A federal judge on Thursday approved the National Association of Manufacturers' motion to intervene challenging the Securities and Exchange Commission's authority to approve or disapprove whether a given shareholder resolution must appear on a public company's proxy statement.
Judge Jennifer Walker Elrod of the 5th U.S. Circuit Court of Appeals in New Orleans approved the motion one day after it was filed in National Center for Public Policy Research vs. SEC.
The National Center for Public Policy Research, a conservative think tank, filed a lawsuit in April after the SEC permitted Kroger Co. to exclude a shareholder proposal the group filed from the company's proxy statement.
Shareholders can file proposals before a company's annual meeting. If a company thinks a proposal is out of bounds or has already been addressed, it can file a no-action letter with the SEC, requesting permission not to include the proposal in its proxy statement.
While the National Center for Public Policy Research filed suit to have its shareholder proposal included in Kroger's proxy statement, NAM has a different viewpoint in challenging the SEC, which is why it filed its motion to intervene, according to Charles Crain, NAM's senior director of tax and domestic economic policy.
"The SEC shouldn't be in the position of dictating a company's speech by forcing them to include, and only allowing them to exclude, proposals that they give the green light to exclude," Mr. Crain said. "We don't think the SEC should have that power."
The decision of whether a company should include a shareholder resolution on its proxy statement should be left to the company, Mr. Crain added.
"That would not limit shareholders from engaging with companies or companies from engaging with shareholders about any of these topics, but you wouldn't have the hand of the government forcing companies to speak on these controversial topics that they don't want to and that aren't relevant to their business," he said.
In its filing, NAM said the current no-action system at the SEC is a violation of the First Amendment and federal securities laws.
The SEC's division of corporation finance issued a legal bulletin in November 2021 that rescinded the division's previous three legal bulletins — promulgated under the Trump administration — related to Exchange Act Rule 14a-8, that concern shareholder proposals. The November 2021 bulletin also outlined changes in the division's views on what constitutes "ordinary business" and "economic relevance" when it determines whether a shareholder proposal should be excluded from a company's proxy statement.
Under the previous administration, the SEC issued bulletins that included language that made it more likely for the SEC to rule in favor of companies seeking no-action relief, but the November 2021 bulletin took a different approach.
An SEC representative couldn't immediately be reached for comment.
