Company Name: Tenet Healthcare Corp.
Public Availability Date: July 1, 1998Document Sections: LETTER OF INQUIRY 1
APPENDIX
LETTER OF INQUIRY 2
STAFF REPLY LETTER [LETTER OF INQUIRY 1]
May 21, 1998 The Securities and Exchange Commission 450 5th Street, N.W. Judiciary Plaza Washington, D.C. 20549 Re: Stockholder Proposal Relating to Year 2000 Disclosure Ladies and Gentlemen: Tenet Healthcare Corporation, a Nevada corporation ("Tenet" or the "Company"),
hereby requests that the staff (the "Staff") of the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") not
recommend any enforcement action if the Company does not include in the
Company's proxy statement and proxy to be distributed in connection with the
Company's 1998 Annual Meeting of Stockholders ("1998 Proxy Materials"), a
proposal and related supporting statement (the "Proposal") submitted by Mr. Dean
V. Shahinian requesting that the Company prepare a report about its computer
systems' preparedness for handling the year 2000. The Proposal is attached
hereto as Exhibit A. Six copies of this letter and the Proposal are enclosed
herewith in accordance with Rule 14a-8(d) promulgated under the Securities
Exchange Act of 1934, as amended. Pursuant to Rule 14a-8(d), by copy of this
letter, the Company is concurrently notifying Mr. Shahinian of its intention to
omit the Proposal from the Company's 1998 Proxy Materials. The Company believes that the Proposal properly may be excluded from its 1998
Proxy Materials pursuant to Rule 14a-8(c)(7) because it deals with the
administration and oversight of the Company's computer systems that are part of
the conduct of the Company's ordinary business operations. The Company notes that on March 3, 1998, the Office of the Chief Counsel of the
Division of Corporate Finance responded to a letter submitted by Time Warner,
Inc. concerning a proposal made by Mr. Shahinian to Time Warner, Inc., which
proposal was substantively identical to the Proposal submitted by Mr. Shahinian
to Tenet, except for the name of the company. In its response to Time Warner,
Inc., the Staff concluded that the Division of Corporate Finance would not
recommend enforcement action to the Commission against Time Warner, Inc. if it
omitted Mr. Shahinian's proposal from its 1998 Proxy Materials pursuant to Rule
14a-8(c)(7). Pursuant to Rule 14a-8(d), set forth below is a discussion of the reasons the
Company deems it proper to omit the Proposal from its 1998 Proxy Materials. The Proposal may be omitted from the Company's 1998 Proxy Materials pursuant to
Rule 14a-8(c)(7) because it relates to the conduct of the Company's ordinary
business operations. The Company, through its subsidiaries, owns and operates 123 acute care
hospitals and provides numerous related healthcare services. As an ancillary
part of its day to day operations, the Company may use various computerized data
retention systems. It is not, however, in the computer systems business, nor is
it a bank, financial institution, airline, insurance company or other similar
business that may be heavily reliant on centralized computers and computer
systems. Rule 14a-8(c)(7) permits the exclusion from the 1998 Proxy Materials of
proposals that deal with matters relating to the conduct of the ordinary
business operations of the Company. The selection and management of the
Company's computer systems are among the many ordinary business issues that the
Company handles all the time. They are not proper matters for stockholder
consideration. The Proposal does not present a policy matter but, instead,
relates to a business and operational issue that is appropriately left to the
Company to evaluate and manage as part of its ordinary business. These types of business decisions are made routinely by those charged with such
responsibility. As the Staff has noted, these types of decisions are best left
to the Company's management and its experienced staff who are attuned to the
intricacies and countervailing considerations of these determinations. They are
not matters for stockholder mandate. See Exchange Act Release No. 34-12999
(November 22, 1976) (shareholder proposals raising management issues are not
appropriate because they "deal with ordinary business matters of a complex
nature that shareholders....would not be qualified to make an informed judgment
on due to....their lack of knowledge of the issuer's business"). The Proposal requests that the Company provide at least quarterly reports on its
progress on various aspects of its year 2000 preparedness and the costs incurred
and expected with respect thereto. As an initial matter, the Company notes that
it has read Staff Legal Bulletin No. 5 issued by the Division of Corporate
Finance and Investment Management of the Commission and intends to comply with
its disclosure obligations concerning the year 2000 issue. The Company also
notes that the Staff has found that decisions by management concerning the
presentation of disclosures to stockholders as well as the form and content of
such presentations are ordinary business matters. Pacific Telesis Group (January
30, 1992). Moreover, the Staff has stated that proposals requesting a report or
study are excludable if the subject of the requested report covers a matter
related to ordinary business operations. Exchange Act Release No. 34-20091
(August 16, 1983). Because the Proposal relates to decisions about computer
technology used by the Company, an ordinary business matter, it is excludable
from the 1998 Proxy Materials pursuant to Rule 14a-8(c)(7). Even if year 2000 compatibility is considered an important operational issue for
an organization like the Company, the Staff has in the past taken the view that
proposals about important operational issues were nonetheless excludable because
they involved ordinary business matters that were best left to management, not
stockholders, to handle. For example, a request that Exxon Corporation institute
certain design changes and emergency preparedness procedures on its fleet of
ships, although potentially important to Exxon's smooth operations (especially
in light of the Exxon Valdez oil spill in 1989), was deemed by the Staff to
involve ordinary business matters. Exxon Corporation (January 30, 1990).
