International Business Machines Corp.
Mar. 04, 1992

INQUIRY LETTER 1

International Business Machines Corporation

Old Orchard Road

Armonk, NY 10504

(914) 765-1900

November 20, 1991

Securities and Exchange Commission

450 Fifth Street, N.W.

Judiciary Plaza

Washington, D.C. 20549

Attention: William E. Morley, Esq.

Associate Director and Chief Counsel

Division of Corporate Finance

Subject: Stockholder Proposal for Employee Representatives as Nominees of the Board of Directors

Dear Mr. Morley:

Pursuant to Rule 14a-8(d) under the Securities Exchange Act of 1934, I am enclosing copies of a proposal and supporting statement dated August 22, 1991 and the modified proposal and supporting statement dated October 15, 1991 submitted by Mr. Pedro Del Compare (the "Proponent"), a stockholder of International Business Machines Corporation (the "Company" or "IBM").

IBM believes this proposal may properly be omitted from the proxy material for IBMs 1992 Annual Meeting scheduled to be held on April 27, 1992 on several grounds which are discussed below.

To the extent that the reasons for omission stated in this letter are based on matters of law, these reasons are the opinion of the undersigned as an attorney licensed and admitted to practice in the State of New York and based on the law of New York.

I. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(8) AS IT RELATES TO AN ELECTION TO OFFICE.

Rule 14a-8(c)(8) clearly provides that a proposal and supporting statement may be omitted from the proxy material "If the proposal relates to an election to office." Although the proposal is vague and unclear in certain other areas described later in this letter, it is perfectly clear that the proposal requires that "To provide stockholders with potential candidates to represent employees sic views and ideas, the Corporation will conduct Company-wide elections to select the names of THREE (3) full time IBM employees within 90 days prior to the meeting of the stockholders for the election of directors....The three names with the largest number of votes accrued by the votes of all full time employees will be included in the notice of the meeting of the stockholders for the election of directors." (emphasis added).

The Proponents supporting statement underscores his desire to have these directors represent certain employees interests which he feels the current employee members of the Board do not fulfill as "The current Board of Directors lacks direct employee input and feedback. To alleviate the above situation, it would be most desirable to have employee representation in the future IBM Board of Directors." (emphasis added).

Unlike the situations which are contained in the no-action letter of January 25, 1978 re Trans World Airlines and no-action letter of March 2, 1978 re Northwest Airlines, the proposal in issue here requires the election of "THREE (3) full-time IBM employees" who will "represent employees sic views and ideas." Thus, the Proponent is seeking the election of specific individuals. The proposal at issue here is analogous to situations where the Division of Corporate Finance has issued no-action letters indicating that no enforcement action will be recommended if the proposal is omitted from the companys proxy materials.

Such no-action letters include:

a. No-action letter of September 25, 1987 re Tylan Corporation

The proposal related, in part, to the nomination of a new slate of directors to represent "Tylan employees" and the Division agreed it could be omitted under Rule 14a-8(c)(8).

b. No-action letter of May 9, 1985 re Harper & Row Publishers, Inc.

In this case the Proponent requested that after an election by certain of the companys active employees, management would include in its slate of board nominees the active employee receiving a majority of the votes cast by the employees. The Division agreed that the proposal could be omitted under 14a-8(c)(8).

c. No-action letter of January 5, 1984 re Allied Corporation.

Here the Proponent complained that non-management salaried participants in an employee stock ownership plan were not represented on the Board and proposed that "one member of the Board of Directors of Allied Corporation be a non-management salaried employee of Allied Corporation." The Division agreed with Allied that the proposal was excludable as relating to an election to office.

d. No-action letter of February 15, 1983 re CNA Financial Corporation

Here the Division stated its view that "...the proposals requirement that three non-management stockholders not presently serving on the Board be appointed to the Board relates to the election of specific individuals to the Companys Board and thus is excludable under Rule 14a-8(c)(8)", although the specificity was limited to a description of the kind of director the Proponent wished to see elected.

e. No-action letter of February 5, 1982 re Braniff International Corporation

Here the Proponent complained about the actions of the present Board and the absence on the Board of the viewpoint of those involved in daily operations of the airline. The Proponent proposed that the Board be required to put forward as management nominees at least four active employees, one from each of four employee groups. The Division agreed that such a proposal was excludable under 14a-8(c)(8), stating:

"In the Divisions view, the proposals requirement that employees from certain specified employee groups be included in managements slate of nominees relates to the election of specific individuals to the Companys Board of Directors and thus is excludable under Rule 14a-8(c)(8)."

