Company Name: International Business Machines Corp. (Mueller)
Public Availability Date: January 15, 1999
Document Sections:
LETTER OF INQUIRY
APPENDIX
STAFF REPLY LETTER
[LETTER OF INQUIRY]
December 2, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Subject: 1999 Proxy StatementShareholder Proposal of Mr. Martin Mueller III
Ladies and Gentlemen:
Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, I am
enclosing six copies of this letter together with a stockholder proposal (the
"Proposal"), attached as Exhibit A hereto which Proposal was resubmitted for the
third year by Mr. Martin Mueller III (the "Proponent"), a former employee and
current retiree of the International Business Machines Corporation (the
"Company" or "IBM"). The Company believes the Proposal, which dictates that "[n]o
medical benefits shall be extended to, for, or funded by the IBM Corporation for
any friend or friends of an IBM employee or retiree," can properly be omitted
from the proxy materials for IBM's annual meeting of stockholders scheduled to
be held on April 27, 1999 (the "1999 Annual Meeting") for the reasons 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.
I. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(i)(4) AS A PERSONAL GRIEVANCE
DESIGNED TO RESULT IN A BENEFIT TO THE PROPONENT, AND TO FURTHER A PERSONAL
INTEREST WHICH IS NOT SHARED BY OTHER IBM STOCKHOLDERS AT LARGE.
Rule 14a-8(i)(4) permits omission of a proposal that relates to the redress of a
personal claim or grievance against the company or any other person, or if it is
designed to result in a benefit to a proponent or to further a personal
interest, which is not shared with other shareholders at large. The instant case
presents precisely such a situation.
The Proponent is a former employee and current retiree of the Company. This is
the third consecutive year in which the Proponent has lodged proposals emanating
out of the Company's decision to extend medical benefits to the same-gender
domestic partners of Company employees and retirees. The gravamen of the
Proposal, which is clearly visible on the face of the Proposal, is that the
Proponent does not believe that he should be paying for the costs of such
medical benefits; in his words; "[b]y your action you are making me pay for a
life style that I disapprove of." The instant Proposal, along with a series of
earlier proposals lodged by the Proponent and members of his family,1 have all
emanated directly out of the Proponent's problem with same-gender domestic
partners, the Company's decision to provide medical benefits to them, and the
perceived cost effect the Proponent claims apply directly to his own medical
premiums. After noting that he was "very appalled that Mr. Gerstner and the
board of directors have made the decision that the company will pay for medical
care of a friend or friends of an IBM employee or retiree," the Proponent states
that "[t]his added cost will automatically be passed on and partially funded by
all IBM retirees and employees increasing the cost of their own medical care."
By lodging the instant Proposal mandating that "no medical benefits shall be
extended to, for, or funded by the IBM corporation for any friend or friends of
an IBM employee or retiree," it is clear both that the Proponent disagrees with
the present coverage provisions of the Company's medical plans, and that he does
not want the Company to have to fund any medical benefits that he is not
personally receiving. It is equally clear from the face of the Proposal that the
Proponent has lodged the instant Proposal in the hope to avoid having to pay any
increased premiums which may in the future be associated with providing such
coverage. The Proponent's self-centered desires are obvious; not only does he
want to use the stockholder proposal process to "micro-manage" the Company's
medical plan eligibility criteria, he wants to do so in a way that saves him
money. Since the Proponent does not want to have to pay for a life style that he
disapproves of, he figures that by taking current medical benefits away from
other plan beneficiaries, his own future out-of-pocket medical coverage premiums
will be minimized. This is a classic personal grievance situation.
The Commission long ago established that the purpose of a stockholder proposal
process is "to place stockholders in a position to bring before their fellow
stockholders matters of concern to them as stockholders in such corporation...."
Release 34-3638 (January 3, 1945)(Exchange Act Regulation 241.3638). The purpose
of the personal grievance rule is to allow registrants to exclude proposals that
involve disputes that are not of interest to stockholders in general. The
provision was developed "because the Commission does not believe that an
issuer's proxy materials are a proper forum for airing personal claims or
grievances." Release 34-12999 (November 22, 1976)(emphasis added).
