March 4, 2024, 5:01 AM EST
Fifth Circuit to Scrutinize SEC Sway Over Proxy Ballot Proposals

Andrew Ramonas

Judges will hear oral arguments in the case Tuesday
Manufacturers, conservatives challenge SEC influence

The SEC’s influence over which shareholder proposals make it onto companies’ annual meeting ballots will see its closest judicial examination yet, as businesses and conservatives battle the Democratic-led agency’s power in court. … The US Court of Appeals for the Fifth Circuit will hear oral arguments Tuesday in a lawsuit over Securities and Exchange Commission guidance allowing Kroger Co. to block a vote on a conservative group’s anti-discrimination proposal last year. The company ultimately permitted its consideration, but the National Association of Manufacturers joined the case to contest the SEC’s role refereeing shareholder proposal disputes. … The SEC can sue companies that bar votes without adequate justification. To avoid this, companies often seek agency guidance before they nix ballot items.

Still Fighting

The National Center for Public Policy Research brought the case to the Fifth Circuit in April 2023 after failing to convince the SEC it had the right to submit a proposal for consideration by Kroger shareholders. The conservative group’s resolution urged the grocery store chain to report on any risks from excluding “viewpoint” and “ideology” from its equal employment opportunity policy. … The proposal sought to micromanage Kroger and didn’t transcend “ordinary business matters,” hurdles shareholder resolutions must clear for ballot access under SEC rules, the grocer said. The agency agreed, and, according to the National Center for Public Policy Research, declined to reconsider its decision to back Kroger.

But the center’s lawsuit prompted the Fifth Circuit to place the SEC’s decision on hold, leaving Kroger without clear SEC support to toss the proposal. The company ended up putting the item on the proxy statement for its June 2023 annual meeting. The proposal received the support of less than 2% of Kroger investors voting, according to Bloomberg Intelligence data.

Final Say?

The Fifth Circuit now will have a say in the matter on Tuesday, with judges Edith Jones, James Dennis and Dana Douglas set to hear oral arguments. … Although the majority of Fifth Circuit judges were appointed by Republican presidents, Democratic picks have the edge on the panel for the shareholder proposal case. Dennis is a Bill Clinton appointee, while Douglas is a Joe Biden pick. Jones was tapped by President Ronald Reagan. … The case is National Center for Public Policy Research v. SEC, 5th Cir., No. 23-60230, oral arguments scheduled 3/5/24.

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To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editors responsible for this story: Amelia Gruber Cohn at agrubercohn@bloombergindustry.com; Kartikay Mehrotra at kmehrotra@bloombergindustry.com