New York's Trinity Wall Street church sees plenty of positives in owning shares of Wal-Mart Stores Inc.
Leaders of the 318-year-old Episcopal church appreciate the obvious financial benefits that come from holding about 3,500 shares. They proudly note the company's public commitment to matters involving the environment and sustainability and note the strides Wal-Mart is making in offering healthier foods.
Still, the church would like Wal-Mart to adopt more consistent policies when it comes to selling products that could be viewed as a danger to the general 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.
An appeals court in Philadelphia will consider the fate of that proposal Wednesday. Wal-Mart has been fighting since last year to keep it from going to a shareholder vote.
"We think it's a good company," Trinity Chancellor Evan Davis said. "We like much about Wal-Mart, but there is one concern we have. We decided the right approach, rather than to divest, would be to engage them in conversation. We weren't going to tell the board what to sell or not to sell or ask the board to rule on a case-by-case basis what they were going to sell or not sell. We just wanted a policy regarding the sale of products that are especially dangerous."
Their looming court battle has become more than a fight over corporate reputation or products sold. Wal-Mart and other corporations are hoping for a ruling in the company's favor because of fears that shareholders could be granted too much influence in day-to-day operations.
After the Securities and Exchange Commission ruled last year that Wal-Mart could keep the proposal out of its annual meeting, a Delaware district court reversed that decision. It was too late for the 2014 meeting, but the company has appealed to keep shareholders from considering the proposal on June 5 at Bud Walton Arena in Fayetteville.
Wal-Mart spokesman Randy Hargrove said the district court ruling "reversed 40-year-old SEC guidance" related to shareholder influence over day-to-day business matters. The concern for companies, he said, is that it could have far-reaching implications for retail and "force public companies to have a shareholder vote on ordinary business matters like what products are sold."
The SEC usually allows companies to exclude proposals that are considered "part of ordinary business."
A brief filed in support of Wal-Mart by the American Petroleum Institute, the Business Roundtable, and the U.S. Chamber of Commerce says the district court ruling "eviscerates the ordinary business exclusion because a shareholder can simply draft a proposal concerning a company's ordinary business matters as a request for board review in order to avoid exclusion."
Later in the brief, the groups supporting Wal-Mart argue that "In brushing aside more than three decades of no-action precedent, the district court's decision threatens to dramatically increase the number and complexity of shareholder proposals and encourage litigation -- and all shareholders will have to bear the cost."
Some disagree with the assertion that a ruling in Trinity's favor would have far-reaching effects. A group of nearly 40 corporate and securities law professors who filed a brief in support of the church argued the effects on governance would be minimal.
Cornell University Law School professor Lynn Stout is among those who question what effect taking the proposal to shareholders would have. In a brief, professors from around the country argue that the church is not interfering with day-to-day operations. A ruling in Trinity's favor wouldn't reverse SEC precedent or lead to shareholders being able to tell companies what to do, Stout said.
"Federal law says we don't want shareholders bringing resolutions for small, nitty-gritty matters, we don't want shareholders harassing corporate managers and directors," Stout said. "This is not involved in the nitty-gritty. It does not tell them what to do. It just asks the company develop a policy regarding public safety. It's a very respectful request to the Wal-Mart board, asking them to develop a high-level policy to make sure the products Wal-Mart sells are consistent with its values."
Wal-Mart has also argued that the proposal is too vague. It is difficult to define what constitutes a danger or is inappropriate, the company has said. Trinity has said Wal-Mart is already making those decisions in some markets or in the case of some products.
Handguns are sold by the company only in Alaska. Rifles with "high capacity magazines" are available in about half of the company's 4,500 stores, and Wal-Mart doesn't offer music with parental advisory labels.
That Wal-Mart has chosen to fight the proposal so vigorously is a mystery to observers like Adam Cobb, assistant professor of management at the University of Pennsylvania's Wharton School of Business. He said that by fighting the district court ruling, Wal-Mart has prolonged the discussion about selling guns in its stores and brought attention onto an issue that could have been resolved last year.
"This is a curious case," Cobb said. "Wal-Mart could have made this disappear by putting it on the proxy. This wasn't going to pass a shareholder vote. You sort of wonder why they've decided to be the cross-bearers on this one. Getting on the docket doesn't probably change anything and if it does, what's the worst thing that happens? You're giving the board more oversight? That's part of what their job is anyway."
When the proposal was first submitted in December 2013, the church knew it faced a battle in winning a shareholder vote. More than 50 percent of Wal-Mart stock is controlled by the Walton family, and that makes it difficult for proposals to pass.
Just calling attention to the issue of additional oversight on dangerous or reputation-damaging products is a victory, Trinity's Davis said.
"You never know how somebody is going to vote," Davis said. "I'm not going to argue that I think the Walton family is going to vote for us if given the opportunity, although the spirit could always move them. You never know."
SundayMonday Business on 04/05/2015