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SEC Chair Clayton released this Statement today expressing his support for Staff's concurrently issued no-action letter in response to Johnson & Johnson's request to exclude from its proxy statement - on the basis of Rule 14a-8(i)(2) - a shareholder proposal that would require the company to adopt bylaw provisions for mandatory arbitration of shareholder claims arising under the federal securities laws. Rule 14a-8(i)(2) permits exclusion of a proposal that - if implemented - would cause the company to violate any applicable state, federal or foreign law.

SEC Staff granted the company's request on the basis of its letter, which argued that the proposal would cause the company to violate federal and state laws, and - in particular - an opinion by the New Jersey AG that implementation of the proposal would cause the company to violate state law. However, Staff and Clayton made clear that Staff is not in any way opining on New Jersey law or the legality or substance of the proposal, or expressing a view on whether the proposal would cause the company to violate federal securities laws.    

Chair Clayton elaborated: 

I agree with the approach taken by the staff to not address the legality of mandatory shareholder arbitration in the context of federal securities laws in this matter, and would expect our staff to take a similar approach if the issue were to arise again.  I continue to believe that any SEC policy decision on this subject should be made by the Commission in a measured and deliberative manner.

More generally, it is important to note that the staff’s Rule 14a-8 no-action responses reflect only informal views of the staff regarding whether it is appropriate for the Commission to take enforcement action. The views expressed in these responses are not binding on the Commission or other parties, and do not and cannot definitively adjudicate the merits of a company’s position with respect to the legality of a shareholder proposal.  A court is a more appropriate venue to seek a binding determination of whether a shareholder proposal can be excluded.