Shareholders’ rights to have an item put on the agenda of the general meeting – revisited
The Division of Corporation Finance of the U.S. Securities and Exchange Commission issued a bulletin reflecting its views on whether a corporation may exclude a shareholder proposal from being put on the agenda of the general meeting.
On April 13, 2015 the Leiden Law Blog reported on a judgment of the district court in The Hague in the case between Boskalis and Fugro. In its decision the court dismissed Boskalis’ claim, as a shareholder of Fugro (a listed company), to have an item added to the agenda of the upcoming general meeting. The court did so on the basis that the proposed item ‘raises an issue that concerns corporate strategy and is therefore within the realm of the powers of the management board exclusively’. Interestingly, the question whether shareholders have the right to have items added to the agenda of the general meeting has recently also been addressed by the U.S. Securities and Exchange Commission (SEC).
On October 22, 2015 the Division of Corporation Finance of the SEC issued Staff Legal Bulletin No. 14H (CF) on ‘Shareholder Proposals’. This bulletin reflects the opinion of the Division, without being a formal rule or statement of the SEC, on Rule 14a-8 of the Exchange Act that inter alia allows a company to exclude a shareholder proposal ‘[i]f the proposal deals with a matter relating to the company’s ordinary business operations’. The bulletin was in part intended as a response to a judgment of the U.S. Court of Appeals for the Third Circuit in the case between Trinity Wall Street (an Episcopal parish) and Wal-Mart Stores, Inc. In this case, the Circuit Court decided that the following proposal by Trinity, as a shareholder of Wal-Mart (a listed corporation), was excludable: that Wal-Mart’s board of directors amend its board charter to include the duty to oversee inter alia ‘the formulation and implementation of […] policies and standards’ that would determine whether or not Wal-Mart should sell any product that ‘especially endangers public safety and wellbeing’ or ‘has the substantial potential to impair the reputation of the Company’. In accordance with the explanation that accompanied the proposal, Trinity specifically sought to attain that Wal-Mart’s board of directors would lay down a policy on selling (or nor selling) guns that were equipped with ‘high capacity magazines’.
Although the Division basically agreed with the Circuit Court’s decision in this specific case (because Trinity’s proposal was not related to a significant policy issue), it was concerned that the Court’s decision ‘may lead to the unwarranted exclusion of shareholder proposals’. In order to prevent such an effect, the Division stated in its opinion that ‘proposals that focus on a significant policy issue transcend a company’s ordinary business operations and are not excludable’. This would be the case when such proposals ‘would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote’, taking into account ‘the connection between the significant policy issue and the company’s business operations’ rather than (as the Circuit Court had considered) being completely divorced from the corporation’s business.