Company Name: Transamerica Corp.
Public Availability Date: 01-10-1990
[INQUIRY LETTER 1]
Transamerica Corporation600 Montgomery Street
San Francisco, CA 94111
TELEPHONE(415) 983-4184 November 20, 1989 Office of Chief Counsel
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Stockholder Proposal Submitted by Emil Rossi
for Inclusion in Transamerica Corporation's
1990 Proxy Statement Ladies/Gentlemen: Mr. Emil Rossi has submitted a stockholder proposal and supporting statement
(the "Proposal") to Transamerica Corporation, a Delaware corporation (the
"Company"), to be included in the Company's 1990 proxy statement (the "1990
Proxy Statement"). A copy of the Proposal is attached to this letter as
Attachment A. The Proposal seeks stockholder approval of a recommendation that
the board of directors eliminate compensation paid to employees upon a change in
control of the Company. Because Transamerica believes that it is not required to
include the Proposal in the 1990 Proxy Statement, this letter is being filed
pursuant to Rule 14a-8(d). Set forth below are the Company's reasons for omitting the Proposal from the
1990 Proxy Statement, each of which constitutes a valid basis for excluding the
Proposal pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as
amended. Interference with Ordinary Business Operations Rule 14a-8(c)(7) provides that a proposal may be excluded if it deals with a
matter relating to the conduct of the registrant's ordinary business. By
addressing the termination aspect of executive compensation, the Proposal deals
with the ordinary business of the Company and is therefore excludable from the
1990 Proxy Statement. The Division of Corporate Finance (the "Division") has long held the view that
proposals concerning executive compensation relate to the ordinary business
operations of a company pursuant to Rule 14a-8(c)(7). As a result, the Division
has repeatedly taken a no-action position when such proposals have been omitted
from company proxy statements. International Remote Imaging Systems, Inc.
(available May 24, 1989); The Centennial Group, Inc. (available September 7,
1989); and Manville Corp. (available March 3, 1989). The Division has similarly
and repeatedly taken a no-action position with respect to termination contracts
because, as executive compensation, they relate to the ordinary business of a
company. Georgia-Pacific Corporation (available February 22, 1988); Crown
Zellerbach Corporation (available February 20, 1986); and Phillips Petroleum
Company (available January 20, 1984). Moreover, on several occasions the Division has taken a no-action position with
respect to proposals containing language identical to that found in the
Proposal. Occidental Petroleum Corporation (available April 15, 1985); and
International Business Machines Corporation (available March 6, 1985). As a
proposal governing termination contracts, the Company believes the Proposal to
be similarly excludable and respectfully requests that the Division continue to
follow its long-standing precedent in this area. The Company believes that the position the Division has previously taken with
respect to termination contracts is proper and, for the reasons discussed below,
should be reaffirmed. State corporate law traditionally has recognized executive compensation to be
part of the ordinary business of a corporation reserved to the board of
directors. Section 141(a) of the Delaware Corporations Code provides that "the
business and affairs of every corporation organized under this chapter shall be
managed by or under the direction of a board of directors, except as may be
otherwise provided in this chapter or in its certificate of incorporation." Del.
Code Ann. tit. 8, Section 141(a) (1989). The Company, through its By-Laws, has
specifically elected to vest such authority in the board of directors. Section
26 of the Company's By-Laws states that "the salaries of all officers and agents
of the corporation shall be fixed by the Board of Directors." Corporations gain well-recognized benefits from termination contracts. Two such
benefits are attracting and retaining high quality executives, and ensuring that
an executive will act in the corporation's best interests and not be distracted
by personal uncertainties relating to a potential or actual change in control.
