Tuesday, January 31, 2017

Pfizer’s advertising is ordinary business, not political activity

By Amanda Maine, J.D.

The SEC’s Division of Corporation Finance will allow Pfizer to exclude from its proxy materials a proposal from conservative think tank National Center for Public Policy Research (NCPPR) that would direct the company’s board of directors to report to shareholders Pfizer’s assessment of the so-called political activity resulting from its advertising with certain national news organizations and the resulting exposure to risk. The Division concluded that the proposal could be excluded under the ordinary business exemption.

Proposal. According to NCPPR, Pfizer’s advertisements with “politicized media organizations,” including CNBC, The New York Times, CNN, Politico, The Washington Post, NBC, and ABC, can expose the company to financial and reputational risk. NCPPR cited WikiLeaks as evidence that there is collusion between high-level political personnel and national news outlet employees. The company’s financial support through the purchase of advertisements constitutes indirect political spending, NCPPR argued, which the SEC has determined is a significant policy issue. NCPPR said that boycotts of corporations that advertise on certain news networks have been organized and expose those corporations to risks.

Pfizer request. In its request for no-action relief, Pfizer pointed to a number of previously issued no-action letters where the Division has permitted the exclusion of shareholder proposals which relate to the manner in which a company advertises its products as pertaining to the company’s ordinary business operations under Rule 14a-8(i)(7). Pfizer also disagreed with NCPPR’s characterization of the purchase of advertising with particular media organizations as indirect political spending. The NCPPR proposal is just a “thinly veiled attempt” to influence the company’s choice of news media organizations from which it purchases advertising space and time; such decisions, Pfizer advised, are part of Pfizer’s ordinary business operations.

NCPPR response. In its response letter to Pfizer’s request, NCPPR cited a previous no-action letter relating to a proposal by a shareholder of PNC in which the Division did not allow the exclusion of a shareholder proposal on greenhouse gases. Like the PNC letter, NCPPR’s proposal involves an “assessment of a significant policy issue that is intricately tied to the business operation of a company,” according to NCPPR. It also reiterated its argument that purchasing advertising from certain news organizations contributes to the “political activities” of those organizations, citing several stories resulting from WikiLeaks that allegedly exposed “high-level collusion” between political operatives and national news employees.

Pfizer response. Pfizer’s response letter disagreed with NCPPR’s assessment that the PNC letter involved a substantially similar proposal. Several recipients of PNC’s lending business were coal producers where financing provided by PNC could contribute to greenhouse gas emissions. This business activity directly implicated a non-ordinary business matter—the significant policy issue of climate change. Pfizer’s advertising decisions are business activities involving marketing Pfizer’s products—an ordinary business matter—and not a way to finance the political opinions of those organizations, according to Pfizer.

Relief granted. The Division sided with Pfizer, and determined that the company could exclude the proposal because it relates to its ordinary business operations.

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