These previous no-action letters provide a clear basis on which to exclude the proposal here at issue as relating to an election to office. As the proposal clearly relates to "an election to office," it falls within the Securities and Exchange Commissions indication that the "...principal purpose of the provision 14a-8(c)(8) is to make clear, with respect to corporate elections, that Rule 14a-8 is not the proper means for conducting campaigns or effecting reforms in elections of that nature, since other proxy rules, including Rules 14a-11, are applicable thereto." Securities Exchange Act Release No. 12598 (July 7, 1976). This is a view the staff of the Division has cited in situations similar to the present one (no-action letter of March 22, 1990 re Thermo Electron).

II. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(1) AND RULE 14a-8(c)(2) AS IT IS NOT A PROPER SUBJECT FOR ACTION BY SECURITY HOLDERS UNDER THE LAW OF THE COMPANYS DOMICILE AND IS POTENTIALLY VIOLATIVE OF STATE LAW.

Under the law of New York, IBMs state of incorporation, the Business Corporation Law (B.C.L.) Section 701 provides "...the business of a corporation shall be managed under the direction of its board of directors...." The By-laws of IBM provide in Article III, Section 1:

"The business and affairs of the Corporation shall be managed by the Board."

As stated in the 1991 Proxy Statement at page 7, "Acting as the Nominating Committee of the Board, the Executive Committee recommends qualified candidates for election as officers and directors of the Corporation, including the slate of directors which the Board proposes for election by stockholders at the Annual Meeting."

The proponents proposal would take the fiduciary responsibility of the Board to select those nominees it considers best qualified away from the Board. This would be accomplished by the proposals requirement that three nominees of the Board would be selected, not by the Board, but by a vote of all of IBMs employees worldwide. Thus, the Board would be required to put forward as the Boards candidates, three individuals not selected by the Board, but imposed upon the Board. If the Board were to do so, they would be abdicating their duties under Section 717 of the New York B.C.L. (defining the duty of directors) by relying on the opinion of persons who have no particular professional or expert competence in the matter of selection of directors. Some of the persons the Board would be abdicating their responsibility to under the proposal may not even be shareholders of the company (the proposal provides for the list of potential employee directors to be generated by an election by all full time employees of IBM worldwide; many of whom are presumably not shareholders). The Board would, under the proposal, be presenting as its own candidates persons whom it did not select using the proper level of care required by New York law.

The proposal also flies in the face of the legal requirement that directors of a New York corporation must exercise their duties in "good faith" (B.C.L. Sec. 717). This has been interpreted in Foley v. DAgostino, 21 A.D. 2d 60, 248 N.Y.S. 2d 121 (1964) by quotation from generally applicable law that "Officers and directors of a corporation owe to it their undivided and unqualified loyalty.... They should never be permitted to profit personally at the expense of the corporation. Nor must they allow their private interests to conflict with the corporate business." 248 N.Y.S. 2d 121, 128. This general rule has even more specific application according to Henn, Law of Corporations (2d ed. 1970) at p. 475:

"Since directors, with respect to their exercise of their management functions, owe fiduciary duties to the corporation to exercise unbiased judgment in the best interests of the corporation as a whole, any attempt by directors to favor one intracorporate group to the detriment of another breaches such duties to the corporation and, in a sense, violates the implied term in the share contract between the corporation and any oppressed shareholder to the effect that corporate affairs will be managed in the best interests of the corporation."

In accord is the New York case of Lockley v. Robie, 94 N.Y.S. 2d 335 (1950) where the court stated "The directors are bound to exercise an honest discretion for the best interests of the corporation and all of its stockholders." 94 N.Y.S. 2d 335, 339.