See International Insurance Co. V. Johns, 874 F.2d 1447, 1462 (11th Cir. 1989);
Note, Golden Parachutes and the Business Judgment Rule; Toward a Proper Standard
of Review, 94 Yale L.J. 909, 914-18 (1985). Thus, it is reasonable and proper
for a board of directors to adopt termination contracts. The Delaware rule implemented by the Company's By-Laws is proper as applied to
termination contracts because such contracts, as a part of management
compensation, are inseparable from the ordinary business of a company. In order
to attract and retain the highest quality of executives, a corporation must
provide total compensation satisfactory to each such executive. Because of the
rising takeover activity of recent years, executives increasingly have required
that their compensation reflect the employment uncertainty caused by a possible
change in control. If a company does not provide termination compensation, then
the general compensation of an executive must be increased to address such
uncertainty. See Note, supra, at 916-8 (discussing the relationship between the
two forms of compensation). Because general compensation is currently held to be
the ordinary business of the board of directors, the compensation provided
through termination contracts should similarly be the ordinary business of the
board because of the economic dependency between the two forms of compensation. From the stockholder perspective, it is unreasonable to expect stockholders
meaningfully and efficiently to evaluate the numerous issues involved with
reviewing termination contracts because such a review is inextricably related to
the ordinary business of a corporation. Such issues include the following: (i)
the value of each executive to the Company, (ii) the ability of the Company to
replace each executive, (iii) the ability of an executive to find employment
elsewhere and the compensation level of such employment, and (iv) the
probability of the Company being subject to a change in control. It is neither
practical nor possible for a company to disclose all of the relevant information
to stockholders with respect to such ordinary business matters. Nor is it
reasonable or efficient to expect stockholders to evaluate all relevant data,
even if such date were available for stockholder review. Thus, by vesting the
power to evaluate all executive compensation, including termination contracts,
in the board of directors rather than the stockholders, the rule established by
the laws of the Company's state of incorporation (as well as the Company's
By-Laws) best serves the interest of stockholders. Nor does the precatory nature of the Proposal change the situation. If
stockholders, without having access to the relevant data and not having spent
the time required to fully evaluate a proposal, were to voice a negative opinion
with respect to termination compensation, it would put the board in a most
difficult position -- creating the necessity for the directors to choose between
adopting a policy position that the directors (having fully considered the
matter and had access to all data) do not endorse, or rejecting the
recommendation and thereby risking a potentially damaging confrontation between
the board and the stockholder body, an undesirable state of affairs in a
well-functioning corporation. It is important to recognize that omitting a stockholder proposal relating to
termination contracts does not insulate directors from their obligation to
oversee and direct the business of the corporation. Directors remain responsible
for decisions regarding termination contracts by virtue of the substantial
liability imposed upon them for a breach of their duty of loyalty or duty of
care owed to the corporation and its stockholders. In addition, excluding such
stockholder proposals does not violate fundamental principles of corporate
democracy because stockholders will continue to vote on and choose directors
whose judgment is in accord with stockholder interests. Accordingly, the Company believes that termination contracts, as executive
compensation, are part of the ordinary business of a corporation. Therefore, the
Proposal is excludable from the 1990 Proxy Statement pursuant to Rule
14a-8(c)(7). Violation of State Law Rule 14a-8(c)(2) provides that a proposal may be omitted if, when implemented,
it would require the registrant to violate state law. The Company has entered
into and is presently bound by termination contracts between the Company and
certain executives. The Proposal, insofar as it recommends that the Company not
pay the compensation otherwise due such executives by the terms of those
existing, legally binding contracts, would, if implemented, cause the Company to
branch each such contract and thereby violate state law. In general, contracts cannot be terminated unilaterally by one party absent some
specific provision of the contract or breach by the other party. In Brunswick
Corporation (available January 31, 1983) the Division stated that it would not
recommend any enforcement action to the Securities and Exchange Commission (the
"Commission") if Brunswick omitted a stockholder proposal that requested the
