The Appalling State of the Ordinary Business Grounds for Excluding a Shareholder Proposal

Key Takeaways

• Judge Sorokin allowed injunction despite ordinary‑business exclusion claim
• NY State Comptroller’s ESG proposal faced 0‑25% shareholder support
• SEC’s no‑action stance leaves Rule 14a‑8(i)(7) interpretation unclear
• Proposal’s “request” language gives BJ’s full discretion on assessment
• Reform idea: require proponents to cover proxy inclusion costs

Pulse Analysis

Rule 14a‑8 governs the inclusion of shareholder proposals in proxy statements, but its ordinary‑business exclusion under subsection (i)(7) has long been a gray area. The SEC’s recent reluctance to issue no‑action letters on such proposals leaves companies and activists to interpret the rule on their own, often resulting in inconsistent outcomes across jurisdictions. Legal scholars argue that this uncertainty hampers efficient corporate governance, as issuers must weigh the risk of costly litigation against the potential merit of a proposal that may not meet the strict definition of an ordinary business matter.

The BJ’s case brings the debate into sharp focus. The New York State Comptroller, representing a sizable public pension fund, submitted a deforestation‑risk assessment request that, while framed as a recommendation, gave management near‑total discretion over methodology. Historically, such language would trigger exclusion, yet Judge Sorokin’s injunction forces inclusion, signaling that courts may prioritize shareholder activism over narrow statutory readings. For ESG‑focused investors, the decision illustrates both the power and the limits of proxy‑based advocacy, especially when voter support remains below a quarter.

Policy analysts see a clear path for reform: obligating proposal sponsors to reimburse issuers for the administrative costs of proxy inclusion. By attaching financial skin in the game, the market could filter out low‑impact or purely symbolic proposals, improving the signal quality for shareholders. Until the SEC clarifies its stance, companies and activist funds will continue navigating a murky legal landscape, balancing stakeholder expectations with the practicalities of proxy compliance.