15 N.Y. Jur 2d, Business Relationships Sec. 993 at p. 247 (The Lawyers Cooperative Publishing Company 1981) states that:

"A director or officer elected pursuant to a stockholders agreement has a fiduciary responsibility to every stockholder without distinction and is prohibited from discriminating between...persons...interested in the corporation" and cites Re Ebbets Will, 276 N.Y.S. 567 (1934). It is evident from the proponents proposal and statement in support that he is seeking to narrow the broad fiduciary duties of these directors to one that will represent only "employees sic views and ideas" and limit their representation to providing "direct employee input and feedback."

The proposal is not a proper subject for shareholder action as it is contrary to New York corporate law as stated above. Furthermore, the Company at page 7 of the 1991 Proxy Statement notes that "Stockholders wishing to nominate director candidates for consideration by the Executive Committee may do so by writing to the Secretary of the Corporation, giving the candidates name, biographical data and qualifications." The Proponent, rather than following the method set out for seeking consideration by the Executive Committee of the Board, has instead chosen to impose a set of nominees on the Board and, as such, the proposal, under the laws of New York, is not a proper subject for action by a security holder.

As described above, the proposal requires the Board to take actions that are contrary to New York State law. As such the proposal may be omitted as an improper subject for action by the security holders and as requiring the Company to violate State law.

III. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(3) AND RULE 14a-8(c)(6) AS IT IS VAGUE AND THEREFORE MISLEADING AND IS ALSO BEYOND THE COMPANYS POWER TO EFFECTUATE.

The proponents proposal, as discussed in Point II above, would require violation of State law and on that basis alone should be excludable, as well as making it impossible for the Company to effectuate legally. To offer a proposal so riddled with legal pitfalls would also be misleading to the shareholders who might otherwise consider the proposal one that could be implemented.

In addition, the proposal suffers from such a depth of vagueness on several points that to offer it to the shareholders would be contrary to the rules against misleading statements as well as making it impossible for the Company to effectuate the proposal. Thus, for example, there is no description of the process by which to select the original list from which the full time employees would presumably select three employees. Given the proponents desire to have three employees selected, who is to provide the list of employee candidates and how big should the list be from which the employees make their original selection? How is the voting to take place, given IBMs over-370,000 (as of year end 1990) employees in over 130 countries worldwide? What are the costs associated with such a worldwide election and who is to pay for them: the individual country subsidiaries of IBM, IBM (the U.S. parent corporation), the candidates themselves, or someone else? In any case, it appears that a new worldwide election would have to take place annually, compounding the unknown costs.

In its entirety the proposal is vague, misleading, and beyond the power of the Company to effectuate. The Divisions no-action letter to IBM dated February 5, 1980, in an unrelated proposal situation, indicated that a proposal could be omitted under 14a-8(c)(6) since it was "so vague that it was beyond the Company or its Board of Directors to effectuate." The courts have supported such a view quoting the Securities and Exchange Commissions rationale:

"...it appears to us that the proposal, as drafted and submitted to the company, is so vague and indefinite as to make it impossible for either the Board of Directors or the stockholders at large to comprehend precisely what the proposal would entail." Dyer v. Securities and Exchange Commission, 287 F. 2d 773, 781 (8th Cir. 1961).

IV. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(4) AS IT RELATES TO THE APPARENT REDRESS OF A PERSONAL CLAIM OR GRIEVANCE AGAINST THE COMPANY.

The Proponent has submitted similar proposals in 1989 and 1990, which were omitted after the Company received responses from the Securities and Exchange Commission. As the Company noted in our letter of November 16, 1990 to the SEC, the Proponent had characterized the omission of his 1989 proposal in the following words: "...the IBM corporation omitted from the 1990 Annual meeting the 1989 proposal using objectionable and questionable tactics more likely used by organized crime...." As was pointed out in our letter of November 16, 1990, this incredible characterization of what was a normal submission of argument to the Securities and Exchange Commission revealed a hostility toward the Company that is apparently motivated by some personal claim or grievance.