The Proponent does not understand that the Company must operate in the
collective interest of all employees and retirees, not just the Proponent. The
Proponent is one beneficiary among approximately 500,000 persons presently
covered under our medical benefit plans. Covered persons include employees,
retirees and their families, and, in 1997, a total of 216 same-gender domestic
partners. As might be expected, each of these participants have their own
opinions and personal interests, which often vary from one another. The fact
that the instant Proponent continues to disapprove of same-gender domestic
partners being covered under our medical plans for the past few years shows only
that he has a personal issue with such persons, as well as the Company and its
medical plan coverage provisions. In the Company's view, the Proponent's
misguided attempt to narrow the scope of a medical plan's eligibility provisions
by excluding a group of existing plan beneficiaries in order to benefit himself
and others in the plan is hardly a benefit applicable to IBM shareholders at
large. In fact, the Proposal is fully excludable under Rule 14a-8(i)(4), as the
true import of the Proposal is designed to directly benefit the Proponent. By
taking the actions suggested in the Proposal, and reversing the Company's
decision to cover certain individuals the Proponent does not think ought to be
eligible for participation under the Company's medical plans, the Proponent
hopes to advance his own personal agenda. He also hopes not to have to share in
the costs of funding benefits he is not personally receiving. Were these
benefits to be rescinded, the Proponent believes that he would gain directly and
personally by keeping his own medical costs down. Such a personal benefit is
certainly not what the stockholder proposal process was designed for.
In this connection, the Commission has consistently taken the position, see
Proposed Amendments to Rule 14a-8 Under the Securities Exchange Act of 1934
Relating to Proposals by Security Holders, Exchange Act Release No. 34-19135
(October 14, 1982), that former Rule 14a-8(c)(4) was intended to provide a means
for shareholders to communicate on matters of interest to them as shareholders.
In discussing such Rule, the Commission stated:
It is not intended to provide a means for a person to air or remedy some
personal claim or grievance or to further some personal interest. Such use of
the security holder proposal procedures is an abuse of the security holder
proposal process, and the cost and time involved in dealing with these
situations do a disservice to the interests of the issuer and its security
holders at large.
See Exchange Act Release No. 19135 (October 14, 1982).
In fact, upon a simple review of the Proposal, it is clear that the Proposal's
implementation would not benefit the Company's shareholders at large. Aside from
the fact that IBM employees and retirees hold only 5.4% of the Company's shares
of record, the Proposal cannot be read to reflect any of such other
stockholders' interests.
As the Proponent knows, providing Company medical benefits to the same-gender
domestic partners was implemented in order for the Company to keep pace with
many other prominent technology companies, and to help attract and retain
valuable employees in a highly competitive and changing business environment. In
deciding to offer this particular employee benefit, IBM joined many other
companies with whom IBM competes for highly skilled talent and business
opportunities. These companies include, among many others, Intel, Sun
Microsystems, Hewlett-Packard, Apple and Microsoft. Attracting and retaining
topflight employees is the key to the Company's overall success, and it is that
success in the marketplace which most ultimately benefits the Company and its
stockholders at large. IBM's improved performance in the marketplace over the
past few years is in large part reflective of the quality of our employees'
collective contributions.
For these reasons, IBM stockholders at large would not favor IBM losing its
competitive edge in the marketplace and its valuable employees to the
competition over taking away a limited medical benefit in order to keep this
particular Proponent's own health care costs where he might like them to be. In
this connection, the Commission has taken the position that Rule 14a-8 is
intended to provide a means for shareholders to communicate on matters of
interest to them as shareholders, and not to further personal interests. See
Release No. 34-19135 (October 14, 1982).
While paragraph (i)(7) of Rule 14a-8 also provides an independent basis for
omission of this Proposal, (see Argument II, infra), former paragraph (c)(4) of
this rule has been cited on many occasions by registrants as an alternate basis
for omitting proposals where, as here, there was a particular benefit which
would accrue to a proponent which was not shared by other stockholders at large.
