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April 17, 2023

Rule 14a-8: Similar Objectives, Different Outcomes for 2 Culture War Proposals

In the past two weeks, the Staff of the Division of Corporation Finance issued responses to no-action requests addressing two substantively similar “culture war” proposals submitted by the conservative National Center for Policy Research. Both recipients sought to exclude these proposals under Rule 14a-8(i)(7)’s ordinary business exclusion, but despite their transparently similar objectives, the Staff reached different conclusions about their excludability.

The differences in the way the proposals were worded seems to have made all the difference in the Staff’s response.  The fact that words matter in evaluating proposals under Rule 14a-8 isn’t exactly news to anyone who’s dealt with these over the years, but I think it’s still pretty interesting all it takes is some wording tweaks for a single proponent to render a proposal that deals with ordinary business operations into one dealing with a public policy issue that transcends the ordinary business exclusion.

Anyway, on December 22, 2022, the NCPR submitted a proposal to Kroger that called for the company to do the following:

Shareholders request the Kroger Company (“Kroger”) issue a public report detailing the potential risks associated with omitting “viewpoint” and “ideology” from its written equal employment opportunity (EEO) policy. The report should be available within a reasonable timeframe, prepared at a reasonable expense and omit proprietary information.

Pointing to the company’s actions to promote acceptance among employees of LGBTQ+ people and the removal of certain patriotic and pro Second Amendment merchandise, the proposal’s supporting statement alleged that there was ample evidence that “individuals with conservative viewpoints may face discrimination at Kroger.” In arguing that the proposal could be excluded, the company noted that proposals dealing with workforce management issues had been specifically identified by the Staff as being excludable under Rule 14a-8(i)(7). The Staff ultimately permitted the Kroger to exclude the proposal on the basis that it related to its ordinary business operations.

Ten days before submitting its proposal to Kroger, the NCPR submitted the following proposal to PayPal:

Resolved: Shareholders request the Board of Directors conduct an evaluation and issue a report within the next year, at reasonable cost and excluding proprietary information and disclosure of anything that would constitute an admission of pending litigation, evaluating how it oversees risks related to discrimination against individuals based on their race, color, religion (including religious views), sex, national origin, or political views, and whether such discrimination may impact individuals’ exercise of their constitutionally protected civil rights.

While the proponent’s supporting statement focused on the potential for the company to unlawfully discriminate in providing services to its customers based on their religious beliefs and points of view, the resolution itself was broad enough to encompass discrimination against employees on this basis as well. But it’s worth noting that neither the proposal nor the supporting statement contained a single reference to “individuals with conservative viewpoints.”

In arguing for the proposal’s exclusion, PayPal noted that proposals dealing with customer relationships and workforce management had both been viewed by the Staff as excludable under Rule 14a-8(i)(7), and argued that the proposal did not raise important public policy issues that transcended ordinary business. In support of this latter argument, PayPal noted that despite the proposal’s broad laundry list of potential targets of discrimination, its supporting statement clearly indicates that the proposal is “’particularly concerned with recent evidence of religious and political discrimination,’” which, to our knowledge, the Staff has not determined to be significant policy issues.”  The Staff rejected these arguments noting that, “in our view, the Proposal transcends ordinary business matters.”

John Jenkins