business.”). In my view, this reading is inconsistent with the

plain text of the 1998 Adopting Release.

The 1998 Adopting Release provides that, to avoid

running afoul of the ordinary business exclusion, a proposal

“relating to” a company’s ordinary business must “focus[]

on” a “sufficiently significant social policy issue.” 1998

Adopting Release, 1998 WL 254809, at *4. If it does, “it

generally would not be considered excludable, because the

proposal[] would transcend . . . day-to-day business matters.”

Id. As this passage makes clear, whether a proposal focuses

on an issue of social policy that is sufficiently significant is

not separate and distinct from whether the proposal

transcends a company’s ordinary business. Rather, a proposal

is sufficiently significant “because” it transcends day-to-day

business matters. Id. Thus, the SEC treats the significance

and transcendence concepts as interrelated, rather than

independent.

4

The 1998 Adopting Release also does not require that

a proposal be “disengaged from the essence of” a company’s

business, Maj. Op. at 52, such that a company is insulated

from any submission relating to the “crafting [of] a product

mix that satisfies consumer demand,” Maj. Op. at 51. Indeed,

the 1998 Adopting Release expressly permits a shareholder to

submit a proposal that relates directly to ordinary business

matters, including “decisions on production quality and

quantity, and the retention of suppliers,” so long as it

“focus[es] on” an issue of “sufficiently significant social

policy.” 1998 Adopting Release, 1998 WL 254809, at *4

(acknowledging that “[c]ertain tasks,” including those related

to production and suppliers, “are so fundamental to

management’s ability to run a company on a day-to-day

basis” that they are not “subject to direct shareholder

oversight,” but recognizing that “proposals relating to such

matters but focusing on sufficiently significant social policy

issues” generally are not excludable). Thus, to “transcend”

ordinary business, as that term is used in the 1998 Adopting

Release, a proposal need not be divorced from ordinary

business, as the Majority proposes, but instead must focus on

a policy issue that in some “transcend[ent]” way trumps

ordinary business in importance. See id.; see also Adoption

of Amendments Relating to Proposals by Security Holders,

Release No. 12999, 1976 WL 160347, at *11 (Nov. 22, 1976)

(noting that proposals including “certain matters which have

significant policy, economic, or other implications,” like “the

economic and safety considerations attendant to nu[cl]ear

power plants,” are “of such magnitude” that they should be

“considered beyond the realm of an issuer’s ordinary business

operations,” despite their relationship to such operations).

5

In addition to conflicting with SEC guidance, the

Majority’s test for the “significant social policy exception” to

the ordinary business exclusion is inconsistent with the

purpose of § 14 of the Securities Exchange Act of 1934, 15

U.S.C. § 78a et seq. (the “Exchange Act”), and Rule 14a-8.

When Congress enacted the Exchange Act, it sought to ensure

“fair corporate suffrage.” J.I. Case Co. v. Borak, 377 U.S.

426, 432 (1964). One way such suffrage is protected is

through accurate proxy solicitations. Id. Congress authorized

the SEC to generate rules that would advance this goal. See

15 U.S.C. § 78n. To this end, it promulgated Rule 14 to

provide guidelines for shareholder proposals, including those

that raise social issues. As the Commission noted in the 1998

Adopting Release, “shareholder proposals on social issues

may improve investor confidence in the securities markets by

providing investors with a sense that as shareholders they

have a means to express their views to the management of the

companies in which they invest.” 1998 Adopting Release,

1998 WL 254809, at *19.

The Majority’s test, insofar as it practically gives

companies carte blanche to exclude any proposal raising

social policy issues that are directly related to core business

operations, undermines the principle of fair corporate suffrage

animating Rule 14a-8: shareholders’ “ability to exercise their

right—some would say their duty—to control the important

decisions which affect them in their capacity as . . . owners of

[a] corporation.” Med. Comm. for Human Rights v. SEC,

432 F.3d 659, 681-82 (D.C. Cir. 1970) (footnote omitted).

Section 14(a) of the Exchange Act ensures that “[a]

corporation is run for the benefit of its stockholders and not

for that of its managers,” SEC v. Transamerica Corp., 163

F.2d 511, 517 (3d Cir. 1947), and “Congress intended by its

6

enactment of [§] 14 . . . to give true vitality to the concept of

corporate democracy,” Med. Comm. for Human Rights, 432

F.3d at 676. Permitting shareholders to vote on important

social issues, including those that may be closely related to a

company’s ordinary business, is consistent with these

principles, and I would not interpret the ordinary business

exclusion to prohibit it.

