Wal-Mart S'Holder Says District Court Was Right to Reverse SEC on Gun Resolution

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By Michael Greene

Feb. 5 — In an ongoing Third Circuit appeal, a Wal-Mart Stores Inc. shareholder argues that its excluded proposal to provide more oversight and reporting regarding the guns sold at the megastore does not fall within the SEC's “ordinary business” proxy exclusion rule because it only addresses a gap in the company's governance.

“The Proposal does not request that Wal-Mart cease selling any product or class of products,” but instead requests that the retailer formulate and implement a transparent policy for board oversight of “the sale of especially dangerous products,” Trinity Wall Street writes in its Feb. 4 brief in support of upholding a controversial district court ruling that sided against Wal-Mart and the Securities and Exchange Commission.

In a statement e-mailed to Bloomberg BNA Feb. 5, the Reverend Dr. James Herbert Cooper, the 17th rector of Trinity, said that Trinity's proposal “is not designed to interfere with ordinary business operations or dictate which products the company can and/or cannot sell.”

Disputed Ruling

The U.S. District Court for the District of Delaware Nov. 26 found that Wal-Mart could not properly exclude the proposal under the “ordinary business” proxy exclusion rule. 

U.S. District Judge Leonard P. Stark found that the SEC was incorrect in permitting the retailer to exclude the proposal from its proxy material under Rule 14a-8(i)(7) because it “deals with matters relating to the company's ordinary business.”

Wal-Mart filed an appeal with the U.S. Court of Appeals for the Third Circuit claiming that “[a]bsent reversal, the District Court’s erroneous ruling will leave the Rule 14a-8(i)(7) ordinary business exclusion in tatters”. 

Business groups have strongly criticized the district court's ruling, and experts have given diverse predictions on how this case could impact the ongoing proxy season and other similar proposals.

Policy for Controversial Products

In its brief, Trinity Wall Street claims that there appears to be a conflict in Wal-Mart's process and criteria in determining whether to sell certain controversial products that can affect its reputation and brand identity.

According to the shareholder's brief, the world's largest retailer chooses not sell certain controversial products despite customer demand, “such as handguns or music marked with a parental advisory label because the lyrics depict violence,” but chooses to “sell rifles equipped with high capacity ammunition clips holding many rounds.”

This “inconsistency … affirms our view that Wal-Mart’s Board has an important role to play, in the interests of both the public and long-term shareholder value, in setting policies to guide management decisions regarding the sale of products that could be particularly dangerous to the public, corporate reputation and brand value—and seeing to it that such policies are universally applied,” Cooper said in his statement.

Accordingly, Trinity wrote in its brief, the proposal “is aimed at Board oversight of Company policy respecting the sale of especially dangerous products, not day-to-day management tasks. It also focuses on two significant social policies—the danger to the public and the danger to the Company’s reputation from the sale of especially dangerous products.”

In his statement to BBNA, Cooper said that “shareholders have the right to request this Board oversight. Clearly, the decision by the Delaware District Court, which is faithful to the guidance of the SEC, is consistent with our position.”

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

Trinity Wall Street's answering brief is available at http://www.bloomberglaw.com/public/document/Trinity_Wall_Street_v_WalMart_Stores_Inc_Docket_No_1404764_3d_Cir/7.