Method of Accounting for Options an "Ordinary Business" Matter

In Meredith Corp., SEC No-Action Letter (avail. 8/9/02), the SEC ruled that the decision of the Meredith Corporation to not allow a shareholder proposal to require the company to expense options is an "ordinary business matter" and therefore not subject to a required shareholder vote. The motion had been brought by the United Brotherhood of Carpenters Pension Fund. It proposed that the company could not issue any executive options unless it expensed them. Meredith responded by saying that Rule 14a-8(I)(7) of the 1934 Securities Exchange Act permits companies from excluding matters that deal with ordinary business issues. Accounting matters not required by GAAP are issues on which the SEC staff has consistently allowed companies to omit proposals for shareholder approval. Expensing options is not currently required by GAAP. The pension fund argued that the accounting issue was merely a way to draw shareholder attention to the larger issue of executive pay and how the company reports its financial condition, and thus represented a matter of substance that could not be dismissed as ordinary business.