Author ORCID Identifier

0009-0005-2290-7062

Document Type

Article

Publication Date

2016

Abstract

In its landmark Cracker Barrel no-action letter, the SEC staff an­nounced a bright-line rule permitting exclusion of any shareholder pro­posal pertaining to a company’s management of its general workforce, even if focused on a significant social policy issue such as employment discrimination, under the “ordinary business operations” exclusion. The SEC reversed Cracker Barrel in 1998, returning to a case-specific approach to determining whether proposals fall under the exclusion. This Note examines 250 no-action letters from the 2015 proxy season and finds evidence indicating that the staff has, contrary to official SEC policy, returned to a rule-like approach to the ordinary business opera­tions exclusion. Normatively, this de facto rulemaking by the staff is problematic when evaluated according to the rules’ democratic legitimacy, transparency, or inclusivity. To address these concerns, this Note proposes two solutions. First, the SEC should recast the ordinary busi­ness operations exclusion as a “catalog” and create mechanisms to en­sure that there is adequate public participation in updates to that cata­log. Second, the SEC should replace the social policy exception’s “significance” requirement with a numerical cap on proposals and a standard rooted in corporations’ purpose clauses, which would allow for some pri­vate ordering. These changes would enhance the exclusion’s democratic legitimacy, shine light on the opaque process through which the staff de­termines excludability, and remove the staff from its uneasy role as so­cial policy censor.

Disciplines

Business Organizations Law | Law | Securities Law

Comments

This article originally appeared in 116 Colum. L. Rev. 1547 (2016). Reprinted by permission.

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