Similarly, the Staff found that determining the nature and extent of a review of
the safety of an airline operation was excludable under Rule 14a-8(c)(7) even
though airline safety is clearly important to an airline's business. AMR
Corporation (April 2, 1987). Any major failure of the Company's computer systems for whatever reason
obviously would be problematic, as an oil spill or airplane accident would be to
an oil company or an airline, respectively. Such importance to the Company,
however, does not remove remediation of any such concern from the realm of the
Company's ordinary business. The year 2000 issues, just like daily issues of
computer viruses and computer security protections, are ordinary business
matters. The decisions regarding the design, operation and upgrade of, or
troubleshooting with respect to, computer equipment used by the Company in the
conduct of its business, and any disclosures that the Company determines are
purdent with respect thereto, should be left to the Company's trained
management. They are attuned to any problems and how they might affect specific
aspects of the Company's business and are best charged with understanding and
implementing any remediation deemed necessary. Such tasks are not appropriate
for stockholders. The Proposal should be omitted from the 1998 Proxy Materials pursuant to Rule
14a-8(c) (7) because it relates to operational matters that are part of the
Company's ordinary business that are not appropriately managed by its
stockholders. For the foregoing reasons, the Company respectfully requests that the Staff
confirm that it would not recommend that the Securities and Exchange Commission
take any enforcement action if the Company omits the Proposal from its 1998
Proxy Materials. If you have any questions or if the Staff is unable to concur
with our conclusions without additional information or discussion, we
respectfully request the opportunity to confer with members of the Staff prior
to the issuance of any written response to this letter. Please do not hesitate
to call the undersigned at (805) 563-7106. Please acknowledge receipt of this letter and its attachments by stamping the
first page of the enclosed copy of this letter and returning it in the
self-addressed, stamped envelope provided for your convenience. Very truly yours, Scott M. Brown [APPENDIX]
EXHIBIT A April 24, 1998 FEDERAL EXPRESS Mr. Jeffrey C. Barbakow Chairman and Chief Executive Officer Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 RE: Shareholder Proposal on Year 2000 Disclosures Dear Mr. Barbakow: I am the owner of 285 shares of Tenet Healthcare Corporation, which includes 171
shares registered in my name and 114 shares that are registered in street name
but that I beneficially own. I purchased the shares beginning on August 23, 1977
and have held all of these shares for over fifteen years. I plan to hold at
least $1,000 worth of stock through the date of the next shareholders meeting.
I intend to present the attached proposal at the next shareholders meeting.
Please include the proposal in the proxy materials that will be mailed to
shareholders. Thank you for your consideration of this request. Sincerely, Attachment DISCLOSURE OF YEAR 2000 PREPAREDNESS The "Year 2000 Problem" has drawn international attention from business
executives, legislators, regulators, journalists and others. Many regional,
national and international conferences discuss the Year 2000 problem and
solutions; the U.S. President has appointed a Year 2000 commission; many
articles have appeared in Fortune, Money, Forbes, Newsweek, and other
periodicals discussing its broad scope and serious consequences and legislators
have held hearings and proposed bills to require enhanced corporate disclosures
about the Year 2000 problem. The Problem stems from computer software programs that use a two-digit field
(e.g., "98") instead of a four-digit field (e.g., "1998") for the year. At
present, many computer systems are not prepared to operate successfully after
January 1, 2000. Experts say that upgrading the computer software is the single
largest information technology project undertaken in history. On January 1, 2000, computer systems that do not recognize the proper year may
fail. The potential damage from the failure of part of a healthcare company's
computer systems may have large and far reaching effects. A failure could damage
the company's financial results and reputation and jeopardize patient records
and treatment, all of which would impact the interests of shareholders.
Additional damage could result from the failure of the computers of a company's
suppliers or customers. The shareholders, in the Proposal below, request that Tenet Healthcare
Corporation report on its progress in the important effort of assessment and
preparing its computer systems to operate properly after January 1, 2000.
