Fifth Circuit 14a-8 Decision Imminent: NCPPR v. SEC Could Redefine Rule-Making Authority

National Center for Public Policy Research (NCPPR), a conservative advocacy group, has brought a broad-sweeping challenge to the SEC's 14a-8 shareholder proposal rule.  This suit was brought directly in the Fifth Circuit in October 2023 as a challenge to the SEC’s rule-making authority.  National Association of Manufacturers (NAM) joined NCPPR by intervening.  Oral argument was heard on March 5, 2024 and we expect a decision soon, before the 2024-2025 annual meeting season ramps up.

As background, NCPPR submitted a 14a-8 proposal to The Kroger Co during the 2022 / 2023 season over “the potential risks associated with omitting ‘viewpoint’ and ‘ideology’ from its written equal employment opportunity (EEO) policy.”  This proposal mirrored prior 14a-8 proposals where the SEC ruled for the proponent and required inclusion of similarly worded proposals about equal-employment provisions for “sexual orientation” and “gender identity.”

Initially, the SEC invoked 14a-8(i)(7) – the “ordinary business operations” exception – to rule that the NCPPR proposal could be excluded by Kroger.  The SEC maintains that because its process for handling 14a-8 challenges involves issuing a no-action letter to the company there is no final order issued by the SEC that can be appealed.  An additional complication is that Kroger ultimately included the NCPPR proposal in its annual meeting proxy statement and put it to its shareholders where it garnered only 1.9% support, arguably rendering this suit moot.

If the Fifth Circuit gets past the procedural issues raised by the SEC to rule on the merits, NCPPR / NAM argue that the SEC’s decision was “arbitrary and capricious” considering its recent practice of ruling for 14a-8 proposals that relate to “significant social policy issues,” as codified by its adoption of SLB 14L in 2021.  NCPPR / NAM also argue that the SEC engaged in viewpoint discrimination and the chilling of speech in violation of the First Amendment.

The Fifth Circuit could dismiss the NCPPR / NAM suit as moot.  Or it could rule narrowly that similar proposals must be voted on at annual meetings.  Or it could issue a ruling to vacate SLB 14L and thereby upend the significant increase in recent seasons of 14a-8 proposals dealing with social and environmental issues.

DragonGC will continue to follow developments as part of our extensive coverage of 14a-8 shareholder proposals.