Company Name: Int'l. Business Machines Corp.
Public Availability Date: March 2, 2000
Document Sections: LETTER OF INQUIRY 1
LETTER OF INQUIRY 2
APPENDIX
LETTER OF INQUIRY 3
STAFF REPLY LETTER [LETTER OF INQUIRY 1]
December 22, 1999 Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549 Subject: IBM Stockholder Proposal of the Amalgamated Bank of New York
LongView Collective Investment Fund 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 was submitted to the
International Business Machines Corporation (the "Company" or "IBM") by the
Amalgamated Bank of New York/LongView Collective Investment Fund (the
"Proponent"). The Proponent was established by the Amalgamated Bank of New York,
which bank in turn is owned by the Union of Needle Trades, Industrial and
Textile Employees ("UNITE"), a member union of the AFL-CIO. The Proposal, which was filed under cover of a letter dated November 16, 1999,
requests that the Board "establish a committee of outside directors to prepare a
report at reasonable expense to shareholders on the potential impact on the
company of pension-related proposals now being considered by national policy
makers, including issues under review by federal regulators about the legality
of cash balance pension plan conversions under federal anti-discrimination laws,
as well as legislative proposals affecting cash balance conversions and related
issues." IBM believes that the Proposal can be properly omitted from the proxy materials
for IBM's Annual Meeting of Stockholders scheduled to be held on April 25, 2000
(the "2000 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. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(i)(7) AS RELATING TO THE CONDUCT OF
THE ORDINARY BUSINESS OPERATIONS OF IBM. Federal courts have recognized that "the rights of pensioners are matters that
are primarily the responsibility and concern of corporate management and its
directors rather than that of its stockholders." Curtin v. American Telephone
and Telegraph Company, 124 F. Supp. 197, 198 (S.D.N.Y. 1954). The Proponent
seeks a report on the potential impact on the Company of various pension-related
proposals now being considered in Washingtonincluding issues regarding the
legality of cash balance conversions under applicable laws. At the outset, it is
important to note that we disagree with the Proponent's characterization of this
matter as a "national controversy," and will show that the issues associated
with our Company's retiree benefits are no more than ordinary business matters.
As such, the Proposal, seeking a report on such ordinary business matters,
should be excluded as ordinary business under Rule 14a-8(i)(7). A. REQUESTING A REPORT WHICH INVOLVES ORDINARY BUSINESS MATTERS IS FULLY
EXCLUDABLE UNDER RULE 14a-8(i)(7) In Release 34-20091 (August 16, 1983), the Commission implemented a significant
change in the staff's interpretation of the ordinary business exclusion. Prior
to that time, the staff took the position that proposals requesting issuers to
prepare "reports" on specific aspects of their business, or to form "special
committees" to study a segment of their business, would not be excludable under
the ordinary business exclusion. This interpretation was problematical, and the
Commission recognized it. In Release 34-20091, the Commission found that its
earlier interpretation raised form over substance and rendered the provisions of
the ordinary business exclusion largely a nullity. As a result, the Commission
changed its interpretative position, and following the implementation of Release
34-20091, the Commission now considers whether the subject matter of the special
report or the committee sought by a proponent involves a matter of ordinary
business; where it does, the proposal will be excludable as ordinary business
under Rule 14a-8(i)(7). The Company submits that the instant Proposal seeks a report relating to the
Company's ordinary business activities. These ordinary business activities
include assessments of the impact on the Company of (i) of cash balance pension
conversion activities undertaken by the Company under applicable law, and (ii)
potential legislation and regulations relating to such cash balance pension
conversion matters. Since the subject matter of the Proposal and the Supporting
Statement relate principally to the Company's legal compliance and governmental
programs review activities, which the Company already undertakes and is
integrally involved with as a part of its ordinary business operations, the
Proposal should be excluded under Rule 14a-8(i)(7). B. THE DESIGN AND ADMINISTRATION OF THE COMPANY'S EMPLOYEE BENEFIT PLANS ARE
ORDINARY BUSINESS MATTERS At the outset, it is important to note that the design and administration by the
Company of its employee benefit plans, such as the IBM retirement plan,
including the eligibility criteria for participation, as well as the form and
amount of benefits to be accrued and payable thereunder, are all activities
which are part of the ordinary business operations of the Company. The
Commission has long recognized that proposals concerning pension, health and
other benefits for a corporation's employee population relate to the ordinary
business operations of a corporation, and the Commission staff has consistently
concurred in the omissionboth under Rule 14a-8(i)(7), and its predecessor, Rule
14a-8(c)(7)of proposals regarding employee retirement, health, medical and
other welfare benefits. In this connection, the Commission staff has regularly concluded that the
determination of the type, amounts and eligibility for benefits available to
employees, retirees and their families under registrants' employee benefit
programs are properly excluded as part of their ordinary business operations.