The Proponent has had an on-going series of complaints relating to the IBM Retirement Plan and IBM Tax Deferred Savings Plan (his correspondence to the U.S. Department of Labor and the Company and the Company responses are enclosed). I include this correspondence to show elements of his personal claim or grievance. For example, his letter of December 17, 1990 where he states "IBM has failed to offer an environment to maintain an Equal Opportunity within its workforce. Although minorities are actively recruited in an effort to maintain a ratio that is acceptable for public relations use, minorities are delegated to menial tasks and denied of sic promotional opportunities based on a buddy system that prevents outsiders (such as persons belonging to minority groups) to participate in promotional opportunities." (emphasis added). In his letter of February 15, 1991, the Proponent indicates his belief that there is "...overall disrespect by the IBM Corporation to the rights of their employees...." (emphasis added) and later in the same letter indicates his belief of the "... IBM Corporation complete disregard of the U.S. Laws...." (emphasis added). The Proponents letter of August 26, 1991 indicates his belief that the "...IBM Corporation goes to great extent to create an environment to impede, hinder, obstruct and incommode members and participants in their access to the fiduciary minutes...." (emphasis added).

On another matter, the Proponent has written John F. Akers, the Chairman of IBM, a letter of May 8, 1991 (copy enclosed) and copied President Bush. The letter complains of the alleged breakdown of the the "Open Door" system (a system for internal grievances) within IBM and claiming that the process is "biased and corrupt," (emphasis added) based on the Proponents personal experience in using the process.

The Securities and Exchange Commission in a no-action letter dated February 5, 1980 to IBM, in its most pertinent part stated:

"In the Divisions view, despite the fact that the proposal is drafted in such a way that it may relate to matters which may be of general interest to all shareholders, it appears that the proponent is using the proposal as one of many tactics designed to redress an existing personal grievance against the Company."

This quoted language appears to correctly characterize the motivation of the Proponent and as such the Proposal may be omitted under Rule 14a-8(c)(4).

V. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(c)(3) AS CONTRARY TO RULE 14a-9 PROHIBITING FALSE OR MISLEADING PROXY MATERIALS

The Proponents supporting statement indicates that "The current Board of Directors lacks direct employee input and feedback." This is incorrect, as the Board receives periodic updates from the Personnel function reporting on the morale of employees. This morale information is derived directly from the responses of employees to a confidential and anonymous employee opinion survey conducted by the Company on a regular basis.

The supporting statement also promises that the proposal "...will significantly increase employee moral sic and participation and increase IBM revenues..." This is a prediction that cant be supported factually.

Finally, the Proponent mis-identifies the By-law as being in Article II, but it is in fact in Article III.

In summary, for the reasons and on the basis of the authorities cited in sections I, II, III, IV and V above, IBM respectfully requests your advice that the Division will not recommend any enforcement action to the Commission if the proposal and supporting statement in question are omitted from IBMs Proxy Statement being prepared for the 1992 Annual Meeting. We are sending the Proponent a copy of this letter and all enclosures, thus advising him of our intent to exclude his proposal from the proxy material for our 1992 Annual Meeting. Enclosed herein are six copies of the proposal and statement in support received from the Proponent (his letter of August 22, 1991) and six copies of this letter giving the Companys reasons and legal arguments for omission of the proposal. The Proponent is requested to copy the undersigned on any response the Proponent may choose to make to the Commission.

Very truly yours,

Robert A. Raber

Senior Counsel

RAR:jl

Enclosures

cc: Mr. Pedro Del Compare

INQUIRY LETTER 2

Pedro Del Compare

35 Camelot Drive

Trumbull, CT 06611-2728

TELEPHONE(203) 452-7584

John F. Akers

IBM Corporation

Old Orchard Road

Armonk, NY 10504

Dear Mr. Akers:

Enclosed is a stockholder proposal to change the By-laws of the IBM Corporation that I request be included in the proxy sent to the IBM stockholders of record eligible to vote in the 1992 Annual meeting. I will consider changes in the wording as long as the spirit of the proposal remains intact.