Although the Company may make limited types of Year 2000 disclosures pursuant to
the federal securities laws, shareholders support this proposal because they
want to receive all of the significant information specified below provided on a
frequent basis. PROPOSAL The shareholders ask the Board of Directors to inform the shareholders in
reports on the status of Tenet Healthcare's computer system preparedness for the
Year 2000, i.e. preparing its computer systems to operate without flaw beginning
on January 1, 2000, by providing the information described below: 1. A description of the progress of Tenet in completing five phases of Year 2000
remediation: (A) Awareness, (B) Assessment, (C) Renovation, (D) Validation and
(E) Implementationthe description would include a timetable of the progress on
the Year 2000 problem; 2. The cost that Tenet incurred in connection with the remediation efforts to
date and an estimate of additional costs it expects to incur in connection with
future remediation efforts; 3. Information about any insurance it has to cover specific Year 2000 computer
systems problems or the defense of legal actions against the company or its
officers and directors arising from Year 2000 problems; and 4. Information about contingency plans developed to ensure continuous operation
of the company's essential business functions in the event of Year 2000 problems
in the computer systems of Tenet or its vendors, suppliers, customers, or
business affiliates. Shareholders request that Tenet provide this information in a report sent within
four months of the meeting, if possible. [LETTER OF INQUIRY 2]
June 29, 1998 Office of the Chief Counsel Division of Corporation Finance U. S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Shareholder Proposal Relating to Year 2000 Disclosure Tenet Healthcare Corporation To the Office of the Chief Counsel: By letter dated April 24, 1998, I submitted a shareholder proposal to Tenet
Healthcare Corporation ("Company") regarding reporting to shareholders about its
Year 2000 preparedness ("Proposal"). By letter dated May 21, 1998 to the Office
of the Chief Counsel, the Company indicated it intends to exclude the Proposal
pursuant to Rule 14a-8(c)(7) ("Letter'). The Company sent a copy of its Letter
without attachments by First Class Mail in an envelope metered on June 1, 1998,
which reached the Proponent on June 6, 1998. I respectfully submit that the arguments presented by the Company should not
form a basis to exclude the Proposal. I respectfully submit that this Proposal
raises a matter that is not mundane but has significant policy, economic or
other implications, as explained below, and, therefore, should not be excluded
from the proxy materials under Rule 14a-8(c)(7). I. The Proposal Differs in a Vital Respect from the Time Warner Proposal The Company erroneously states that the Tenet Proposal is "substantively
identical" to another Proposal submitted by the Proponent that was the subject
of a Commission staff no-action letter, Time Warner, Inc., March 3, 1998. In
Time Warner, the staff concurred in the exclusion of a proposal that, if
implemented, "would specify additional disclosures in the Company's reports on
Forms 10-K and 10-Q, and other periodic reports, under the Securities Exchange
Act of 1934." The staff did not reach the issue of whether information on Year
2000 preparedness raises a significant issue of policy. The Tenet Proposal differs in a critical respect from the Time Warner proposal.
The Proponent in the Tenet Proposal intentionally does not ask the Company to
add disclosures to its reports sent on Forms 10-K or 10-Q or other periodic
reports required under the Securities Exchange Act of 1934 ("Exchange Act").
Rather, the Proposal requests information in reports that the Company would have
to prepare new. Thus, the Time Warner no-action letter should not govern the
staff's decision in this matter. II. Rule 14a-8(c)(7) Is Not Intended to Exclude Proposals With Significant
Policy, Economic or Other Implications The Company indicates that the Proposal should be excluded because it relates to
the Company's operations. The Proponent asserts that the Commission does not
exclude proposals under Rule 14a-8(c)(7) that raise significant policy, economic
or other implications. The U. S. Securities and Exchange Commission ("Commission" or "SEC") adopted
Rule 14a-8(c)(7) to permit companies to exclude from their proxy materials
shareholders' proposals that "involve business matters that are mundane in
nature and do not involve any substantial policy of other considerations." The Commission indicated that this Rule was not intended to permit exclusion of
"matters which have significant policy, economic or other implications inherent
in them." (Exchange Act Release No. 34-12999, November 22, 1976). The Commission
staff has consistently applied this standard and has concurred in the exclusion
of proposals that raise issues of policy. For example, the staff did not concur
in the proposed exclusion under Rule 14a-8(c)(7) of a proposal that "has
significant public policy implications which take it out of the realm of
ordinary business." (Alliant Techsystems, Inc., April 23, 1997). III. Year 2000 Computer Problem Has Significant Policy Implications The Proposal's subject matter, dealing with the Year 2000 computer problem, has
significant public policy implications and, therefore, should not be excludable
under Rule 14a-8(c)(7). The significant policy implications of the Proposal are
evidenced in several ways: a. Influential national public policy makers are actively debating the
Proposal's specific subject, company disclosure of Year 2000 preparedness. The
United States Senate has held hearings and has legislation pending and the
Commission has issued bulletins, testified, and issued a pamphlet for investors
on the subject of company disclosure of Year 2000 preparedness. The President of
the United States has appointed a Year 2000 "Czar" to raise awareness and foster
preparedness. b. The nation's most influential public policy making body, the United States
Congress, has actively debated, conducted hearings on and considered proposed
legislation relating to the implications of the Year 2000 computer problem. c. Federal administrative agencies, which are important public policy bodies,
are actively educating and developing policies about the Year 2000 computer
problem for institutions within their jurisdictions d. Responsible individuals and organizations in the investment community
indicate that the Year 2000 computer problem has important policy, economic and
other considerations, beyond ordinary business, which could make a national or
international impact e. The news media are publishing a large volume of articles, and concerned
organizations have created numerous Internet websites, that discuss significant
issues arising in connection with the Year 2000 computer problem. These points are discussed in greater length below. A. Disclosure of Year 2000 Computer Preparedness is a Policy Issue Prominent national public policy makers are analyzing policies governing
corporate disclosure to shareholders of Year 2000 computer preparedness and