Bell Atlantic Corporation (October 18, 1999) (proposal to increase retirement
benefits for retired management employees); Burlington Industries, Inc. (October
18, 1999)(proposal to adopt new retiree health insurance plan offering HMO's and
covering retirees that were forced out and to reinstate dental benefits for
certain retirees); Lucent Technologies, Inc. (October 4, 1999)(proposal to
increase "vested pension" benefits); International Business Machines Corporation
(January 15, 1999)(proposal seeking to change scope of Company's medical
benefits plan coverage provisions); See also General Electric Company (January
28, 1997)(proposal to adjust the pension of retirees to reflect increase in
inflation); 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), International Business Machines
Corporation (December 28, 1995)(proposal to amend IBM's Tax Deferred Savings
Plan and Retirement Plan to ensure that certain employees within a specified
service window were treated similarly to other employees), 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). For many years, IBM has provided retirement, health and other plan benefits to
its employees and retirees, and such benefits have been modified and
supplemented many times over the years to meet the changing needs of the Company
as well as its employees and retirees, all in the ordinary course of the
Company's business. This year, the Company adopted certain changes to its
retiree benefit plans in the United States. Recognizing the recent shifts in our
industry, our competitors and the demographics of our workforce, IBM, like many
other domestic companies, established a portable cash balance pension account.
IBM employees age 40 or over with 10 or more years of service as of June 30,
1999 can elect to participate in this new cash balance pension account, or
remain covered by the prior pension plan formulas. These employee benefit plan
design and coverage decisions were made by IBM, in close consultation with our
legal department and other employee plan benefit consultants, in the ordinary
course of our business operations, and all benefit plan changes were properly
and lawfully effected in accordance with the terms of such plans. The fact that
certain IBM employees are unhappy with recent benefit plan changes, and have
enlisted certain legislators and other union organizations to champion their
cause, should not result in the Company's decision-making on these matters to
fall outside the scope of the Company's ordinary business operations. C. THE DECISION TO ESTABLISH CASH BALANCE PENSION ACCOUNTS IS AN ORDINARY
BUSINESS MATTER. The concept of modifying the terms of a defined benefit pension plan is not new.
In fact, the SEC has recently addressed a request in the context of a
stockholder proposal. In Gyrodyne Company of America, Inc. (August 20, 1999) a
proponent sought for the company to dissolve the company's defined benefit
pension plan and adopt a successor 401(k) type pension plan. The staff concurred
with the company that the decision making on the matter of whether or not to
undertake such activity properly rested with management under Rule 14a-8(i)(7).
If the initial benefit plan decision-making in Gyrodyne properly rested with
that company's management, following the same reasoning, then certainly the
instant Proposalwhich seeks to have this Company write a report examining the
impact on the Company associated with our cash balance conversionshould also be
considered within the scope of our Company's internal management decision making
under Rule 14a-8(i)(7). In addition, the issue of establishing portable pensions has been the subject of
multiple stockholder proposals over the years. In this connection, a host of
stockholder proposals were submitted between 1984 and 1991 to a large number of
aerospace and other industrial companieswhich companies were then subject to
widespread layoffs due to the cyclical nature of the industries, and the
downsizing of various governmental projects. In an attempt to address the
growing problems associated with ongoing layoffs, dozens of stockholder
proposals were filed over the years to a number of such companies, all urging
the creation of an inter-industry committee to provide skilled professionals
with such items as portable pensions, accrued vacation rights and other
benefits. However, in a consistent series of no-action letters over these years,
the SEC staff uniformly and correctly ruled that these proposals should be
excluded under former Rule 14a-8(c)(7), as relating to the Company's ordinary
business operations. See, e.g., Rohr Industries, Incorporated (September 10,
1991 and October 19, 1989); The Boeing Company (November 28, 1990, January 16,
1990, January 10, 1989, November 30, 1987, November 6, 1986, November 21, 1985
and November 15, 1984); Lockheed Corporation (March 12, 1990, February 9, 1989,
January 9, 1987 and February 19, 1986); McDonnell Douglas Corporation (February
4, 1991, October 13, 1989, January 30, 1989, January 25, 1988, January 3, 1986,
January 28, 1985 and January 17, 1984); General Motors Corporation (March 13,
1990, March 10, 1989 and March 31, 1988); Northrop Corporation (February 21,
1991, December 27, 1989, December 27, 1988, January 25, 1988, November 28, 1986,
January 6, 1986 and January 4, 1985); Rockwell International (November 24, 1989,
November 5, 1985, November 14, 1984 and November 18, 1983); General Dynamics
Corporation (October 20, 1989, January 10, 1989, January 29, 1988, February 27,
1987, January 9, 1986 and January 28, 1985); GenCorp (January 25, 1988, January
7, 1987 and December 12, 1985). Looking back on the aerospace and other heavy industries receiving governmental
contracts during this time period, one can clearly remember the large-scale
unemployment and the disruption of many thousands of workers' lives across the
country associated with military downsizing, the resultant industry
consolidation and the overall cyclical nature of the work in these industries.