We believe that this Proposal presents precisely such a case. In many of the
cases that we have reviewed, the staff has concluded that other personal
grievance-type proposals have also related to the ordinary conduct of the
registrant's business, and therefore the staff had not found it necessary to
address former Rule 14a-8(c)(4) as an alternative basis for omission. See e.g.,
Bell Atlantic Corporation (February 4, 1998); International Business Machines
Corporation (December 28, 1995); American Telephone and Telegraph Company
(December 15, 1992). See full discussion of other letters in Argument II, infra.
In the instant case, the Company believes that Rule 14a-8(i)(4) presently
provides a fully adequate basis for omitting the Proposal from our proxy
materials for the 1999 meeting as it is, in fact, no more than a demand from a
Company retiree subject to the possibility of paying increased medical premiums
that the Company keep his medical premiums down by jettisoning from coverage a
number of other plan beneficiaries who, like the Proponent, also pay premiums
and incur medical costs.
The staff has also utilized former Rule 14a-8(c)(4) to exclude proposals in
cases where the Proponents were using proposals as a tactic to redress a
personal grievance against the Company notwithstanding that the proposals were
drafted in such a manner that they could be read to relate to matters of general
interest to all shareholders. See Pyramid Technology Corporation (November 4,
1994). Texaco, Inc. (February 15, 1994 and March 18, 1993), Sigma-Aldrich
Corporation (March 4, 1994); McDonald's Corporation (March 23, 1992); American
Telephone & Telegraph Company (January 2, 1980). Even if the Proposal could be
read in a more general light, since the shareholder proposal process is not
intended to be used to air or rectify personal grievances, Rule 14a-8(i)(4)
provides a fully adequate basis in this case for omitting the instant Proposal
from the proxy materials for the Company's 1999 Annual Meeting. See generally
International Business Machines Corporation (January 20, 1998)(proposal seeking
for the Board of Directors to increase the pensions of retired employees
properly excluded by staff under former Rule 14a-8(c)(4)); International
Business Machines Corporation (January 6, 1995)(proposal to reinstate health
benefits properly excluded by staff under former Rule 14a-8(c)(4)); Lockheed
Corporation (April 25, 1994 and March 10, 1994)(proposal to reinstate sick leave
benefits properly excluded under former Rule 14a-8(c)(4)); International
Business Machines Corporation (January 25, 1994)(proposal to increase retirement
plan benefits properly excluded under Rule 14a-8(c)(4)); and General Electric
Company (January 25, 1994)(proposal to increase pension benefits properly
excluded under former Rule 14a-8(c)(4)). See also Southern Company (March 10,
1998)(proposal to form a committee for the purpose of investigating complaints
against Company's management excluded under Rule 14a-8(c)(4)); CBS Corporation
(March 4, 1998)(proposal by former employee to provide personal benefit excluded
under Rule 14a-8(c)(4)); CSX Corporation (February 5, 1998)(proposal to
institute grievance procedure excluded under Rule 14a-8(c)(4); Tri-Continental
Corporation (February 24, 1993)(Former Rule 14a-8(c)(4) utilized by staff to
exclude proposal seeking registrant to assist the Proponent in a lawsuit against
former employer); Caterpillar Tractor Company (December 16, 1983)(former
employee's proposal for a disability pension properly excluded under Rule
14a-8(c)(4)); SmithKline Corporation (January 20, 1978)(Former Rule 14a-8(c)(4)
used to exclude proposal seeking to compensate community of homeowners, which
included the Proponent). See generally Orbital Sciences Corporation (October 16,
1995)(proposal seeking for registrant to hire would-be rocket engineer properly
excluded by staff as relating to redress of a personal claim or grievance under
former Rule 14a-8(c)(4)). The Company therefore requests that no enforcement
action be recommended to the Commission if it excludes the instant Proposal on
the basis of Rule 14a-8(i)(4).
Finally, based upon the Proponent's history with the Company in connection with
his submission of multiple proposals over the course of the last three proxy
seasons, all emanating out of this particular matter (see footnote 1, supra) the
Company also requests Cabot treatment, permitting the Company to utilize the
Staff's response to apply to any future submissions by the Proponent of the same
or any similar proposals. See Cabot Corporation (November 4, 1994).
II. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(i)(7) AS RELATING TO THE
CONDUCT OF THE ORDINARY BUSINESS OPERATIONS OF IBM.
In addition to the fact that the Company believes the Proposal should be
excluded pursuant to Rule 14a-8(i)(4) for the reasons articulated in Argument I,
above, the Company also believes that the Proposal may be omitted from the
Company's proxy materials for the 1999 Annual Meeting pursuant to the provisions
of Rule 14a-8(i)(7), because it deals with matters relating to the conduct of
the ordinary business operations of the Company.
This Proposal relates to a medical benefits coverage question. The Proponent
demands that the Company rescind an eligibility criterion for same-gender
domestic partners which the Company instituted under its medical plans a number
of years ago, purportedly because he disagrees with it, and because this medical
benefit is costing him money. In addition to being a personal grievance, the
Proposal also presents a garden-variety employee benefits plan coverage matter,
under which this Proponent would have the Company's stockholders "micro-manage"
the Company's employee medical plans. This is precisely the type of situation
Rule 14a-8(i)(7) has been designed to cover.
In this connection, the determination of the type, amounts and eligibility for
benefits available to regular full-time employees, retirees and their families
under the Company's employee benefits programs have consistently been
administered by registrants over the years as part of their ordinary business
operations. See Cincinnati Financial Corporation (February 20, 1996)(proposal to
amend retirement plan to permit certain participants to roll out funds into
investment instrument of their own choosing properly excludable under former
Rule 14a-8(c)(7)); International Business Machines Corporation (December 28,
1995) (retirement benefits); Allied Signal Inc. (November 22, 1995)(retirement
benefits); American Telephone and Telegraph Company (December 15, 1992)(pension
and medical benefits); PepsiCo (March 7, 1991) (health benefits); Minnesota
Mining and Manufacturing Company (February 6, 1991)(employee health and welfare
plan selection); General Motors Corporation (January 25, 1991)(scope of health
care coverage); and Procter & Gamble Co. (June 13, 1990)(prescription drug
plan).
Consistent with the position of the staff, IBM has for many years provided
retirement, health and other plan benefits to its employees, and such benefits
have been modified and supplemented over the years on a regular basis to meet
the changing needs of the Company as well as its employees, all in the ordinary
course of the Company's business. In past years, for example, employee medical
coverage was provided without additional charge to the employee. Recognizing the
cost of such benefits, and the need for the employee to share some
responsibility for such costs, the Company modified its medical plans a few
years ago to require employees to contribute financially toward such benefits.
Even more recently, for example, the Company went out and notified Company
retirees, including the instant Proponent, that they too would now have to pay
for a share of their health benefits.
It is axiomatic that all plan decisions made by the Company affect plan
beneficiaries in one way or another. Plan beneficiaries also have opinions on
benefit changes, which changes are made on a regular basis. As might be
expected, each time a benefit plan provision is changed, some employees are
happy (particularly if the change benefits them), and others are unhappy, if the
change does not benefit them. At IBM, like any other company, employees and
retirees voice their opinions on these matters to the plan administrator, all in
the ordinary course of business.
In addition, the specific eligibility criteria for the Company's employee
benefit programs have, for many years, been "ordinary business matters" under
Rule 14a-8(c)(7), even before the now-famous Cracker Barrel2 decision was
initially rendered. See IBM Corporation (January 23, 1992) (stockholder proposal
urging the Company to provide spousal-type benefits to committed domestic
partners of employees of the Company also properly excludable under former Rule
14a-8(c)(7)). In this connection, it is particularly noteworthy that the 1992
letter in IBM preceded the Commission's Cracker Barrel ruling by nearly a year.