considering legal, regulatory and other actions. These activities indicate that
the issue has significant policy implications. 1. Senate Hearings on Disclosure to Shareholders of Year 2000 Preparedness The United Senate Committee on Banking, Housing and Urban Affairs' Subcommittee
on Financial Services and Technology has held three hearings to consider the
types of disclosures the Federal Government should require of corporations for
shareholders on Year 2000 preparedness. These hearings focused on "Year 2000
Liability and Disclosure" (October 22, 1997), "Mandating Year 2000 disclosures
for Publicly-Traded Companies" (November 4, 1997) and "Disclosure of Year-2000
Readiness" (June 10, 1998). Additional hearings are possible. Senator Alfonse D'Amato, Chairman of the
Senate Committee on Banking, Housing and Urban Affairs, has been reported as
saying that the Committee's 1998 legislative agenda will include bills affecting
Year-2000 computer problems. ("Senate Banking Chairman Affirms Agenda," The
American Banker, p.2). The Chairman of the Subcommittee on Financial Services and Technology, Senator
Bob Bennett, has expressed concerns about the public policy governing corporate
disclosure about Year 2000 computer preparedness and feels that a shareholder
should have the right to such disclosures. At the November hearing, Senator
Bennett said, "What troubles me most about the Year 2000 Problem ... is the lack
of accessible information about the readiness of specific banks and other
businesses ... without specific disclosure requirements related to Year 2000, an
individual investor is left in the unenviable position of doing an independent
investigation, without sufficient facts, before making the decision to purchase
or hold the stock of a particular company ... It strikes me as unfair and
unrealistic to expect an individual investor in a corporation ... to make those
inquiries and get accurate information on their own. Every potential investor
has a right to those facts, and the burden must be on the corporation to
disclose them." (Italics added). 2. Senate Bill to Mandate Company Disclosure of Year 2000 Preparedness Chairman Bennett has proposed legislation which would amend the Securities
Exchange Act of 1934 to require extensive disclosure by reporting companies of
their Year 2000 preparedness. His bill, S. 1518, the "Year 2000 Computer
Remediation and Shareholder (CRASH) Protection Act of 1997," would require
publicly traded corporations to make specific disclosures in their offering
circulars and quarterly reports of their computer systems' ability to operate
after January 1, 2000, including: (1) progress in completing the 5 recognized phases of Year 2000 remediation
(i.e., awareness, assessment, renovation, validation and implementation) (2) a summary of costs incurred by the issuer for remediation and an estimate of
future costs; (3) an estimate of anticipated litigation costs to defend lawsuits against the
issuer as a result of Year 2000 computer problems; (4) the existence of insurance policies to cover Year 2000 computer problems and
to defend lawsuits in connection with such problems; and (5) whether the company has any contingency plans to ensure continued operation
of essential business functions in the event of a Year 2000 computer problem by
the company or its vendors, partners or other affiliates. The Proposal is consistent with the spirit of Chairman Bennett's bill and
requests a subset of the information that S. 1518 would require to be disclosed.
It extends beyond the types of information required by the Commission for all
registrants. 3. Commission Develops Year 2000 Disclosure Program The Federal agency with responsibility for administering securities disclosure
regulatory policy, the Commission, has been actively developing regulatory
policies and engaged in oversight regarding disclosure of information about Year
2000 computer preparedness. The Commission has directed the staffs of the
Divisions of Corporation Finance and Investment Management to institute targeted
reviews of Year 2000 disclosures by issuers in their public filings. (Testimony
of Brian Lane, Director of Division of Corporation Finance, Securities and
Exchange Commission, Concerning Disclosure Obligations of Public Companies
Presented by the Year 2000 Before the Senate Committee on Banking Housing and
Urban Affairs Subcommittee on Financial Services and Technology, October 22,
1997 ("Director's Testimony")). The Division of Corporation Finance issued a
special bulletin on October 8, 1997 to specifically highlight and discuss
disclosure obligations regarding Year 2000. Three months later, the Division of
Corporation Finance revised this bulletin "to provide more specific guidance ...
due to the importance of the Year 2000 issue." (Staff Legal Bulletin No. 5
(CF/IM), revised January 12, 1998). Commission Staff Bulletin No. 5 discusses
many potential topics of disclosure, some of which are contained in the
Proposal. These actions demonstrate the Commission's view that companies' Year 2000
disclosures are significant and have important implications. The Director of the
Division of Corporation Finance, Brian Lane, Esq. ("Director"), has said "the
Commission takes the issue very seriously and is working, internally and with
industry, to address it. ("Director's Testimony"). Although the Director has
indicated that new Federal legislation mandating additional disclosure is not
necessary, he has not taken the position that shareholders should not be allowed
to ask for such information from their companies, which is the function of the
Proposal. In the June 1998 hearing, Commissioner Laura Unger in written testimony said
"The Commission is concerned that while a greater number of companies mention
Year 2000 in their annual reports, much of the disclosure is not informative."
4. Commission Publication Encourages Shareholders to Ask Companies for
Information About Year 2000 Preparedness The Commission has published a pamphlet entitled "Questions to Ask About the
Year 2000" which contains many questions for shareholders to ask their companies
about Year 2000 computer preparedness. In the pamphlet, the Commission tells
shareholders to ask questions that would elicit information very similar to that
requested in the Proposal: "As an Investor or Shareholder in a Public Company, Ask the Company... What is the company doing to prepare its computers for the year 2000? What will be the effect of the year 2000 problem on the company? Is the year 2000 only an internal operational problem for the company, or will
it have an effect on the company's products and/or services? What is the company's schedule for fixing and testing your systems? Can you send
me a copy of the company's schedule? How do the company's costs in addressing the year 2000 problem affect its bottom
line? Do these costs have a material financial effect? Can I see something in
the company's recent reports or other public statements in which the company
discusses its approach to the year 2000 problem? Even if you don't believe the costs or potential effects of the year 2000 are
material, can you tell me how much the year 2000 problem will cost the company?
