Walmart won a major battle for self-determination in its business operations on Tuesday, April 14th, when the 3rd Circuit Court of Appeals overturned a District of Delaware November, 2014 ruling that could have potentially restricted gun and ammunition sales based on the desires of certain shareholders. The fast-tracked appeal was resolved before the Thursday, April 16th deadline for Walmart to file the company’s annual proxy statement. The Delaware case ruled that a shareholder, Trinity Wall Street, an Episcopal church in New York, could include a proposal in the proxy statement that would have allowed for a vote on shareholder oversight of the company’s gun sales policies. Trinity Wall Street owns 3500 Walmart shares. The Security Exchange Commission (SEC) requires that shareholder proposals be included in a company’s proxy statements, with the exception being if the proposal affects the company’s ordinary business operations. The exception to the exception, however, is if the proposal affects a larger policy issue, then they are to be included. Needless to say, considering the national debate over gun control; it is not surprising that the rulings on this specific piece of regulation have encountered mixed verdicts.
Had the Delaware ruling been upheld, the proposal would have put the issue of Walmart’s semiautomatic rifle sales and associated ammunition up for vote at the company’s June 5th annual shareholder meeting. Trinity Wall Street based their argument on the risk of selling a product with “certain characteristics,” which “endangers public safety, has the substantial potential to impair Wal-Mart’s reputation, or would reasonably be considered by many to be offensive to the values integral to Wal-Mart’s brand.” Had the proposal been approved at the June meeting, it would have created a shareholder board that would be responsible for deciding whether or not products that meet the aforementioned criteria should be sold at stores. Walmart representatives strongly objected to the proposal, claiming that it would significantly affect day-to-day operations and restrict aspects of the Walmart brand that attract a multitude of customers. They also argued that had the Trinity Wall Street proposal been permitted, it would allow the floodgates to open for a plethora of other operations-related shareholder proposals.
Obviously, the 3rd Circuit ruling will help in some degree to clarify the SEC’s rules for shareholder’s proposals, and how much influence shareholders should have in operational details, but it can also be seen as a barometer of the current status of the gun-control debate. The implicit subtext of the ruling would appear that the court’s 3-judge panel is giving some deference to the 2nd Amendment in a sense, by determining that the challenge to the status-quo on gun control does not qualify as a “larger policy issue” mentioned in the SEC’s rule’s language. Further insight into their thinking should be forthcoming. The court announced that it will provide a full opinion at a later time, given the urgency of Thursday’s deadline. For their part, Trinity Wall Street representatives expressed their disappointment with the ruling and are in the process of considering whether or not to appeal.
Law.com – Saranac Hale Spencer
Wall Street Journal – Paul Ziobro And Joann S. Lublin
Washington Times– Kellan Howell