board of directors to cancel, in violation of Delaware law, all of the
termination contracts into which Brunswick had entered in the past. Because the Proposal, if implemented, would similarly violate applicable state
law, the Proposal is excludable from the 1990 Proxy Statement pursuant to Rule
14a-8(c)(2). Contrary to the Commission's Proxy Rules and Regulations Rule 14a-8(c)(3) provides that a proposal may be omitted if the proposal is
contrary to any of the Commission's rules and regulations. The Proposal contains
false and misleading statements and implies, without factual foundation, that
the Company's management has acted improperly. Therefore, the Proposal may be
omitted under Rule 14a-8(c)(3) because it is contrary to Rule 14a-9. The second sentence of the second paragraph of the Proposal's supporting
statement states that "When management writes its own `parachute' severance
agreements, it creates a direct conflict of interest with shareholders." The
Company's termination contracts were unanimously approved by the disinterested
members of the board of directors. Therefore, management does not "write its
own" agreements, as the Proposal implies. In addition, the Company's termination
contracts are intended to, and in fact do, create incentives for executives to
work in the best interests of the stockholders by ensuring that executives will
not be distracted by personal uncertainties relating to a potential change of
control. The third paragraph of the Proposal's supporting statement states, as a general
principle and without exception, that `golden parachutes' are an egregious
example of management draining the corporate treasury at the stockholders'
expense for their own private benefit." The tenor of such language suggests that
the Company and its directors or officers have done something improper or
illegal and need to be restrained from perpetrating additional wrongs in the
future. Such language violates note (b) of Rule 14a-9, which states that
material may be misleading if it "directly or indirectly impugns character,
integrity or personal reputation, or directly or indirectly makes charges
concerning improper, illegal, or immoral conduct or associations, without
factual foundation." Inasmuch as the Proposal clearly violates Rule 14a-9, it falls within the
grounds for exclusion specifically provided by Rule 14a-8(c)(3). Therefore, the
Company may exclude the Proposal from the 1990 Proxy Statement. Conclusion For the foregoing reasons, the Company believes that it may omit the Proposal
under subsections (c)(2), (c)(3) and (c)(7) of Rule 14a-8. I therefore respectfully request that the Division not recommend any enforcement
action if the Company excludes the Proposal from its 1990 Proxy Statement.
Should the Division disagree with the Company's conclusions regarding the
omission of the Proposal or should any additional information be desired in
support of the Company's position, I would appreciate an opportunity to confer
with the Division concerning these matters prior to the issuance of Rule
14a-8(d) response. If you have any questions regarding any aspect of this
request, please feel free to call me collect at (415) 983-4184, or call Gregory
C. Smith or E. Miles Kilburn, collect, at (415) 984-6400. Pursuant to Rule 14a-8(d), six copies of this letter and the Proposal are being
filed with the Commission, and a copy of this letter has concurrently been sent
to Mr. Rossi. Please acknowledge receipt of this letter and its enclosures by
stamping the enclosed acknowledgement copy and returning it to me in the
envelope provided. Sincerely, Karen Stevenson
Vice President - Law Enclosures CC: Emil Rossi (certified mail/return receipt)
[INQUIRY LETTER 2]
Emil Rossi
P.O. Box 249
Boonville, CA 95415 Transamerica
MaryEllen B. Cattani - Corp. Secretary
600 Montgomery Street
San Francisco, Ca. 94111 EMIL ROSSI PROPOSAL TO BE SUBMITTED IN THE 1990 PROXY RESOLVED that the stockholders recommend that the board of directors adopt the
following policy: "No compensation shall be paid to any director, officer, or
employee of this corporation which is contingent upon the merger or acquisition
of this corporation." Supporting Statement "Golden parachutes" are lucrative severance contracts awarded to directors and
officers and other executive employees which are contingent on the company
undergoing a change of control transaction. In my opinion, compensation that is paid only if a merger or acquisition occurs
works against the best interests of stock owners. When management writes its own
"parachute" severance agreements, it creates a direct conflict of interest with
shareholders. The agreements provide a personal financial incentive for
management to act in a way that may be a detriment to shareholder interests. By
rewarding them with several times their annual compensation in the event of a
merger or acquisition, golden parachutes may encourage managers to operate the
corporation in a manner that encourages a takeover by failing to maximize value
for shareholders. "Golden parachutes" are an egregious example of management draining the
corporate treasury at the stockholders' expense for their own private benefit.