Have any of the company's officers or member of the board bought personal
liability insurance specifically for year 2000 problems?" ("Questions for Investors to Ask About the Year 2000," September 1997,
http://www.sec.gov/consumer/y2kaskit.htm). The Commission, by publishing this pamphlet, encourages shareholders to seek
this type of information. The Proposal is consistent with the questions in the
Commission's pamphlet and is for small investors perhaps the only practical
means by which shareholders can seek this type of information from a company
that otherwise will not disclose it. 5. Year 2000 Preparedness Disclosures Would Be Valuable to Shareholders Responsible individuals and organizations within the investment community have
indicated that disclosures about companies' Year 2000 computer preparedness to
shareholders would be important to shareholders because of the uniqueness and
significance of the issue as well as potential litigation risk. Montgomery Securities, a major national broker-dealer, has said, "we believe
the Year 2000 problem is both unique and serious enough that: (1) individual
companies will vary widely in their success at addressing the issue, causing a
significant rebalancing of stock portfolios, and (2) indirect effects of the
Year 2000 could lead to incremental equity market volatility." (Millennium
Morass: A New Perspective for Every Investor and Business Leader, September
1997) Dr. Edward Yardeni, Chief Economist of Deutsche Morgan Grenfell, testified at a
Senate hearing that "all business establishments should be required to post a
`Y2K Progress Report' of their current and projected progress." He also opined
that the current disclosure system would not provide policy decision-makers with
the information they need soon enough to anticipate problems. (Prepared
Testimony before the Senate Banking, Housing and Urban Affairs Subcommittee on
Financial Services and Technology Hearing on Mandating Year 2000 Disclosures for
Publicly Traded Companies, November 4, 1997.) In June, after reviewing a large
number of Forms 10-K and 10-Q, he testified that "corporations are still not
providing their investors with the information they must have to assess the
risks these companies face in 2000." (Prepared Testimony before the Senate
Banking, Housing and Urban Affairs Subcommittee on Financial Services and
Technology Hearing on Disclosure of Year 2000 Readiness, June 10, 1998). Senator Alfonse D'Amato, Chairman of the Senate Committee on Banking, Housing
and Urban Affairs, has been reported to support requiring disclosures about the
cost of companies' Year 2000 compliance. ("Putting Price on Year 2000 Glitch,"
USA Today, November 7, 1997) The press has identified a plaintiff's bar that is preparing to bring class
action lawsuits against companies for damages will arise from Year 2000 computer
problems, which could impact an investor's stock value. (See Adams, "The Bug
Bar," Forbes, July 28, 1997: a plaintiff's lawyer [said]...: `It's the biggest
class action I can imagine!' He ticks off the potential litigants: burned
consumers, customers suing computer vendors, investors launching class action
suits over stock market declines stemming from business losses." See also,
"Lawyers Circling Over 2000 Time Bomb," USA Today, December 1, 1997, 1B.) B. National Public Policy Makers Are Treating Year 2000 Computer Problem As
Having Major Implications The nation's foremost policy makers, the Members of the United States Senate and
House of Representative, are treating the Year 2000 computer problem as an issue
that has important policy implications. The Senate and House have held
Congressional hearings, proposed legislation and debated about the Year 2000
problem, in which the public implications of the problem have been examined and
public policy solutions proposed. The Congressional Research Service predicts
that for "the remainder of the 105th Congress, and probably until the year 2000,
Congress is likely to continue to hold hearings to raise public awareness of the
problem ... and if necessary to pass additional legislation to ensure that
private sector systems are Year 2000 compliant." CRS Issue Brief, The Year 2000
Computer Problem: Activity in the 105th Congress, January 13, 1998. 1. United States Senate and House of Representatives Hold Hearings, Propose
Bills, and Debate the Year 2000 Computer Problem Senate Hearings. The U.S. Senate Committee on Banking, Housing and Urban Affairs
Subcommittee on Financial Services and Technology has held at least eight
hearings on various aspects of the Year 2000 problem, including hearings on July
10, 1997, July 30, 1997, October 22, 1997, November 4, 1997, February 10, 1998,
February 17, 1998, March 12, 1998 and June 10, 1998. House Hearings. The House of Representatives has held numerous hearings on
various aspects of the Year 2000 computer problem. The House Committee on
Science's Subcommittee on Technology held hearings on May 14, 1996 ("Solving the
Year 2000 Software Problem: Cresting Blueprints for Success"), March 20, 1997
("Year 2000 Risks: What Are the Consequences of Information Technology
Failure?"), July 10, 1997 ("Year 2000 Computing Crisis: Time Is Running Out for
Federal Agencies to Prepare for the New Millennium"), and November 4, 1997 ("The
Global Dimensions of the Millennium Bug"). It also has held hearing jointly with
the Government Reform and Oversight Committee's Subcommittee on Government
management, Information and Technology, on September 10, 1996 and July 10, 1997.
