Appeals court backs Wal-Mart on barring stockholder proposal

Wal-Mart Stores Inc. can omit a shareholder proposal related to board oversight of what products the retailer sells, the U.S. Court of Appeals for the 3rd Circuit ruled Tuesday.

An opinion on the case, which pitted Wal-Mart against New York's Trinity Wall Street Church, will be filed at a later date. The Philadelphia-based court issued its ruling before the deadline today that was requested by Wal-Mart, which needs to print and distribute its proxy statement in advance of its June 5 shareholders meeting in Fayetteville.

Trinity, which originally submitted its proposal for the 2014 shareholders meeting, has the option of seeking a review and filing a petition for rehearing. A request for review would have to be filed within 14 days of the ruling, and the church said in a statement that it is considering its options.

Wal-Mart was fighting the proposal on the grounds that it interfered with day-to-day business operations.

"The 3rd Circuit reached the right decision in reversing the district court's ruling," Wal-Mart spokesman Randy Hargrove said. "We appreciate the court's quick consideration of the issues."

Attorneys for Trinity and Wal-Mart presented oral arguments during an April 8 hearing that lasted a little more than an hour.

Trinity argued that it wasn't telling Wal-Mart what it could or couldn't sell, but was asking the board of directors to take more oversight of products that could be viewed as a danger to the public or a risk to the retailer's global reputation. Those concerns are what prompted Trinity to submit a shareholder proposal in 2013 related to sales of certain items, including rifles with magazines that hold 10 or more rounds.

"We are disappointed with the ruling, but pleased that we have been able to draw attention to an important issue of corporate governance and social responsibility," Trinity said in a statement. "Companies are increasingly recognizing that their commitment to the welfare of their communities is deeply interconnected with shareholder value. We will continue to challenge the management and boards of the companies in which we invest to make social responsibility and respect for the dignity of each individual a real and integral part of their corporate mission, and are grateful for the support and encouragement our efforts have received."

Wal-Mart argued that allowing the proposal, which it said dealt with day-to-day business matters, would reverse 40 years of Securities and Exchange Commission guidance. Shareholders are not allowed to submit proposals related to general business operations of a company.

"The company has a very rigorous process for deciding which products to sell and where," Wal-Mart attorney Theodore J. Boutrous told the court, according to a transcript of last week's hearing. "So this is something that's usually done at the ground level in the management of the company. It's not a board decision, generally. This goes, selling products, goes to the heartland of ordinary business operations for the company."

A no-action letter from the Securities and Exchange Commission last year allowed Wal-Mart to exclude the proposal from its 2014 meeting. Trinity sued and a Delaware district court ruled that Wal-Mart had to put the matter to a vote. That decision came too late for the 2014 meeting and until the appellate court ruling, the company was faced with asking shareholders to vote on the proposal at its annual meeting.

Trinity argued it wasn't asking board members to decide on selling certain types of guns or other specific products. It was merely seeking more concrete guidelines and not attempting "micromanagement."

"It's clear Wal-Mart has policies in different directions," Trinity attorney Joel Friedlander argued, according to a transcript of the April 8 hearing. "Some might be store-to-store. Some might be company-wide. But it's unclear to what extent they're published or if they were ever reviewed by the board or adopted by the board or how they're formulated."

Wal-Mart has yet to reveal the number of shareholder proposals that will be considered at its 2015 meeting. Hargrove said the company didn't have a "firm number" as of Tuesday and that the deadline for including proposals is today.

At least five submitted proposals will not make the proxy. Some were withdrawn by the parties that submitted them after conversations with Wal-Mart, and others were allowed exclusions by the SEC.

"Until the deadline is reached, we're still in discussions," Hargrove said.

Business on 04/15/2015

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