Trinity Church, a Walmart shareholder, suing retailer over vote on guns | Arkansas Blog

Wednesday, March 25, 2015

Trinity Church, a Walmart shareholder, suing retailer over vote on guns

Posted By on Wed, Mar 25, 2015 at 7:55 AM

Trinity Church, an Episcopal church in lower Manhattan, is challenging the company on its policy around selling guns and has sued the retail behemoth over its refusal to allow a shareholder vote on Trinity's proposal.  Briefs are being filed this week with the Third Circuit Court of Appeals in a case with implications not just for the issue of gun sales but for corporate governance and shareholder activism. 

Trinity, a highly active, well-endowed, and historic church (George Washington attended), owns a tiny portion of Walmart shares. In 2013, the church submitted a resolution for shareholders to vote on whether the company should stop selling assault rifles with high-capacity magazines. Walmart went to the federal Securities and Exchange Commission to block the vote, arguing that it would interfere with its day-to-day operations, and the SEC ruled for Walmart. Trinity filed suit with the U.S. District Court in Delaware, which found in favor of Trinity late last year (there was no injunction, however, so Walmart proceeded with its 2014 shareholders meeting without a vote on Trinity's proposal). Walmart appealed to the Third Circuit Court of Appeals and a three-judge panel is expected to rule in April, potentially forcing Walmart to take up the vote at its shareholder meeting in the summer. 

Here is the description of Trinity's proposal from the 17th Rector of Trinity Wall Street, the Rev. Dr. James H. Cooper, via the church website

The proposal asked that Wal-Mart’s Board of Directors oversee the development of policies to guide management’s decision whether or not Wal-Mart should sell products that are 1) especially dangerous to the public, 2) pose a substantial risk to company reputation and 3) would reasonably be considered offensive to the community and family values that Wal-Mart seeks to associate with its brand. For instance, the decision to sell guns equipped with high capacity magazines seems inconsistent to Trinity (and we presume like-minded shareholders), given other merchandising decisions that Wal-Mart has made to protect its reputation and the public. 

It's not clear that such a proposal would get anywhere even if it was put up for a vote, though a vote would certainly highlight the issue. Walmart's concern seems to be more focused on the broader implications of opening up day-to-day operations to a shareholder vote. CBS News reports

While selling guns with high-capacity magazines is controversial in its own right, the heart of the battle is over whether Trinity, as an investor in Walmart, has the right to place proposals about a company's day-to-day operations — such as its inventory mix — onto shareholder ballots. Given the rise of activist investors, who have in recent years pressured companies to ditch board members and spin off business units, an anti-Walmart precedent could add fuel to the movement.

In Walmart's view, that's not a good thing.

"The issue is Trinity's proposal would interfere with Walmart's ordinary business decisions by seeking to regulate Walmart's daily decisions on the hundreds of thousands of products sold in our stores," Walmart spokesman Randy Hargrove told CBS MoneyWatch. "It's not just guns" that could end up on the chopping block if Trinity is successful, he noted.

While the guns will get the headlines, the question of how much power shareholders have is the big legal question here. From the Wall Street Journal

The gun issue is controversial. But it is the corporate-governance question that has elevated the case from a politicized dispute between the company and a tiny shareholder into one that has drawn widespread attention from prominent law professors and big-business groups. They hope the proposal will answer a question that rarely reaches the federal court system’s upper levels: How much influence should investors have over a company’s day-to-day operations?

More from Trinity's Rev. Cooper, via the church's website

To be clear: ours was not an “anti-gun” proposal, nor a proposal to end the sale of certain products. We simply asked that shareholders be allowed to consider whether the Board has an obligation to assure that the company’s standards and values are uniformly considered and applied when the sale of certain products can have momentous consequences.

The Securities and Exchange Commission issued a no-action letter on the matter and the Federal District Court ultimately ruled that Wal-Mart could exclude our proposal from the 2014 proxy statement. Trinity then appealed that decision; our appeal was ruled on favorably on Wednesday, November 26, 2014, the day before Thanksgiving. I was very pleased with the decision. On critical issues such as the sale of products that may threaten the safety or well-being of communities, corporate boards must exercise their oversight role to assure balance among customer, shareholder, and societal interests.

We intend to campaign vigorously for the adoption of our proposal, and we feel it is important to raise the issue of board responsibility and accountability for good corporate citizenship. Trinity is a community of committed Christians who are focused on putting an end to gun violence.

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