The staff of the SEC Division of Corporation Finance (the "Division") will not recommend enforcement action against a U.S. company for excluding a shareholder proposal from its proxy materials. The proposal would have required shareholders to go to arbitration on federal securities law claims against the company.
The company, Johnson & Johnson, had requested that Division staff allow it to omit the proposal from its 2019 proxy materials pursuant to Exchange Act Rule 14a-8(i)(2), which permits a company to exclude a shareholder proposal "[i]f the proposal would, if implemented, cause the company to violate any state, federal, or foreign law to which it is subject."
In the SEC response, Division staff noted that the Attorney General of the state in which the company was incorporated had advised that implementation of the shareholder proposal would violate state law. In allowing the exclusion of the shareholder proposal, the Division stated, it is not "approving" or "disapproving" the substance of the proposal or "opining on the legality of it." Further, the Division said, parties could seek a more "definitive determination from a court of competent jurisdiction." In a statement, SEC Chair Jay Clayton supported the approach taken by the SEC staff not to "address the legality of mandatory shareholder arbitration in the context of federal securities laws in this matter."
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