No-Action Letter for Walgreens Boots Alliance, Inc. Allowed Exclusion of Report Assessing the Risks of Continued Tobacco Sales

In Walgreens Boots Alliance, Inc., 2016 BL 376203 (Nov. 7, 2016), Walgreens Boots Alliance (“Walgreens”) asked the staff of the Securities and Exchange Commission (“SEC”) to permit omission of a proposal submitted by the Sisters of the Humility of Mary (“Shareholders”) requesting that the board of directors issue a report about the risks of the continued sales of tobacco products in Walgreens’ stores. The SEC issued the requested no action letter, and concluded Walgreens could omit the proposal from its annual proxy statement under Rule 14a-8(i)(7).

Shareholders submitted a proposal providing that:

RESOLVED, Shareholders request the Board of Directors issue a report within six months of the 2017 annual meeting, at reasonable expense and excluding proprietary information, assessing the financial risk, including long-term legal and reputational risk, of continued sales of tobacco products in our stores.

Walgreens sought exclusion under Rule 14a-8(i)(7).

Rule 14a-8 provides shareholders with the right to insert a proposal in the company’s proxy statement. 17 CFR 240.14a-8. The shareholders, however, must meet certain procedural and ownership requirements. Additionally, companies may exclude proposals that fall under thirteen substantive grounds provided in Rule 14a-8(i). For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC.

Subsection (i)(7) permits the exclusion of proposals that relate to the company’s “ordinary business operations.” This section understands “ordinary business” to mean the issues that are fundamental to a company’s management abilities on a daily basis. Thus, proposals relating to ordinary business are not subjected to shareholder oversight. For additional explanation of this exclusion, see Megan Livingston, The “Unordinary Business” Exclusion and Changes to Board Structure, and Adrien Anderson, The Policy of Determining Significant Policy Under Rule 14a-8(i)(7). 

Walgreens argued the proposal related to ordinary business operations because the underlying subject matter concerned the sale of particular products and services. Specifically, Walgreens argued the Commission has consistently permitted the exclusion of proposals that relate to the sale of a particular product as a component of “ordinary business.” Walgreens further asserted the proposal sought to impose an obligation for the company to re-examine its decision to sell a particular product, and therefore the proposal was excludable as its subject matter involved “ordinary business.”

In response, the Shareholders argued that the sales of tobacco products by pharmaceutical companies constituted an exception to this general rule as implicating a significant policy issues. Shareholders asserted there was a sufficient nexus between the sales of tobacco products and the death of customers to create a significant policy issue for the company.

The Commission agreed with Walgreens reasoning, and concluded it would not recommend enforcement action if Walgreens omitted the proposal from its proxy materials under subsection (i)(7). The staff noted the proposal related to ordinary business operations.

The primary materials for this post can be found on the SEC website.