At the time of that IBM letter, the Company had no benefit coverage for
same-gender domestic partners, and it was then urged that IBM extend our benefit
coverage to such persons. IBM then successfully argued to the Staff that the
proposal should be excluded as "ordinary business" under Rule 14a-8(c)(7),
because it was within the Company's business prerogative to make such specific
plan benefit coverage decisions. Under the interpretive position of the
Commission at that time, all employment-related matters, including those
purportedly raising social issues were examined by the Staff on a case-by-case
basis. Thus, operating under such interpretative position, the Staff reviewed
all of the facts and circumstances and concurred with the Company that there was
nothing in the proposal which would except it from coverage under the ordinary
business exclusion. The proposal was therefore excluded as falling within the
Company's "ordinary business operations". While Cracker Barrel subsequently
advanced the general rule that all employment related proposals, including those
raising social policy issues, would automatically be subject to exclusion under
as "ordinary business," now that Cracker Barrel has been reversed, with the
Staff again returning to examination of similar employment-related proposals on
a case-by-case basis, the Company submits that the result in the instant matter
should be the same as earlier reached in the 1992 IBM letter, and this Proposal
excluded under current Rule 14a-8(i)(7). As before, this is an employee medical
benefit plan coverage decision which the Company effects as part of its ordinary
business operations, and the Proponent's attempt to have the Company's
stockholders "micro-manage" these decisions should not be permitted.
Furthermore, as before, the Company does not believe that a demand like the one
raised by this Proponent raise any substantial policy issues requiring
intervention by the Company's stockholders. As under the pre-Cracker Barrel
case-by-case analysis, the Company again believes that the instant situation
presents another example for the application of the "ordinary business"
exclusion under current Rule 14a-8(i)(7).
As noted, this particular retiree's attempt to have stockholders "micro-manage"
the Company's medical plan's coverage provisions is truly based upon the
financial effect he perceives such existing provisions have on the costs of his
own benefits. Aside from the fact that his own statements are also misleading
(see Argument III, infra), the Company is regularly faced with a variety of
coverage and implementation decisions under our benefit plans. Such decisions,
which include the institution of specific eligibility criteria and the
qualification of individual beneficiaries, all clearly fall within the rubric of
a company's ordinary business operations. Moreover, were stockholders asked to
step in for the purpose of adopting, implementing and interpreting these
employee benefit plan provisions, they would be faced with a myriad of different
issues. For example, while the instant Proponent wants to rescind existing
benefit coverage for some plan beneficiaries, other persons have from time to
time sought for the Company to further extend plan coverage for other persons.
Other beneficiaries have other issues associated with the cost of their
benefits, including various coverage, reimbursement and co-pay matters. The
stockholder proposal process, however, is not the place to raise any of such
matters. As these types of benefit decisions are necessarily best left to the
expertise of the Company's managment, they fall within the Company's ordinary
business operations. See e.g., International Business Machines Corporation
(December 23, 1997)(proposal to have Company further extend eligibility criteria
for qualification as a domestic partner to include those in heterosexual
relationships also excluded as part of company's ordinary business operations).
Moreover, even if the instant Proposal is viewed by the Staff as raising a
social issue, the Company submits that, as in the 1992 IBM letter, the ultimate
decision regarding plan benefit coverage criteria should be the same under Rule
14a-8(i)(7) as it was earlier. Just as the Staff then concurred in 1992
pre-Cracker Barrel to the Company's request to exclude a proposal seeking to
have the Company grant benefits to same-gender domestic partners as "ordinary
business", in examining all of the current facts, the same result should again
follow with the instant demand to rescind such benefits. In this connection, it
should be understood that during the course of the six years since the initial
IBM letter, the Company reached its own decision, in the exercise of its own
business judgment, to provide same-gender domestic partner benefits in
proscribed circumstances, for the reasons outlined earlier. The Company did so
not because it related to any overriding social policy rationale, but because it
was the right thing to do for our own business and employees. As noted earlier,
in 1997 IBM provided medical coverage for 216 same-gender domestic partners out
of a total universe of approximately 500,000 covered persons, and IBM is one of
many organizations too numerous to list or even append to this paper3 who have
implemented various benefit plans for domestic partners.