II

All that said, Trinity’s proposal as written is

excludable under the ordinary business exclusion because it

lacks the focus needed to trigger the “significant social

policy” exception. To qualify for this exception, Trinity’s

proposal must focus on a significant policy issue. Trinity’s

proposal asks the Board to amend the Committee charter to

require that it create policies and standards for determining

whether Wal-Mart should sell a product that: (1) “especially

endangers public safety and well-being”; (2) “has the

substantial potential to impair” Wal-Mart’s reputation; and/or

(3) “would reasonably be considered by many to be offensive

to the family and community values integral to” Wal-Mart’s

brand. J.A. 268. Although the proposal states that it is for

“determining whether or not [Wal-Mart] should sell guns

equipped with magazines holding more than ten rounds of

ammunition . . . and [for] balancing the benefits of selling

such guns against the risk that these sales pose to the public

and to [Wal-Mart’s] reputation and brand value,” J.A. 268,

the full text shows that it is not directed solely to Wal-Mart’s

sale of guns.

The proposal has three separate components. The

“public safety” component of the proposal could cover many

7

products, especially in light of the amount of products Wal-

Mart offers, and thus might require Wal-Mart to develop

policies and standards for thousands of goods. While Wal-

Mart’s sale of guns with high-capacity magazines may raise a

significant social policy issue concerning public safety, not all

products that may fall within the proposal do so. Thus, while

the first component of Trinity’s proposal may raise a

significant issue of social policy, insofar as it touches on the

sale of guns equipped with high capacity magazines, we

cannot say that the proposal as a whole “focus[es] on” such

an issue. 1998 Adopting Release, 1998 WL 254809, at *4.

Accordingly, Trinity may not avail itself of the “significant

social policy exception” to the ordinary business exclusion.

Similarly, the second and third components of the

proposal could cover many products. They are also

problematic for other reasons. The second component seeks

standards for determining whether Wal-Mart should sell a

product that may impair the company’s reputation. How

Wal-Mart would like others to view it is a unique company

interest, and while certainly important to shareholders seeking

a return on their investment, it is not of broad societal

concern. The third component, which asks the Board to

consider whether the sale of a product would impact its brand,

also focuses on matters of interest to the company but not

society at large. Thus, these components cover matters

relating to Wal-Mart’s ordinary business operations, do not

present a social policy issue, and render the entire proposal

excludable.

III

8

There is an additional problem with the third

component of the proposal: it is vague and thus excludable

under Rule 14a-8(i)(3). Rule 14a-8(i)(3) permits a company

to exclude shareholder proposals that are “so vague and

ambiguous that the issuer and security holders would not be

able to determine what action the proposal is contemplating,”

1982 Proposing Release, 1982 WL 600869, at *13. The

rationale for excluding a shareholder proposal that is “vague

and ambiguous” is twofold: (1) shareholders are entitled to

know the breadth of the proposal on which they are asked to

vote; and (2) the company must be able to comprehend what

actions or measures the proposal requires of it. See Dyer v.

SEC, 287 F.2d 773, 781 (8th Cir. 1961); N.Y.C. Emps. Ret.

Sys. v. Brunswick, 789 F. Supp. 144, 146 (S.D.N.Y. 1992).

As previously stated, the third component of the

proposal that asks the Committee to formulate policies and

standards for the sale of products that “would reasonably be

considered by many to be offensive to the family and

community values integral to” Wal-Mart’s brand. J.A. 268.

While Trinity argues that this component simply asks the

Committee to consider whether a product may negatively

impact its brand, the proposal, as written, measures that

impact based upon what “many” view as “offensive” to

“family and community values.” Trinity attempts to link

these terms back to what Wal-Mart has said about its values,

including the “Save Money, Live Better” tag line, but these

buzz words fail to provide any concrete guidance as to what

constitutes “many” or what “family values” should be

considered. Thus, this component of the proposal does not

inform the shareholders of the breadth of the subject on which

they would be asked to vote nor does it make clear what the

Company would be required to do if it were adopted. For this

9

reason, the proposal is also excludable under Rule 14a-

8(i)(3).

IV

I therefore concur in the judgment.

Although a core business of courts is to interpret

statutes and rules, our job is made difficult where agencies,

after notice and comment, have hard-to-define exclusions to

their rules and exceptions to those exclusions. For those who

labor with the ordinary business exclusion and a social-policy

exception that requires not only significance but

“transcendence,” we empathize. Despite the substantial

uptick in proposals attempting to raise social policy issues

that bat down the business operations bar, the SEC’s last

word on the subject came in the 1990s, and we have no hint

that any change from it or Congress is forthcoming. As one

former SEC commissioner has opined, “it is neither fair nor

reasonable to expect securities experts [like the Commission

and its staff] to deduce the prevailing wind on public policy

issues that have yet to be addressed by Congress in any

decisive fashion.” Commissioner Criticizes Subjectivity,

Inconsistency in SEC Review of Proposals, BNA Corp.

Couns. Wkly., 2-3 (Mar. 31, 1993) (quoting remarks of

Comm. Richard Y. Roberts). That remains true today.



We have no doubt that the Commission is equipped to

collect “relevant data and views regarding the best direction

for its regulatory policy.” Nagy at 993. We thus suggest that

it consider revising its regulation of proxy contests and issue

fresh interpretive guidance. In the meantime, we hold here

that Trinity’s proposal is excludable from Wal-Mart’s proxy

materials under Rule 14a-8(i)(7).