Any director, officer or employee that wants to profit from a potential merger
or buyout should invest their own funds and face the risks of stock ownership,
just like the rest of the company's shareholders. Emil Rossi holder directly of 500 common shares of Transamerica certificate # ST
8185 I Emil Rossi demand that my name and address be included in the 1990 proxy
material.
[INQUIRY LETTER 3]
Emil Rossi
P.O. Box 249
Boonville, CA 95415
December 07, 1989 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Transamerica Corporation Shareholder Proposal Dear Sir/Madam: I am responding in opposition to the request by Transamerica Corporation (the
company) that it be allowed to exclude my proposal from the company's 1990 proxy
statement under Rule 14a-8. My proposal asks the stockholders to approve a
non-binding recommendation that the Transamerica board of directors adopt a
policy that "No compensation shall be paid to any director, officer, or employee
of this corporation which is contingent upon the merger or acquisition of this
corporation." For the reasons set forth in detail below, I ask that the
company's request for a no action position regarding exclusion of the proposal
be denied. Preliminary Statement My proposal relates to what are commonly known as "golden parachute" management
severance payments. Golden parachutes guarantee chief executive officers and
other senior corporate managers that in the event they lose their jobs as a
result of a change of corporate control, they will receive payment amounting to
several times their regular annual compensation. Recently, golden parachute payments have aroused considerable controversy.
Golden parachutes often allow CEOs and other top corporate executives, who are
among the most highly paid members of the American work force, to leave their
jobs with a guarantee of life-long financial security. This guarantee comes at
the expense of the company's shareholders, who are given no role in determining
whether the managers should receive these extraordinary windfalls. Along with many other shareholders, public officials and other respected
observers, I am increasingly alarmed that managers of publicly owned companies
such as Transamerica are able to gain this personal protection from
accountability to shareholders. Golden parachutes create financial incentives
for corporate managers that are at odds with their fiduciary duties to
shareholders. Insuring managers that they will suffer no personal loss of income
from a takeover or other change of corporate control -- indeed they may well
stand to gain handsomely -- could serve to discourage management from fulfilling
its responsibility to operate the company in the shareholders' best interests. My proposal to Transamerica would allow the company's shareholders to consider
for themselves whether or not golden parachutes are in their best interests. Golden Parachutes Are Not Ordinary Business The company argues that it should be allowed to exclude the proposal under Rule
14a-8(c)(7), which provides that a proposal may be omitted from a proxy
statement if it "deals with a matter relating to the conduct of the ordinary
business operations of the registrant." It is true that the Division of
Corporation Finance has affirmed a no-action position on proposals relating to
golden parachutes on several occasions in the past, citing the ordinary business
exclusionary criteria. The public debate over golden parachutes has escalated
dramatically, however, and it is time for a reconsideration of this
interpretation. Events of the past few years have established that if golden parachute
agreements were once an ordinary business function, they are no longer. The
controversy over these highly lucrative severance plans stretches from Wall
Street to Main Street, and has gained the attention of, among others, the
President of the United States, the Congress, and the current chairman of the
Securities and Exchange Commission. Golden parachutes are now a highly
controversial public issue and, as such, are a proper subject for consideration
by shareholders under Rule 14a-8. In addition, the company supports its claim that the proposal should be omitted
from its proxy material by stating that "such contracts, as a part of management
compensation, are inseparable from the ordinary business of a company." However,