Now that the Company provides medical benefits for same-gender domestic
partners, this particular Proponent would like to take them away in order to
keep his own medical costs down. Just as it is peculiarly within the province
and expertise of the Company's management to run the Company and its benefit
plans on a day-to-day basis, and to make medical benefit coverage decisions
which will continue to attract and retain the best employees, the Company
continues to believe that the instant Proposal improperly attempts to have
stockholders "micro-manage" the Company and its business decisions concerning
the specific eligibility criteria to be applied under its medical benefit plans,
in contravention of Rule 14a-8(i)(7). In short, whether a proponent is for or
against providing employee benefits to certain groups of employees, retirees,
same-gender domestic partners, or others, a company's regular employment-related
decisions with respect to the eligibility criteria relating thereto should
continue to fall within the rubric of Rule 14a-8(i)(7), making such proposals
excludable as part of a company's ordinary business operations. See Chevron
Corporation (January 29, 1998); International Business Machines Corporation
(December 23, 1997, December 22, 1997, December 19, 1997, and December 12, 1996)
(multiple staff rulings confirming IBM's no-action position relating to the
extension of such benefits under former Rule 14a-8(c)(7)); Ford Motor Company
(March 4, 1996) (proposal that registrant not use religion, sex, ethnicity or
national origin as a criterion for either discriminating against or granting
preferential treatment to people in employment properly excluded under former
Rule 14a-8(c)(7)); General Motors Corporation (February 22, 1996) (to same
effect); Sturm, Ruger & Company (December 28, 1995)(proposal to establish
committee to determine whether Company discriminates by denying medical
insurance coverage to employees who lawfully operate motorcycles without helmets
properly excluded under former Rule 14a-8(c)(7)); U.S. West, Inc. (February 13,
1990) (proposal seeking to prohibit the registrant from promoting or condoning
the existence of any homosexual organization or activities within the company,
including the use of company facilities and company financial support,
determined by staff to be properly excludable under former Rule 14a-8(c)(7)).
In sum, since the subject matter of the instant proposal involves nothing but
the day-to-day business operations of the Company, and attempts improperly to
have stockholders "micro-manage" certain of the Company's medical plan benefit
coverage decisions, upon the basis of the consistent precedents of the Staff
cited above, the Company requests that no enforcement action be recommended to
the Commission if it excludes the instant Proposal on the basis of Rule
14a-8(i)(7).
III. THE PROPOSAL SHOULD ALSO BE OMITTED UNDER RULE 14a-8(i)(3) BECAUSE IT IS
FALSE AND MISLEADING TO IBM STOCKHOLDERS.
The Company firmly believes that Rules 14a-8(i)(4) and (i)(7) each provide fully
adequate bases for the exclusion of the Proposal. In addition, however, Rule
14a-8(i)(3) provides another basis for exclusion of the entire Proposal in this
case. Rule 14a-8(i)(3) permits the omission of proposals and supporting
statements that are contrary to the Commission's proxy rules, including Rule
14a-9, which in turn, prohibits false or misleading statements in proxy
materials. Rule 14a-9(a) provides that no proxy solicitation shall be made
containing any statement which, at the time and in the light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading. Following our review of the Proposal, the Company believes that the
instant Proposal should also be omitted pursuant to Rule 14a-9 and 14a-8(i)(3)
because it would be false and misleading to IBM stockholders.
For example, in the introductory material, the Proponent states in the first
sentence that "Mr. Gerstner and the board of directors have made the decision
that the company will pay for medical care of a friend or friends of an IBM
employee or retiree." (emphasis added). This is misleading. The Company has
explained in past letters to the Proponent, and he knows full well, that medical
benefits may be extended to qualifying same-gender domestic partners of our
employees and retirees. Furthermore, this coverage decision was made by the
Company in the ordinary course of managing its employee medical benefit plans.
This is the third year the Proponent has lodged this submission, and it is clear
that he is again attempting to create the assumption that IBM will cover any
friend or friends of an IBM employee or retiree under its medical plans. This is
also untrue. As an example, nearly every employee and retiree has one or more
friends. Yet, "friends" are not covered under any IBM employee medical benefit
plan. Upon a reading of the instant Proposal, however, some persons could well
believe (falsely) that IBM, as a benevolent employer, has extended benefit
coverage to any "friend or friends of an IBM employee or retiree." While some
IBM employees and retirees already familiar with the Proponent or our medical
benefit plan coverage of same-gender domestic partners might understand what the
Proponent is referring to, the vast majority of IBM stockholders certainly would
not. Therefore, this sentence, including the Proponent's reference to "friend or
friends of an IBM employee or retiree," should be omitted as false and
misleading.
