No-Action Letter for Cabela’s Inc. Allowed Exclusion of Handgun Sale Proposal
In Cabela’s Inc., 2016 BL 112584 (April 7, 2016), Cabela’s Inc. (“Cabela’s”) asked the staff of the Securities and Exchange Commission to permit the omission of a proposal submitted by The Rector, Church-Wardens and Vestrymen of the Trinity Church of New York City (“Trinity”) requesting that Cabela’s discontinue the sale of handguns that can hold more than eight shells to the general public, while the sale may continue to military and law enforcement personnel. The SEC issued the requested no action letter allowing for the exclusion of the proposal under Rule 14a-8(i)(7).
Trinity submitted a proposal providing that:
RESOLVED: Consistent with the Company's commitment in its Business Code of Conduct & Ethics to "make business decisions not based only on financial risk and reward, but also on the impact to people, communities and the environment," and with Cabela's being a store for outdoor enthusiasts and their families, shareholders ask the Board of Directors to adopt and oversee the implementation of a policy to continue to sell handguns and rifles discharging up to eight shells without reloading, weapons connected to the sports of hunting and marksmanship, and not to sell (other than to police departments and other military and law enforcement agencies of government) firearms capable of discharging more than 8 shells without reloading, the weapons of choice for mass killings and illegal gun violence ("high-capacity weapons").
Cabela’s argued the proposal may be excluded from the company’s proxy materials under subsections (i)(7) and (i)(3) 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 includes thirteen substantive grounds for exclusion. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC.
Rule 14a-8(i)(7) permits the exclusion of proposals that relates to the company’s “ordinary business” operations, specifically in reference to a company’s sale of particular products and services. This section understands “ordinary business” to mean the issues that are fundamental to a company’s management abilities on a daily basis. Thus, proposals dealing with issues dealing in “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, 93 DU Law Rev. Online 263 (2016), and Adrien Anderson, The Policy of Determining Significant Policy under Rule 14a-8(i)(7), 93 DU Law Rev. Online 183 (2016).
Additionally, Rule 14a-8(i)(3) permits the exclusion of proposals that are contrary to any of the SEC’s proxy rules or regulations. Namely, (i)(3) applies to proposals that may be inconsistent with Rule 14a-9, which prohibits materially false or misleading statements in proxy soliciting materials. 17 CFR 240.14a-9. Furthermore, this subsection allows the exclusion of proposals that are vague and indefinite, rendering the company’s duties and obligations unclear.
Cabela’s argued Trinity’s proposal should be excluded under Rule 14a-8(i)(7) because the sale of guns by a retailer constituted “ordinary business.” Like many larger companies, Cabela’s sells tens of thousands of products without a primary focus on handguns. As a result, the sale of a particular product by a retailer constituted “ordinary business.” Trinity disagreed, arguing that the proposal related to a significant policy issue, namely the impact of selling high-capacity firearms on “people, communities and the environment” rather than “ordinary business” operations.
Cabela’s also argued Trinity’s proposal should be excluded under Rule 14a-8(i)(3) because it asserted a policy concern that was inherently vague. Cabela’s further argued that if the proposal were to be included in the proxy materials, the shareholders would not be able to properly determine the scope of the proposal, and as a result, Cabela’s would not be able to properly implement the proposal. Trinity, however, argued that Cabela’s should not be able to exclude the proposal due to vagueness because the proposal adequately specifies the class of firearms at issue.
Ultimately the SEC agreed with Cabela’s, and concluded it would not recommend enforcement action if Cabela’s omitted the proposal from its proxy materials. The SEC justified this determination under Rule 14a-8(i)(7), and thus, did not comment on any arguments raised relating to Rule 14a-8(i)(3).
The primary materials for the post can be found on the SEC Website.