The Banking and Financial Services and Veterans' Affairs Committees have also
held hearings on aspects of the Year 2000 computer problem in 1997. Bills. Various Congressional bills have been introduced involving the Year 2000
computer problem. Senator Bennett introduced S. 1518, which would require
disclosure by public companies of Year 2000 computer preparedness, described
earlier. Senator Daniel Patrick Moynihan has introduced S. 22, a bill to
establish a bipartisan national commission to address the year 2000 computer
problem. Senator Bob Kerrey has proposed S. 1218, to assure the integrity of
information, transportation and telecommunications upon the arrival of the year
2000. Both the Senate and House have passed a bill that would authorize the
Office of Thrift Supervision and National Credit Union Administration to examine
third-party providers of computer services to thrifts and credit unions for Year
2000 readiness among other things. U.S. House of Representatives Committee on
Banking and Financial Services Chairman James A. Leach on May 22, 1998 announced
the introduction of H.R. 3116, "National Year 2000 Readiness Act." The bill was
co-sponsored by Ranking Member John LaFalce, Subcommittee Chairmen Marge
Roukema, Spencer Bachus, Richard Bank, Michael Castle, and Rick Lazio, and
Subcommittee Ranking Member Bruce Vento. Congressional Debate and Discussion. Many Senators and Congressmen have
discussed the significant implications of the Year 2000 at hearings, on the
floor of the Senate or House, and in published articles. For example, Senator
Michael Enzi said, "It is imperative, given the closing of the new century, that
all government agencies and private industry computer systems are prepared for
the problems that the Year 2000 creates." (Opening Statement at Hearing of
Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Financial
Services and Technology, July 30, 1997). Senator Daniel Patrick Moynihan said in
the Senate, "a seemingly innocuous computer glitch relating to how computers use
the date could wreak worldwide havoc." (Quoted in "Two Little Zeroes Turn Back
Clock," Newsday, April 7, 1997.) Congresswoman Connie Morella has written, "We
are in a race against time to avert a global catastrophe." She has called for
the President "to raise the visibility of the Year 2000 crisis by issuing a
strong directive or a policy statement." (Morella, "Clock is Ticking Down on
Computer Time Bomb," The Baltimore Sun, July 23, 1997, 13A.) C. Regulatory Agencies are Developing Policies on Year 2000 Compliance and
Disclosures Federal regulatory agencies also have recognized the Year 2000 computer problem
has significant policy and other implications. Agencies are conducting a broad
range of educational, supervisory, and regulatory activities to prevent major
problems from occurring. The national policy implications of the Year 2000 computer problem are reflected
in agencies meeting together to jointly develop policies. For example,
representatives of the Federal Reserve Board, Office of the Comptroller of the
Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision
and National Credit Union Administration formulated a common policy, "Safety and
Soundness Guidance Concerning the Year 2000 Business Risk" (December 17, 1997)
under the aegis of the Federal Financial Institution Examination Council
("FFIEC"). The large number of Federal agency web sites that have special pages dedicated
to the Year 2000 issue further attests to the significance of this issue. These
pages that contain a large amount of regulatory guidance, information and links
to other Year 2000 sites. For example, the SEC
(http://www.sec.gov/news/home2000.htm), Office of Thrift Supervision
(http://www.access.gpo.gov/ots/y2k.html), Board of Governors of the Federal
Reserve (http://www.bog.frb.fed.us/y2k/), General Services Administration
(http://www.itpolicy.gsa.gov/mks/yr2000/g7yr2000.html) and other agencies have
such web pages, many with a direct link from the home page. D. Responsible Individuals and Groups Say Year 2000 Issue Has Significant
Implications Nationally and Internationally Many responsible individuals and organizations have opined that the Year 2000
computer issue is a matter of great significance with implications beyond the
repairing of computer code that could affect the economy, orderly operation of
businesses, and public confidence nationally and internationally. Issue with Significant Implications
Senator D'Amato observed that "Time is very short, and the consequences could
be disastrous for institutions that are not already hard at work." He noted that
in addition to the problems of identifying and fixing the computer, there "are a
number of other issues that also cause concern ... liability issues, credit risk
issues, and issues of public confidence." (Prepared Statement of Chairman
Alfonse D'Amato, Hearing on the Financial Regulators' Management of the Year
2000 Problem, Committee on Banking Housing and Urban Affairs Subcommittee on
Financial Services and Technology, July 30, 1997)
International broker-dealer Merrill Lynch has stated, "Call it what you will:
a bug, a quirk, a challenge or a crisis. But don't call it trivial. The Year
2000 computer problem is now one of the most important issues facing businesses,
governments and other institutions worldwide ... its implications are extremely
serious and widespread." ("The Millennium Challenge," Merrill Lynch Forum,
September 7, 1997, http://www.ml.com/forum/millen.htm). To highlight the
seriousness of the problem, Merrill Lynch has published a full-page newspaper
advertisement entitled, "Coming to grips with the Year 2000 Problem" which
concludes "we believe this problem is an impending crisis that has not received
the attention it demands." (See Roll Call, September 8, 1997)
FFIEC has stated "The Year 2000 problem is much more than a technology issue;
it is an enterprise-wide challenge."