The second sentence of the submission is also false and misleading. The
Proponent baldly states, as a factual matter, that "this added cost will
automatically be passed on and partially funded by all IBM retirees and
employees increasing the cost of their own medical care." The Proponent has no
factual basis for making such a statement. Moreover, as a former employee who
worked as a Senior Lab Specialist at our Tucson, Arizona plant prior to leaving
the Company, the Proponent has no IBM expertise, and has played no role, in
either the design or the funding of any of our medical benefit plans. While the
Proponent is certainly entitled to have his opinions, since this sentence, as
stated, would also cause other IBM employees and retirees to believe (falsely)
that all added costs would be automatically passed on and funded by them, it
should also be omitted as false and misleading.
The third sentence, stating that "[b]y your action you are making me pay for a
life style choice that I disapprove of," is equally false and misleading. Any
person reading this would assume that the Proponent, rather than the domestic
partner of an IBM employee or retiree, is the one paying for these benefits. At
IBM, it is the Company, together with contributions from or on behalf of covered
persons, that pays the premiums for the specific coverage selected. The amount
of each employee's or retiree's premium cost is specifically dependent upon the
personal benefit selections available to and selected by them. The availability
of plan choices and their associated benefits and costs are of course subject to
change under the terms of the Plans. In this particular case, the undersigned
has been informed that the Proponent has been continuously enrolled in the same
medical plan since April 1, 1993, that he paid $2 per month in 1997 for his
medical plan premiums, and that he paid no ($0) monthly premiums for such
coverage in 1998. For 1999, it is also my understanding that the Proponent's
plan will again carry no monthly coverage premiums. While changes could always
be made to the Company's medical benefit plans which would cause the Proponent's
premiums to rise, since the Proponent's own medical premiums have actually gone
down after implementation of the domestic partner benefits, we believe it is
inappropriate for the Proponent to suggest any direct causal nexus between the
Company's institution of such benefits and the amount of his premiums. Since we
believe it is false and misleading for the Proponent to suggest that he is
directly paying for the domestic partner benefits and that the Company is making
him pay for a life style choice that he disapproves of, the entire third
sentence of the submission be omitted.
Finally, the Proposal itself, and its repeat use of the phrase "any friend or
friends" is false and misleading for the same reasons noted above in connection
with the introductory sentence of the submission. Since the Company does not in
fact cover "any friend or friends of an IBM employee or retiree" under our
medical plans, it is false and misleading for the Proponent to suggest again
that the Company provides such benefits to any friend or friend. The entire
sentence constituting the instant Proposal should therefore be omitted.
In sum, with the exception of the fourth sentence of the first paragraph of the
submission, stating that "[i]t is now time for that directive or decision to be
reversed," the entire submission, including the Proposal itself, should be
omitted as false and misleading. Such fourth sentence cannot stand alone,
particularly in the absence of a viable Proposal. Given that the instant
submission suffers from multiple infirmities, the Company submits that the
entire submission should properly be omitted under Rules 14a-8(i)(3) and 14a-9.
The Company therefore respectfully requests that no enforcement action be
recommended to the Commission if the Company excludes the entire Proposal on the
basis of Rules 14a-8(i)(3) and 14a-9.
IV. THE PROPOSAL SHOULD BE OMITTED UNDER RULE 14a-8(i)(1) AS AN IMPROPER SUBJECT
FOR ACTION BY STOCKHOLDERS UNDER NEW YORK STATE LAW.
Section 701 of the Business Corporation Law of the State of New York, the law of
the state of IBM's incorporation, provides that "...the business of a
corporation shall be managed under the direction of its board of directors...."
The undersigned, following a review of New York law, has found nothing which
would legally place the decision making relating to the instant Proposal and its
benefit plan decision-making in the hands of stockholders. By improperly
demanding direct action on the Proposal by the Company's stockholders as to the
Company's medical plan's eligibility requirements, the Proponent has made the
Proposal an improper subject for stockholder action under New York State law.
