No-Action Letter for Apple Inc. Permitted Exclusion of Policy to Keep Doors closed when Climate Control in Use.
In Apple Inc., 2017 BL 446883 (Dec. 12, 2017), Apple Inc. (“Apple”) asked the staff of the Securities and Exchange Commission (“SEC”) to permit the omission of a proposal submitted by Sustainvest Asset Management, LLC (“Shareholder”) requesting Apple produce a report assessing the climate benefits and feasibility of adopting a store-wide policy to keep entrance doors closed when climate control is in use. The SEC issued the requested no action letter allowing for the exclusion of the proposal under Rule 14a-8(i)(10).
Shareholder submitted a proposal providing that:
RESOLVED: Shareholders request that Apple Inc. produce a report assessing the climate benefits and feasibility of adopting store-wide requirements for having all retail locations implement a policy on keeping entrance doors closed when climate control (especially air-conditioning during warm months) is in use. The report should be produced at reasonable cost, in a reasonable timeframe, and omitting proprietary and confidential information.
Apple sought exclusion of the proposal from its proxy materials under subsections (i)(7) and (i)(10) of Rule 14a-8.
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. In addition, the Rule gives thirteen substantive grounds for exclusion. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC and The Shareholder Proposal Rule and the SEC (Part II).
Rule 14a-8(i)(10) permits a company to exclude a shareholder proposal from its proxy materials “if the company has already substantially implemented the proposal.” In applying this standard, the SEC considers whether the company’s policies, practices, and procedures “compare favorably” with the guidelines of the proposal. The SEC also considers whether the company has satisfied the “essential objective” of the proposal. For additional discussion of the exclusion, see Aren Sharifi, Rule 14a-8(I)(10): How Substantial is “Substantially” Implemented in The Context of Social Policy Proposals?, 93 DU Law Rev. Online 301 (2016).
Additionally, Rule 14a-8(i)(7) permits a company to exclude a shareholder proposal from its proxy materials if it deals with a matter relating to the company’s “ordinary business operations.” The underlying policy of the ordinary business exclusion is "to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholder meeting.” For additional discussion of the exclusion, see Adrien Anderson, The Policy of Determining Significant Policy under Rule 14a-8(i)(7), 93 DU Online L. Rev. 183 (2016), and Megan Livingston, The “Unordinary Business” Exclusion and Changes to Board Structure, 93 DU Online L. Rev. 263 (2016).
Apple argued the Shareholder’s proposal should be excluded under Rule 14a-8(i)(10) because the essential purpose of the proposal had been substantially implemented by Apple’s existing store environment policy.
Apple also argued the proposal should be excluded under Rule 14a-8(i)(7) because the proposal solely relates to how Apple operates the doors in its retail stores. Further, the opening and closing of doors in the Company’s retail stores would constitute inappropriate micro-management of Apple for shareholders to oversee and vote upon at an annual shareholder meeting.
The SEC agreed with Apple and determined the company had substantially implemented the proposal pursuant to Rule 14a-8(i)(10). Meanwhile, the SEC declined to comment on further arguments for exclusion. As such, the SEC concluded it would not recommend enforcement action if Apple excluded the proposal from its proxy materials.
The primary materials for this post may be found on the SEC website.