EMPLOYEE REPRESENTATION AT THE BOARD OF DIRECTORS

To improve employee productivity and therefore maximize stockholders revenue and profit it is necessary to maintain a high level of employee satisfaction. The current Board of Directors lacks direct employee input and feedback. To alleviate the above situation, it would be most desirable to have employee representation in future IBM Board of Directors. The following proposal to change the By-laws of the IBM Corporation will accomplish the objective and will significantly increase employee moral and participation and increase IBM revenues:

As per ARTICLE XII of the current By-laws of the IBM Corporation, it is hereby declared the intent to modify the By-laws of the Corporation at the annual stockholder meeting.

ARTICLE II

Board of Directors

SECTION 2. Number; Qualifications; Election; Term of Office. The number of directors of the Corporation shall be twenty, but the number thereof may be increased to not more than twenty-five, or decreased to not less than nine, by amendment of these By-laws. The Directors shall be elected at the annual meeting of the stockholders. At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes at such election shall be elected. Each director shall hold office until the annual meeting of the stockholders which shall be held next after the election of such director and until a successor shall have been duly elected and qualified, or until death, or until the director shall have resigned as hereinafter provided in Section 10 of this article. Two directors shall hold office until the second annual meeting of the stockholders and their term will overlap to provide for continuity in providing employees views and ideas. To provide stockholders with potential candidates to represent employees views and ideas, the Corporation will conduct Company-wide elections to select the names of THREE (3) full time IBM employees within 90 days prior to the meeting of the stockholders for the election of directors. All full time IBM employees (any level or position) will be elegible to vote. All full time IBM employees (any level or position) except: a) any individual who has served as a director at any time in the Board of Directors and b) any individual currently serving as a director in the Board of Directors will be elegible to be elected. The three names with the largest number of votes accrued by the votes of all full time employees will be included in the notice of the meeting of the stockholders for the election of directors. If the stockholders elect more than one of the three names included in the notice of the meeting of the stockholders, only the name with the largest number of votes will have the two year term. If none of the three names so included in the notice of the meeting are elected, all elected directors will serve a one year term as specified in the previous paragraph.

Sincerely,

Pedro Del Compare

INQUIRY LETTER 3

Pedro Del Compare

35 Camelot Drive

Trumbull, CT 06611-2728

TELEPHONE(203) 452-7584

John F. Akers

IBM Corporation

Old Orchard Road

Armonk, NY 10504

REFERENCE: My letter dated August 22, 1991

Dear Mr. Akers:

I am enclosing a modification to my proposal to change the By-laws of the IBM Corporation submitted to the IBM Corporation August 22 that I request be included in the proxy sent to the IBM stockholders of record eligible to vote in the 1992 Annual meeting.

This proposal requires as per ARTICLE XII of the BY-LAWS of International Business Machines Corporation that the notice of the annual meeting indicates that amendment or repeal or adoption of new By-laws is one of the purposes of such meeting.

The modification to my original proposal is an attempt to avoid confusion and to insure that my earlier stockholder proposal meets the laws of the State of New York I modified my original proposal so that all directors will have the same one year term of office.

I also want to let you know that if financial or legal issues are preventing you to follow my instructions, I will consider suggestions for changes in the wording and content of this proposal as long as the spirit of the proposal remains intact.

EMPLOYEE REPRESENTATION AT THE BOARD OF DIRECTORS

To improve employee productivity and therefore maximize stockholders revenue and profit it is necessary to maintain a high level of employee satisfaction. The current Board of Directors lacks direct employee input and feedback.

To alleviate the above situation, it would be most desirable to have employee representation in the future IBM Board of Directors. The following proposal to change the By-laws of the IBM Corporation will accomplish the objective and will significantly increase employee moral and participation and increase IBM revenues.

As per ARTICLE XII of the current By-laws of the IBM Corporation, it is hereby declared the intent to modify the By-laws of the Corporation at the annual stockholder meeting.