the Commission has traditionally viewed other extraordinary management
compensation as worthy of shareholder scrutiny. For example, executive stock option awards involve the potential for abuse and
conflict of interest because management is deciding an exceptional feature of
its own compensation. Recognizing this, the Commission's proxy rules require
shareholder approval of executive stock option plans and allows consideration of
management stock options through shareholder proposals under Rule 14a-8. Golden
parachute agreements involve a nearly identical potential for conflict of
interest and abuse and should likewise be open for shareholder consideration
under Rule 14a-8. In arguing for a no-action position under Rule 14a-8(c)(7), the company states:
"From the stockholder perspective, it is unreasonable to expect stockholders
meaningfully and efficiently to evaluate the numerous issues involved with
reviewing the termination contracts because such a review is inextricably
related to the ordinary business of a corporation." The company may believe that the issues involved in adopting golden parachutes
are too complex for shareholders to evaluate effectively, but this is by no
means a universally accepted view. In fact, there is growing sentiment among
investors and public officials that scrutiny of these agreements by shareholders
is necessary to ensure that potentially abusive agreements are fully disclosed
to shareholders before their adoption, and consistent with the shareholders'
traditional decisionmaking role on matters that could have a material impact on
the value of a corporation's shares. In June 1988, many of the questions surrounding golden parachutes were
considered by the U.S. Senate. On June 21, 1988, the Senate voted 98-1 in favor
of an amendment requiring shareholder approval of golden parachutes. Features of
golden parachutes that were prominent in the discussion on the Senate floor
included the fact that the agreements provide for payment of extraordinary
amounts of shareholder funds to corporate managers who lose their jobs often as
a result of failing to sufficiently serve shareholder interests in the first
place. The inability of shareholders to play a role in deciding whether golden
parachutes should be awarded was also emphasized in the Senate discussion. Several specific golden parachute agreements were cited during the debate as
being in conflict with shareholder interests. One example cited was that of
Howard Goldfeder, former chief executive of Federated, who owned but 3,000
shares of the company's stock after 37 years with the company but exited with a
$9.9 million golden parachute payment. The Senate's overwhelming bi-partisan approval of the amendment came after a
floor debate that saw only token opposition to the basic premise of the measure:
shareholders should have the right to decide whether their funds will be used to
provide such lucrative payments to ousted executives. Although the Senate golden parachute provision was not carried to final passage
in 1988, golden parachutes continue to evoke strong bi-partisan interest in
Congress for legislation addressing the issue. In the Senate, two separate
bills, with sponsors from both parties, have been introduced that would prohibit
golden parachutes, unless approved by shareholders. Similar legislation was
introduced in the House of Representatives in the 100th Congress and is expected
to be reintroduced in the near future. Subcommittee chairmen in both the House
and Senate have indicated that public hearings will be held in early 1990 on a
number of corporate governance/shareholder rights legislative issues, including
golden parachutes. Further evidence that golden parachutes have become a public issue, and are not
simply an "ordinary business" concern, is demonstrated by the fact that
President George Bush, during the 1988 presidential election campaign, made
public his views on the subject. Responding to questions from the United
Shareholders Association about whether he would support various shareholder
rights legislative proposals, President Bush said: "I support many of the
proposals you mention, particularly measures requiring shareholder approval of
poison pills and golden parachutes." (USA Advocate, October 1988, p. 2).