The Company therefore believes that the Proposal may also independently be
omitted from the 1999 proxy materials pursuant to Rule 14a-8(i)(1), and requests
that no enforcement action be recommended if it excludes the Proposal on the
basis of Rule 14a-8(i)(1).
In summary, for the reasons and on the basis of the authorities cited above, IBM
respectfully requests your advice that the Division will not recommend any
enforcement action to the Commission if the Proposal is omitted from IBM's proxy
materials for the 1999 Annual Meeting. We are sending the Proponent a copy of
this submission, thus advising him of our intent to exclude the Proposal from
the proxy materials for the 1999 Annual Meeting. The Proponent is respectfully
requested to copy the undersigned on any response that the Proponent may choose
to make to the Commission. If there are any questions relating to this
submission, please do not hesitate to contact the undersigned at 914-499-6148.
Thank you for your attention and interest in this matter.
Very truly yours,
Stuart S. Moskowitz
Senior Counsel
cc: Mr. Martin Mueller III
-----FOOTNOTES-----
1 In 1996, the Proponent submitted three (3) proposals emanating out of the
instant grievance. These proposals were submitted after the deadline and
excluded as untimely under Rule 14a-8(a)(3). See International Business Machines
Corporation (January 17, 1997). In 1997, the Proponent lodged four (4) separate
proposals with the Company, again all emanating out of the instant grievance.
After he was informed by the Company that he could only submit one proposal, he
resubmitted a proposal identical to this one, and had his wife, son, and
daughter lodge the remaining three proposals he had initially submitted, again
all emanating out of the instant grievance. Last year, the Company outlined the
defects in each of these four proposals, for the Proponent, as well as for the
three nominal proponents, in a single omnibus letter to the Staff, and the Staff
concurred with the Company's request to exclude all (4) four proposals pursuant
to Former Rule 14a-8(a)(4). See International Business Machines Corporation
(January 26, 1998).
2 Cracker Barrel Old Country Store, Inc. (October 13, 1992 and January 15, 1993)
(proposal seeking to implement nondiscriminatory employment policies relating to
sexual orientation, and to add explicit prohibitions against such discrimination
to the registrant's employment policy statement then determined by both the
staff and the full Commission to be properly excluded under former Rule
14a-8(c)(7)).
3 For example, one unofficial but representative listing of such employers can
be found on the Internet at http://www.nyu.edu/pages/sls/gaywork/codponly.html
[APPENDIX]
Office of the Secretary
International Business Machines Corporation
One Old Orchard Road
Armonk, N.Y. 10504-1783
November 8, 1998
Mr. Secretary
As a shareholder and a retiree of the IBM Corporation, I am very appalled that
Mr. Gerstner and the board of directors have made the decision that the company
will pay for medical care of a friend or friends of an IBM employee or retiree.
This added cost will automatically be passed on and partially funded by all IBM
retirees and employees increasing the cost of their own medical care. By your
action you are making me pay for a life style choice that I disapprove of. It is
now time for that directive or decision to be reversed.
I therefor request that at the next IBM shareholders meeting that the following
proposals be brought forth for discuss and be voted on.
No medical benefits shall be extended to, for, or funded by the IBM corporation
for any friend or friends of an IBM employee or retiree.
Sincerely,
Martin Mueller III
3601 N. Tres Lomas Dr.
Tucson, AZ. 85749-9421
IBM Account Numbers
13592-52580
[STAFF REPLY LETTER]
January 15, 1999
Response of the Office of Chief Counsel
Division of Corporation Finance
Re: International Business Machines Corporation
Incoming letter dated December 2, 1998
The proposal prohibits IBM from extending medical benefits to friends of IBM
employees or retirees.
There appears to be some basis for your view that IBM may exclude the proposal
under rule 14a-8(i)(7), as relating to IBM's ordinary business operations (i.e.,
employee benefits). Accordingly, we will not recommend enforcement action to the
Commission if IBM omits the proposal from its proxy materials in reliance on
rule 14a-8(i)(7). In reaching this position, we have not found it necessary to
address the alternative bases for omission upon which IBM relies.
Sincerely,
Carolyn Sherman
Special Counsel
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