ARTICLE II

Board of Directors

SECTION 2. Number; Qualifications; Election; Term of Office. The number of directors of the Corporation shall be twenty, but the number thereof may be increased to not more than twenty-five, or decreased to not less than nine, by amendment of these By-laws. The Directors shall be elected at the annual meeting of the stockholders. At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes at such election shall be elected. Each director shall hold office until the annual meeting of the stockholders which shall be held next after the election of such director and until a successor shall have been duly elected and qualified, or until death, or until the director shall have resigned as hereinafter provided in Section 10 of this article. To provide stockholders with potential candidates to represent employees views and ideas, the Corporation will conduct Company-wide elections to select the names of THREE (3) full time IBM employees within 90 days prior to the meeting of the stockholders for the election of directors. All full time IBM employees (any level or position) will be eligible to vote. All full time IBM employees (any level or position) except: a) any individual who has served as a director at any time in the Board of Directors and b) any individual currently serving as a director in the Board of Directors will be eligible to be elected. The three names with the largest number of votes accrued by the votes of all full time employees will be included in the notice of the meeting of the stockholders for the election of directors.

I am confident that the implementation of this proposal will improve the productivity of the IBM Corporation and ask you to help me implementing the proposal as soon as possible.

Sincerely,

Pedro Del Compare

cc: John E. Hickey

INQUIRY LETTER 4

International Business Machines Corporation

Old Orchard Road

Armonk, New York 10504

TELEPHONE(914) 765-1900

December 18, 1991

Securities and Exchange Commission

450 Fifth Street, N.W.

Judiciary Plaza

Washington, D.C. 20549

Attention: William E. Morley, Esq.

Associate Director and Chief

Division of Corporate Finance

Subject: Request for no-action letter from IBM dated November 20, 1991 re Stockholder Proposal for Employee Representatives as Nominees of the Board of Directors

Dear Mr. Morley:

I am submitting six copies of this letter to reaffirm my legal opinion as counsel stated in my letter of November 20, 1991, that the proposal submitted by Mr. Pedro del Compare (the "Proponent"), if implemented by International Business Machines Corporation (the "Company" or "IBM"), would require the Company to violate State law. As such, the proposal can be omitted under Rule 14a-8(c)(2) and 14a-8(c)(1) as an improper subject for action by security holders and 14a-8(c)(6) as a matter beyond the power of the Company to legally effectuate.

The Proponents proposal is presented as a by-law amendment; however, by-laws under the Business Corporation Law (B.C.L.) of New York, the Companys state of incorporation, must be consistent with the underlying law itself. Thus, BCL section 601(c) provides:

"The by-laws may contain any provision relating to the business of the corporation, the conduct of its affairs, its rights or powers or the rights or powers of its shareholders, directors or officers, not inconsistent with this chapter or any other statute of this state or the certificate of incorporation." (emphasis added)

As pointed out in my November 20, 1991, letter referenced above, B.C.L. section 701 provides that "...the business of a corporation shall be managed under the direction of its board of directors...." and IBMs by-laws provide in Article III, Section 1 that "The business and affairs of the Corporation shall be managed by the Board." According to citations of the American Law Institutes Principles of Corporate Governance (Tentative Draft No. 11, April 25, 1991) at page 110, one of the most fundamental functions of a board of directors is to:

"Select and recommend to shareholders for election an appropriate slate of candidates for the board of directors...."

In IBM the Executive Committee of the Board of Directors acts as the Nominating Committee of the Board and recommends qualified candidates, including the slate of directors that the Board ultimately proposes for election. Proponents proposal to amend the by-laws would impose upon the Board of Directors three names, selected not by the Board, but by an election of IBM employees. Such a proposed by-law flies directly in the face of the Boards mandate to manage the business of the corporation under B.C.L. Section 701 quoted above and the directors obligation to perform their duties under B.C.L. Section 717. As such, the proposal is impermissible under B.C.L. Section 601(c) quoted above. The duty of directors as defined in B.C.L. Section 717 is clear: directors shall perform their duties "...in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances." Section 717 goes on to permit directors to rely on information and opinions etc. of others only in the following limited circumstances:

"(1) one or more officers or employees of the corporation.. whom the director believes to be reliable and competent in the matters presented,

(2) counsel, public accountants or other persons as to matters which the director believes to be within such persons professional or expert competence, or

(3) a committee of the board upon which he does not serve... which committee the director believes to merit confidence...." (emphasis added)

