Just as I was in the middle of preparing for my class on shareholder proposals – for which I have assigned the opinion in Trinity Wall Street v. Wal-Mart Stores, Inc. – I got an email notification that the Division of Corporate Finance Staff had issued a new legal bulletin announcing that it disagrees with the majority opinion in Trinity, and instead agrees with the concurring opinion.

I discussed the Trinity opinion here, but basically, the issue was whether Walmart could exclude a shareholder proposal, submitted by Trinity Wall Street, requesting that Walmart develop a policy for oversight of sales of guns with high capacity magazines (the proposal was framed to encompass harmful products broadly, but the narrative made clear it was aimed toward gun sales).  In the Third Circuit opinion, the majority and the concurrence disagreed regarding the proper interpretation ordinary business exclusion for social-responsibility proposals.  The majority held that to determine whether a proposal is excludable, the court must first analyze whether it concerns ordinary business, next determine whether it involves a significant issue of social policy, and finally determine whether – despite involving ordinary business – the social policy issue is so important as to “transcend” day to day business operations.  The majority ultimately concluded, essentially as what appears to be a bright line rule, that certain “core” matters of business operations can never be transcended in this manner.

The concurring judge, however, believed that social policy = transcendence – i.e., that the proper inquiry is whether the social policy raised is of such significance that it inherently transcends the day to day business operations.

In its legal bulletin, the Staff agreed with the concurrence.

But that only raises more questions than it answers.  As I previously posted, the concurring judge also believed that the proposal at issue in the Trinity case was not sufficiently significant to “transcend” ordinary business operations for a variety of reasons, including that the proposal was framed in terms of benefits to Walmart.  I criticized this analysis because, among other things, most social responsibility proposals are framed in terms of benefits to the company – they might fail as improper under state law otherwise.  The concurrence also faulted the proposal for discussing harmful products generally instead of guns specifically – a fact that did not bother the majority.

Now we know the Staff agrees with the concurrence that the inquiry hinges on the significance of the social policy itself; but we also know that the Staff earlier issued a no-action letter concluding that Trinity’s proposal was excludable.  So I’m left a bit baffled as to the Staff’s basis for that conclusion.  Did the Staff agree with the concurrence that Trinity should have framed the proposal in terms of societal benefits?  That the proposal failed because it was framed in terms of harmful products rather than guns specifically?  The Staff’s no-action letter did not mention the significance of the social policy at all – instead, it focused solely on the business operations to which it was directed.  Does that make the no-action letter inconsistent with the Staff’s new bulletin?

Moreover, what is the precedential effect of Trinity now?  In its opinion, the Third Circuit majority stated that only a binding SEC ruling could overrule it; the Staff’s bulletin is not binding.  Does this mean courts in the Third Circuit are bound by Trinity while courts outside of the Third Circuit are free to rely on the Staff bulletin as persuasive authority?

Only time will tell – but surely this adds at least some fuel to Trinity’s pending cert petition.  I note, however, that Walmart ultimately caved and removed assault rifles from its shelves – even without including the proposal in its proxy.

In any event, I guess this means in addition to the Third Circuit opinion, my students will be reading the Staff bulletin and the original no-action letter.

On another note – the Staff bulletin also deals with the problem of shareholder proposals that are excludable because they conflict with management proposals in the same proxy under Rule 14a-8(i)(9).  Recently, some companies (*cough*Whole Foods*cough*) have tried to exclude shareholder proxy access proposals by including management-sponsored proposals with much higher – nay, unachievable – threshold ownership levels, and then arguing that the shareholder proposal conflicts with management.  The Staff bulletin seems to put the kibosh on these efforts, adopting a new rule that a “conflicting” proposal is one that is irreconcilable with the management proposal, such that a reasonable shareholder could not support both.