The Gartner Group reportedly has estimated that as many as half of the
companies with a Year 2000 problem will not become fully Year 2000 complaint by
January 1, 2000. (See Jinnett, "The Millennium Strikes Bank," Los Angeles
Lawyer, June 1997, 34) International Implications
The Director of the Division of Corporation Finance of the Commission
observed, "It has become increasingly apparent that a large percentage of the
world's computer systems must be modified to reflect the imminent change in the
millennium. This includes not only internal systems of public companies, but
also systems governing electronic interactions between those companies and other
entities, both domestic and foreign, including suppliers, customers, creditors,
borrowers, and financial service organizations." (Director's Testimony).
The United Nations is beginning to address the problem with member nations.
(Testimony of Ambassador Ahmad Kamal, Chairman of the Working Group on
Informatics of the United Nations, "The Year 2000 Challenge: The United Nations
Strategy," Testimony Before the House of Representatives Committee on Science's
Subcommittee on Technology, November 4, 1997)
The Basle Committee on Banking Supervision has issued a policy statement for
its international constituency entitled "The Year 2000: A Challenge for
Financial Institutions and Bank Supervisors" in September 1997.
A Business Week article stated that for "thousands of companies and government
agencies around the world, the Year 2000 problemY2K for shorthas become the
biggest headache this side of the millennium. ("Year 2000: The Meter's Running,"
Business Week, December 29, 1997.)
Richard M. Kearney, Principal, KPMG Peat Marwick LLP, one of the largest
public accounting firms, testified "the Year 2000 problem has developed into one
of the most pressing business issues of the day. It has been explained in the
press, discussed at length in technology journals and business forums across the
globe ... it is a problem that could effect every region and business in the
world that has computer technology."
Dr. Edward Yardeni, Chief Economist of Deutsche Morgan Grenfell, testified at
a Senate hearing that, "The Year 2000 Problem (Y2K) is a very serious threat to
the US economy. Indeed, I believe that it is inevitable that it could disrupt
the entire global economy in several ways. If the disruptions are significant
and widespread, then a global recession is possible." (Testimony before the U.S.
Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Financial
Services and Technology, November 4, 1997). Numerous News Articles The great significance of the Year 2000 problem is also evidenced by the large
number and substance of articles published on the Year 2000. Dozens of Year 2000
articles are being published weekly by newspapers, magazines and news services
that are local, national and international. Many significant issues raised by
the Year 2000 computer problem are raised in these articles. See, e.g., The
Times of London ("Computer Bug Tops Year's Agenda" on January 11, 1998),
InfoWorld ("Millennium Bug Already Taking Its Toll," January 12, 1998), American
Banker ("SEC: Banks Must Disclose Year-2000 Costs," January 13, 1998), The San
Francisco Chronicle ("Year 2000A Ticket to Disaster," January 7, 1998), Puget
Sound Business Journal ("2000 Reasons Why to Expect More Lawsuits," January 12,
1998), The Wall Street Journal ("CPA Group to Issue Guidelines on Costs of
Year-2000 Bug), The Tennessean ("Year 2000 Could Bring Crisis; Companies Race
Clock to Head Off Trouble"), and Newsweek ("The Day the World Shuts Down" cover
story on June 2, 1997). IV. Proposals Raising Significant Policy Issues Are Not Excludable Just Because
They Relate to Business Operations The Company appears to argue that proposals about important policy issues are
excludable if they involve operations. It cites AMR Corporation (April 2, 1987)
and Exxon Corporation (January 30, 1990) for support. The Proponent submits that
the Year 2000 computer situation has a broader economic and policy significance
than the situations in AMR and Exxon. The Commission staff has not concurred in
the exclusion of proposals under Rule 14a-8(c)(7) where significant economic or
policy issues are present, as discussed in the cases below in which the
registrants argued for exclusion citing AMR or Exxon for support. The context is that the Commission has not adopted the position that all
proposals are excludable if they involve business operations. For example, the
staff has not concurred in companies' intent to exclude proposals under Rule
14a-8(c)(7) relating to their operations involving marketing tobacco (RJR
Nabisco Holding Corp., February 23, 1998) or selling insurance (Citizens
Corporation, March 11, 1998). The significance of Year 2000 computer preparedness is much broader than that of
AMR. The proposal in AMR asks for the formation of a committee of outside
directors to conduct a review of the safety of the Company's airline operations
and report its findings to shareholders. The AMR proposal involves the "product"
that it offers to customerssafe airline seats. The Tenet Proposal involves
computer preparedness, which is not a Company product, but a matter that can
have large and far reaching effects inside and outside the organization, with
the potential for contagion to other organizations. The staff has not concurred
in the exclusion under Rule 14a-8(c)(7) of a proposal that involves significant
issues even when the Proposal relates to the production of its product, such as
the generation of energy. For example, the staff upheld a Proposal involving
"safety, regulatory compliance, emissions problems and related cost information"
of nuclear power operations by a utility (Carolina Power and Light Co., February
23, 1989). See also Florida Progress Corporation, January 26, 1993 (operation
and safety of company's nuclear power plant); Philadelphia Electric Company,
February 27, 1991 (study of modifications required for the company's nuclear
power plants to be safe for full coverage by insurance companies). Notably, in
these situations, all three companies cited AMR for support (and Philadelphia
Electric also cited Exxon for support) in their submissions supporting exclusion
and Commission staff did not concur in excluding the proposal. The proposal in Exxon involved specific measures to be undertaken by the Company
in implementing safety and hazard control policies, which arguably was a
particular problem for Exxon but not other companies. Although the staff
concurred in the exclusion of the Exxon proposal, it has not concurred in the
exclusion of other proposals involving environmental impact of a company's
operations. For example, in Unocal Corporation, March 6, 1996 (reviews of
available pollution prevention options for high priority pollution sources), the
staff did not concur in exclusion stating the proposal "raises significant
policy issues that are beyond the ordinary business operations of the company."