The citations from B.C.L. Section 717 above are instructive in emphasizing the need for a director to exercise good faith and a reasonable degree of care and the limitation on relying on others except where the director believes in good faith in the competence and reliability of such other people. The Proponents by-law amendment would impose on the directors the results of a vote taken worldwide by those employees choosing to vote. The proposed by-law amendment would have the directors abdicate their management responsibilities under B.C.L. Section 701 and their duties under B.C.L. 717 by putting forward as part of the directors proposed election slate three individuals whom they did not choose, do not know, and who were selected by an anonymous group of employees who chose to vote out of over 350,000 employees worldwide, some of whom may not be shareholders. A director could not in good faith and in the exercise of a reasonable degree of care believe such a process to be sufficiently "reliable and competent in the matters presented" (here matters as to potentially qualified board members) to satisfy B.C.L. Section 717s standard of duty nor the mandate of B.C.L. Section 701 that the board manage the business of the corporation. Reliance on such a procedure is abdication of responsibility, not the fulfillment of it, and as such the Proponents by-law amendment, if implemented, would in my opinion as an attorney licensed and admitted to practice in the State of New York, require the Company to violate the law of the State of New York.

In Benintendi v. Kenton Hotel, 294 N.Y 112, 60 N.E.2d 829 (1945) the highest court in New York struck down a by-law requiring unanimous vote of all the stockholders to elect directors where the state law provided that directors would be chosen by a plurality of the vote. In so doing, the court stated that such a by-law "...is intrinsically unlawful because it contravenes an essential part of the State policy, as expressed in..." (60 N.E. 2d 829,831) the state corporation law. Proponents proposal is similarly intrinsically unlawful as it contravenes the policy of the state corporation law set out in Sections 701 and 717 explained above and in my letter of November 20, 1991. The Division has similarly recognized that where a proposed by-law amendment is violative of state law it may be omitted. See Occidental Petroleum Corp. (publically available March 22, 1977).

Even where the New York B.C.L. varies the norm of board management and responsibility for close corporations, it would not include Proponents situation. B.C.L. Section 620(b) provides:

"A provision in the certificate of incorporation otherwise prohibited by law because it improperly restricts the board in its management of the business of the corporation, or improperly transfers to one or more shareholders... all or any part of such management otherwise within the authority of the board under this chapter, shall nevertheless be valid:

(1) If all the incorporators or holders of record of all outstanding shares, whether or not having voting power, have authorized such provision in the certificate of incorporation or an amendment thereof...." (emphasis added).

This highly limited exception of section 620(b) is unavailable with regard to IBM, as section 620(c) goes on to provide:

"A provision authorized by paragraph (b) shall be valid only so long as no shares of the corporation are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or affiliated securities association."

As IBM is listed on a national securities exchange, the derogation of the boards power and duty that Proponents proposal would entail would not be permissible even with an amendment to the certificate of incorporation.

The above reaffirms my legal position as stated in my letter of November 20, 1991, that the proposed by-law amendment is violative of State law. All the other reasons for omission set forth in Sections I, II, III, IV and V of my letter of November 20, 1991 also remain before the Division.

Very sincerely yours,

Robert A. Raber

Senior Counsel

(914) 765-6148

RAR:jl

cc: Mr. Pedro del Compare

INQUIRY LETTER 5

Pedro Del Compare

35 Camelot Drive

Trumbull, CT 06611-2728

TELEPHONE(203) 452-7584

January 16, 1992

William E. Morley

Chief Counsel-Associate

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Judiciary Plaza

Washington, DC 20549

Subject: Stockholder Proposal for Employee Representatives as Nominees of the Board of Directors

Reference: IBM letter of December 18, 1991

Dear Mr. Morley:

I again request that the proposal and supporting statement dated October 15, 1991 be included in the proxy material for IBMs 1992 Annual Meeting scheduled to be held on April 27, 1992. The arguments stated by the IBM Corporation in the referenced letter are completely without merit and for the only purpose of misleading. The proposal as original submitted does not violate New York State Law, it does not directly or indirectly interferes with the Board of Directors functions. The proposal does not requires that the Board of Directors includes the names of the candidates as their selection, nor the proposal requires that the Board of Directors recommends any of the candidates resulting from adopting the proposal. The proposal as submitted will not violate State law, and will indeed be in the best interest of the shareholders.