President Bush's comments to USA were reported by The Washington Post and The
Wall Street Journal on September 29, 1988. In addition, Richard Breeden, recently named chairman of the Securities and
Exchange Commission, discussed golden parachutes during his Senate confirmation
proceedings. In a written reply to questions submitted by members of the Senate
Banking Committee, Chairman Breeden said: "In recent years, the Commission has
deferred to state law with respect to golden parachutes, as a matter involving
the duties of officers and directors and the internal affairs of the
corporation. However, I am not unsympathetic to the desirability of
reconsidering the necessity for a shareholder vote to approve any such plan that
might reasonably be expected to have a material impact on the value of a
corporation's shares." Several controversial golden parachute awards have also spurred intense national
media interest. For example, during the merger of Time Inc. and Warner
Communications Inc. last July, disclosure that Warner executives were due to
receive some $677 million as a result of the Time takeover, including $193
million in payments to Warner CEO Steven Ross, received prominent attention in
The Wall Street Journal and other major news outlets. Similar press attention
was devoted to the $98.2 million in golden parachutes received by the former
management of Primerica Corporation as part of that company's acquisition by
Commercial Credit Corp. in November 1988, and the $245 million paid to former
executives of RJR Nabisco as a result of a leveraged buyout. The desire by shareholders for a voice in golden parachute awards was made clear
in a recent survey. The Investor Responsibility Research Center, in a survey of
institutional investment managers, reported that 71 percent of those surveyed
support requiring a shareholder vote on golden parachutes (Voting by
Institutional Investors On Corporate Governance Issues In the 1989 Proxy Season,
IRRC, December 1989). The sum of these developments is that golden parachutes are now a prominent
topic of public controversy, scrutiny and debate, and can no longer be
considered solely an ordinary business concern. This has occurred in the period
since the Corporation Finance Division last issued a no-action letter citing
Rule 14a-8(c)(7) regarding a golden parachute shareholder resolution,
(Georgia-Pacific Corporation, public availability date February 22, 1988), which
suggests that it would be appropriate for the Division to revisit the issue at
this time. In urging the Corporation Finance Division to reject the company's plea for
omission of the proposal under Rule 14a-8(c)(7), I would note that there is
precedent for a reinterpretation of the ordinary business criteria when an issue
becomes a topic of public debate and concern. In November 1976, the Commission
reversed an earlier interpretation that proposals dealing with the construction
of nuclear power plants were an ordinary business concern. "In retrospect," a
Commission release stated, "it seems apparent that the economic and safety
considerations attendant to nuclear power plants are of such magnitude that a
determination whether to construct one is not an `ordinary' business matter." Similarly, the Commission staff recently reinterpreted the ordinary business
exclusionary criteria for shareholder proposals regarding plant closings. On
February 2, 1989, the Commission staff rejected a request for a no action letter
by Pacific Telesis on a shareholder proposal to study options for mitigating the
community impacts of plant closing decisions. Chief Counsel William Morley later
explained that plant closings involve "substantial corporate policy
considerations emphasis added that go beyond the conduct of the company's
ordinary business operations." (Investor Responsibility Research Center,
Corporate Governance Bulletin, January/February 1989.) The decision on plant closing proposals came in the wake of a period of public
and Congressional debate over the issue and passage of plant closings
legislation by Congress. The question of whether ousted corporate executives should receive golden
parachutes severance awards is now a topic of similar public interest and should
not be excluded on the basis of Rule 14a-8(c)(7). Compliance With State Law The company claims that the proposal would, if adopted, force the company to
breach legally binding contracts, and would be a violation of applicable state
law and is therefore excludable under Rule 14a-8(c)(2). As the company is well aware, 14a-8 proposals are precatory and non-binding on
the board of directors. The proposal is worded as a recommendation that the
board adopt a policy and, in compliance with applicable state law, does not
carry legal standing as a direction by the shareholders to the board of
directors. At the same time, I challenge the company's blanket assertion that golden
