The Underground Rulification of the Ordinary Business Operations Exclusion

48 Pages Posted: 22 Mar 2016 Last revised: 15 Oct 2016

Date Written: March 23, 2016


In its landmark Cracker Barrel no-action letter, the SEC staff announced a bright-line rule permitting exclusion of any shareholder proposal pertaining to a company's management of its general workforce, even if focused on a significant social policy issue such as employment discrimination, under the "ordinary business operations" exclusion. The SEC reversed Cracker Barrel in 1998, returning to a case-specific approach to determining whether proposals fall under the exclusion. This Note examines 250 no-action letters from the 2015 proxy season and finds evidence indicating that the staff has, contrary to official SEC policy, returned to a rule-like approach to the ordinary business operations exclusion. Normatively, this de facto rulemaking by the staff is problematic when evaluated according to the rules' democratic legitimacy, transparency, or inclusivity. To address these concerns, this Note proposes two solutions. First, the SEC should recast the ordinary business operations exclusion as a "catalog" and create mechanisms to ensure that there is adequate public participation in updates to that catalog. Second, the SEC should replace the social policy exception's "significance" requirement with a numerical cap on proposals and a standard rooted in corporations' purpose clauses, which would allow for some private ordering. These changes would enhance the exclusion's democratic legitimacy, shine light on the opaque process through which the staff determines excludability, and remove the staff from its uneasy role as social policy censor.

Keywords: shareholder proposals, shareholder proposal, ordinary business operations, SEC, corporate law, corporate governance, securities law, Rule 14a-8, no-action letters

JEL Classification: K22

Suggested Citation

Steel, Reilly, The Underground Rulification of the Ordinary Business Operations Exclusion (March 23, 2016). 116 Columbia Law Review 1547 (2016), Available at SSRN:

Reilly Steel (Contact Author)

Princeton University ( email )

United States

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