In summary the IBM Corporation letter further proves that the Proposal as submitted DOES NOT VIOLATE ANY STATE LAW OR SECURITIES AND EXCHANGE COMMISSION rules, therefore I request that you recommend an enforcement action to the Securities and Exchange Commission to include publication of the stockholder proposal and statement in IBMs Proxy Statement for the 1991 Annual Meeting scheduled to be held on April 27, 1992.

A no action letter will violate the rights of shareholders by creating undue economic hardship to enforce their rights in Court proceedings.

Very truly yours,

Pedro Del Compare

cc: NY State Attorney General

IBM Corporation

STAFF REPLY LETTER

March 4, 1992

RESPONSE OF THE OFFICE OF THE CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: International Business Machine Corporation (the "Company")

Incoming letters dated November 20, and December 18, 1991

The proposal involves a proposed bylaw amendment. Under the proposed bylaw, three employees would be selected by a plurality vote by all the Companys employees. The three employees selected would be included in the Companys notice of the meeting for the election of directors by stockholders, all as more fully described in the proposed bylaw amendment.

In your letter you have expressed the opinion that the proposal may be omitted under rule 14a-8(c)(1) and 14a-8(c)(2) because it would not be a proper subject for action by security holders under the New York Business Corporation Law ("BCL"). In this regard, it is your view that the proposal would be inconsistent with the fiduciary responsibilities of the Board to select those nominees it considers best qualified for the Board. It is further your view that in doing so the Board would be abdicating their duties under section 717 of the BCL and presenting as its own persons whom it did not select using the proper level of care required by New York law. The staff is unable to concur in your opinion that the proposal may be excluded pursuant to rules 14a-8 (c)(1) and (c)(2). In this regard, the staff is unable to conclude that, assuming that the proposal is modified as indicated below, the applicable state law would prohibit a bylaw establishing qualifications for nominees to the Board of Directors and the procedures for selecting those nominees. Under the circumstances, if the proponent provides the Company with an amended proposal within seven calendar days after receipt of this letter, that includes a provision in the proposed by-law that the three employee nominees will not be considered to be candidates of the Board of Directors, we do not believe that rules 14a-8 (c)(1) and (c)(2) may be relied on as a bases to omit the proposal from the Companys proxy materials.

Noting the immediately preceding paragraph, the staff is unable to conclude that the proposal may be excluded under rule 14a-8(c)(8). The staff notes that the proposal as modified will involve only qualifications for director nominees, not the election of those nominees. Under the circumstances, we do not believe that rule 14-a(c)(8) may be relied on as a basis to omit the proposal from the Companys proxy materials.

The staff is unable to concur in your view that the proposal may be excluded under paragraphs (c)(3) and (c)(6) of rule 14a-8 as vague and, therefore, potentially misleading and also beyond the Companys power to effectuate. In reaching a position, the staff notes that decisions with respect to implementing and interpreting provisions in the Companys bylaws would appear to reside with the Board. Accordingly, we do not believe that either rule 14a-8(c)(3) or (c)(6) may be relied upon as a basis to omit the proposal from the Companys proxy materials.

The staff also is unable to concur in your view that the proposal violates rule 14a-9 and may be omitted pursuant to rule 14a-8(c)(3). There appears to be some basis, however, for your view that the second sentence of the first paragraph of the supporting statement accompanying the proposal should either be deleted or revised to state that the assertion is the opinion of the Proponent and that the title of the proposed bylaw should be Article III. Assuming that the Proponent provides a submission revised in the manner indicated, within seven calendar days after receipt of this response, the staff does not believe that the Company may rely on rule 14a-8(c)(3) as a basis to omit either of these portions from its proxy materials.

The staff is unable to concur in your position that the proposal may be excluded pursuant to rule 14a-8(c)(4). We are unable to conclude that the proposal was submitted to redress a personal claim or grievance or to secure a benefit or to further an interest unique to the Proponent. Accordingly, the staff does not believe that rule 14a-8(c)(4) may be relied on as a basis to omit the proposal from the Companys proxy materials.

Sincerely,

William E. Morley

Associate Director (Legal)