Unocal in its submission supporting exclusion under Rule 14a-8(c)(7) cited both
Exxon and AMR, but the staff apparently did not find these letters controlling.
In a somewhat analogous situation, the Commission staff was unable to concur in
the exclusion of a proposal requiring a report about a company's progress
towards meeting objectives outlined in the "Valdez Principles," an external
standard (Union Pacific Corporation, February 21, 1990). A part of the Tenet
Proposal requests information about progress towards a nationally recognized
standard of five stages of Year 2000 remediation: (1) awareness, (2) assessment,
(3) renovation, (4) validation and (5) implementation. V. Proposal Should Not Be Excluded Because It Does Not Request A Report Required
Under the Exchange Act The Company argues that Pacific Telesis Group (January 30, 1992) provides a
basis for excluding the Proposal because the form and content of disclosures are
ordinary business matters. The Pacific Telesis proposal asked for certain
information in a stand alone format in the company's Summary Annual Report sent
to shareholders. The Tenet Proposal differs because it does not ask the Company
to add information to a report that it currently sends to shareholders. The
Proposal requests the Company to prepare the information and send it in the form
of a report (the type of which is not limited). Reports Are Permissible Subjects of Shareholder Proposals If the Company intends to argue that a proposal requesting a registrant to send
a report is excludable, the Proponent argues that the Commission has not taken
this position. The staff has issued numerous letters no concurring in the
exclusion of shareholder proposals under Rule 14a-8(c)(7) that requested
registrants to issue reports to shareholders. E.g., Circuit City Stores, Inc.,
April 3, 1998; MAXXAM, March 26, 1998; Kohl's Corporation, March 23, 1998. The
staff has also not concurred in excluding a proposal requesting a supplement to
a registrant's annual report. Exxon Corporation, January 31, 1990. Numerous such
reports have mentioned operations where significant economic or policy issues
were present. Disclosures The Company also states that it intends to comply with Exchange Act requirements
and Staff Legal Bulletin No. 5 and should be permitted to exclude the Proposal.
(The Company does not aver that the Proposal is moot.) However, the Proposal
requests information that the Company might not disclose pursuant to its
Exchange Act obligations. The Exchange Act requires a registrant to disclose
only matters that would have a material impact on it. A registrant may determine
that the issue is not material and disclose nothing. Some registrants disclose
nothing about Year 2000 preparedness, as has been noted at the June Senate
Banking Committee hearing. The Proposal requests information to the shareholder
regardless of whether the Company deems the facts to be material or not. Also,
it requests types of information that would not be disclosed under the Exchange
Act requirements. The Proponent submits it would be poor public policy to concur in excluding
shareholder proposals because a registrant may or may not make a disclosure
about some aspect of any subject if it deems it to be material. An extension of
such a view could result in all proposals dealing with issues having a material
impact on the registrant being omitted. It raises a concern to preclude shareholder proposals when some registrants make
some disclosures about limited aspects of the proposals' subjects, particularly
where, in the words of Commissioner Unger testifying before the Senate Banking
Committee about Year 2000 disclosures, "much of the disclosure is not
informative." Such a policy could invite registrants to make innocuous
disclosures on a variety of issues in order to enable them to omit shareholder
proposals requesting significant information relating to significant economic
and policy issues. Conclusion For the reasons above, I request that the staff determine that the Year 2000
computer preparedness issue raises significant economic, policy or other issues
that are beyond the ordinary business operations of the Company and not concur
in the view that the Proposal may be omitted under Rule 14a-8(c)(7). The Company has asked the Commission staff to notify them and confer with them
if the staff intends not to concur in its position to exclude the Proposal. The
Proponent respect requests that the staff not afford this special privilege to
the Company. The Company has vastly greater financial and legal resources than
the Proponent. It would be unfair to provide it with the additional advantage of
special opportunities to negotiate the final decision. Thank you for considering these views. Sincerely, cc: Scott M. Brown, Esq., Tenet Healthcare
[STAFF REPLY LETTER]
July 1, 1998 RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF CORPORATION FINANCE Re: Tenet Healthcare Corporation (the "Company") Incoming letter dated May 21, 1998 The proposal requests the board of directors to prepare a report informing the
shareholders on the status of the Company's computer system preparedness for the
Year 2000. The Division is unable to concur in your view that the proposal may be excluded
from the Company's proxy materials under rule 14a-8(c)(7). In the staff's view,
the proposal raises significant policy issues that are beyond the ordinary
business operations of the Company. Accordingly, the Division does not believe
that rule 14a-8(c)(7) may be relied on as a basis for omitting the proposal from
the Company's proxy materials. Sincerely, Sanjay M. Shirodkar Attorney-Advisor
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