parachute agreements are sacrosanct legal contracts unopen to challenge by
shareholders. The authority of board of directors to make these awards is under
legal scrutiny in several jurisdictions. A recent decision by a state appeals
court in California found that in adopting golden parachutes for key executives,
the directors of Natomas Co. breached their fiduciary duties to shareholders. If
this court's judgment is accepted, the legal protection of directors in adopting
golden parachutes under the business judgment rule is open to challenge. A
non-binding shareholder resolution recommending that the board adopt a policy
regarding golden parachutes would not breach the existing agreements, assuming
that their validity is upheld in potential legal challenges. Nevertheless, recognizing that these issues are still the subject of evolving
case law in several jurisdictions which are unlikely to be resolved in time to
have a bearing on this proposal, I am willing to amend my proposal to satisfy
the company's objections. In the second line of the resolution, at the beginning
of the sentence within quotation marks, I am willing to add the following
language: "To the extent possible and allowed by local, state and federal laws,..." (See
revised proposal attached to this letter.) Compliance With Commission Rules and Regulations The company claims that portions of the proposal contain "false and misleading
statements" and may be omitted under Rule 14a-8(c)(3) as being contrary to the
Commission's proxy rules. I dispute the company's contention with regard to the proposal's assertion that
golden parachutes create conflicts of interest between management and
shareholders. There is more evidence to support this claim than there is for the
company's counter-argument that golden parachutes "create incentives for
executives to work in the best interests of the stockholders." By the same token, I stand by the proposal's claim that golden parachutes are an
"egregious" use of shareholder funds for the private benefit of corporate
executives. Certainly, the weight of Congressional, public and investor opinion
supports this view. In addition, the claim is presented as a generalized
statement about golden parachute agreements, and is not specifically directed
against the executives of the company. It certainly does not, as the company
maintains, suggest that "the Company and its officers or officers have done
something improper or illegal and need to be restrained from perpetrating
additional wrongs in the future." However, to prevent any implication that the proposal makes claims that are
unsupported by facts, I am willing to amend the resolution, as shown in the
attachment to this letter, to make clear that such assertions are a matter of
opinion and belief rather than empirical certainty. For the foregoing reasons, I urge the Corporation Finance Division to deny
Transamerica's request for a no-action position and allow the company's
shareholders to consider my amended shareholder resolution. Sincerely, Emil Rossi cc: United Shareholders Association
Members of the Securities and Exchange Commission
Members of the Senate Banking Committee
Members of the House Energy and Commerce Subcommittee on
Telecommunications and Finance
Mr. James R. Harvey Revised Shareholder Resolution RESOLVED that the stockholders recommend that the board of directors adopt the
following policy: "To the extent possible and allowed by local, state and
federal laws, no compensation shall be paid to any director, officer, or
employee of this corporation which is contingent upon the merger or acquisition
of this corporation." Supporting Statement "Golden parachutes" are lucrative severance contracts awarded to directors and
officers and other executive employees which are contingent on the company
undergoing a change of control transaction. In my opinion, compensation that is paid only if a merger or acquisition occurs
works against the best interests of stock owners. I believe these "parachute"
severance agreements create a direct conflict of interest between shareholders
and management. The agreements provide a personal financial incentive for
management to act in a way that could be detrimental to shareholder interests.
By rewarding them with several times their annual compensation in the event of a
merger or acquisition, golden parachutes may encourage managers to operate the
corporation in a manner that encourages a takeover by failing to maximize value
for shareholders. Golden parachutes, in my opinion, are an egregious example of management
draining the corporate treasury at the stockholders' expense for their own
private benefit. Any director, officer or employee that wants to profit from a
potential merger or buyout should invest their own funds and face the risks of
stock ownership, just like the rest of the company's shareholders.
[INQUIRY LETTER 4]
Emil Rossi
P.O. Box 249
Boonville, CA 95415
December 12, 1989 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Transamerica Corporation Shareholder Proposal
Supplement to Letter of December 7, 1989 Dear Sir/Madam: This letter supplements my earlier letter of December 7, 1989, opposing
Transamerica's request for a no-action position regarding a shareholder proposal
that I submitted for inclusion in the company's 1990 proxy statement, relating
to golden parachute management severance agreements. In arguing for a no-action position under Rule 14a-8(c)(7), the company
maintains that as management compensation, golden parachute agreements are
"inseparable" from the ordinary business of the company, and my shareholder
proposal should therefore be excluded. Golden parachutes, however, are
contingent upon a change of control. As such, they are by definition outside of
the ordinary business operations of a company, and shareholder proposals
focusing on golden parachute agreements should not be subject to omission under
Rule 14a-8(c)(7). Transamerica's 1989 proxy statement provides a description of the circumstances
which would trigger payment of the golden parachutes. According to the proxy
statement, a change in control which would result in payment under the
agreements is deemed to occur if, among other things: "individuals who in
December 1984 constitute the Board of Directors of the Corporation... cease, for
any reason, to constitute a majority thereof." Obviously, in establishing these
golden parachute agreements, the company was concerned with factors far afield
from ordinary management compensation decisionmaking. In view of this, as well as the reasons illuminated in my letter of December 7,
1989, I ask that Transamerica's request for a no-action position under Rule
14a-8 regarding my shareholder proposal be denied. Sincerely, Emil Rossi
[STAFF REPLY LETTER]
January 10, 1990 RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE RE: Transamerica Corporation (the "Company")
Incoming letter dated November 20, 1989 The proposal recommends that the board adopt a policy prohibiting the Company
from making compensation payments to its directors, officers or employees
contingent on a merger or acquisition. Absent an opinion of counsel indicating the extent to which implementation of
the proposal would require the Company to violate applicable state law, the
staff is unable to determine whether the Company may rely on rule 14a-8(c)(2) as
a basis to omit the proposal from its proxy materials. The staff notes, however,
that any defect that may exist under the proposal as currently drafted could be
cured if the proposal is revised so that implementation would avoid any
potential violation of applicable law. Accordingly, if the proposal is revised,
within seven calendar days of receipt of this response, so that its application
is limited only to further actions by the Company with respect to compensatory
arrangements, this Division does not believe that the Company may rely on rule
14a-8(c)(2) as a basis to exclude the proposal even if it were to provide the
opinion of counsel required by rule 14a-8(d)(4). The staff is unable to concur in your view that the proposal and supporting
statement, as initially submitted, may be omitted entirely pursuant to rule
14a-8(c)(3). There appears, however, to be some basis for your view that the
second sentence in the second paragraph and the first sentence in the third
paragraph of the supporting statement may be deleted unless each is revised so
that they are cast as an opinion attributable to the proponent. Assuming that
proponent revises the subject portions of the supporting statement in the manner
indicated, within seven calendar days of receipt of this response, the staff
does not believe that the Company may rely on rule 14a-8(c)(3) as a basis for
omitting these portions of the supporting statement from its proxy materials. The Division's existing position regarding proposals dealing with compensation
arrangements is that such matters relate to the conduct of a registrant's
ordinary business operations and may be excluded pursuant to rule 14a-8(c)(7).
The staff in the past has included among those compensation proposals excludable
under rule 14a-8(c)(7), as relating to the conduct of the ordinary business
operations, proposals addressing compensation payments made to executives or
employees in connection with a change in the ownership or effective control of a
corporation or an extraordinary event closely associated with a change in
ownership or control (often referred to as "golden parachute" arrangements).
Recently, however, interpretations under the Internal Revenue Code as to when
payments are considered "contingent" upon a change in ownership or control have
assisted in differentiating "golden parachute" payments from ordinary
compensation arrangements. At the same time, public debate concerning potential
anti-takeover, tax and legal implications of golden parachute arrangements
reflects that such contingent arrangements increasingly are seen as raising
significant policy issues. In light of the foregoing developments, the staff
believes that the proposal at issue is directed primarily to such payments
instead of to ordinary compensation arrangements. Accordingly, the staff does
not believe that the Company may rely on rule 14a-8(c)(7) to omit the proposal
from its proxy materials. It should be noted that our position regarding the
applicability of rule 14a-8(c)(7) to proposals dealing with compensation
arrangements not involving payments under these particular circumstances, as
well as to those proposals relating to compensation arrangements in general,
remains unchanged. Sincerely, John C. Brousseau
Special Counsel |