Indeed, the need for portable pensions, vacation rights and other benefits were
pointed out in each instance, both in the proposals and in the supporting
materials submitted by the respective stockholder proponent. Moreover, at that
time, the human element associated with downsizing activities was noted
everywhere. The press highlighted the plight of workers and it was also the
subject of legislative activity both at the state and federal levels. At one
point, the Los Angeles Times reported that Congress was considering a variety of
legislation to help defense-industry workers who were laid off because of
cost-cutting in Congress and the defense industry, as described in the
footnote.1 In that article, it was also reported that tens of thousands of local
aerospace workers would already have lost their jobs by the time any of such
proposed legislation would take effect. Notwithstanding the host of press on the
subject matter, as well as a variety of federal and state legislative efforts to
provide relief for these industry workers, the SEC staff members uniformly and
correctly concluded that these stockholder proposals could properly be excluded
from registrants' proxy statements as "ordinary business". The staff employed
the same facts and circumstances test under former Rule 14a-8(c)(7) as existed
prior to the now-famous Cracker Barrel decision. See Cracker Barrel Old Country
Store Inc. (October 13, 1992 and January 15, 1993). None of the proposals lodged
during those years on the subject was viewed by any of the staff reviewers at
the SEC as raising any significant social, economic or other important policy
issues sufficient to take such proposals outside the scope of the ordinary
business exclusion. When we now employ the same facts and circumstances test
under current Rule 14a-8(i)(7) to the instant Proposal, it necessarily follows
that the very same result should apply to the instant Proposal, and the Proposal
also be excluded outright as an ordinary business matter. D. CURRENT GOVERNMENTAL REVIEW IS NOT ENOUGH TO TURN EXCLUDABLE ORDINARY
BUSINESS BENEFIT PLAN DECISIONS INTO SUBSTANTIAL PUBLIC POLICY OR SOCIAL ISSUES.
This is not the first time the Company has made changes to its employee benefit
plans which have caused concern. A few years ago, the Company amended the terms
of our benefit plans to add coverage for same-gender domestic partners. As with
the recent movement to cash balance pension plans, other companies preceded IBM
in deciding to extend such benefit coverage for same-gender domestic partners.
This fact notwithstanding, once IBM did so, the national news media focused on
our action, and as might be expected, we received a host of correspondence from
the public, including a variety of stockholder proposals on the matter. Some
stockholders thought our actions were immoral and sought for us to repeal such
benefits; others applauded our actions; and still others sought for us to
further extend the scope of our benefit coverage to opposite-sex domestic
partners. Since that issue was, like the instant one, really no more than one
questioning the Company's decision making on balancing a variety of competing
interests in determining the scope of our Company's plan benefits,
notwithstanding the rash of publicity and nationwide public controversy on the
issue of a company's providing benefits to same gender domestic partners (which
controversy continues to this day)2, the staff of the SEC concurred uniformly
with our position that the Company's determinations as to the scope of our
coverage decisions under our benefit plans were ordinary business matters and
could be excluded under Rules 14a-8(c)(7) and its successor, Rule 14a-8(i)(7).
See, e.g. International Business Machines Corporation (January 15, 1999) and
letters cited therein. 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
benefits to domestic partners under former Rule 14a-8(c)(7)); See also 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)); and General Motors Corporation (February 22, 1996) (to
same effect). Further, the staff reached their conclusions as to the ordinary
business nature of our benefit plan decisions for same-gender partners in
rulings both before and after the reversal of the decision in Cracker Barrel Old
Country Store, Inc. (October 13, 1992 and January 15, 1993). See also IBM
(January 23, 1992)(pre-Cracker Barrel proposal urging adoption of spousal-type
benefits to committed domestic partners also excluded under former Rule
14a-8(c)(7)). In this connection, we do not believe that the current reviews by various
legislators and governmental agencies on the issues associated with cash balance
conversions under applicable laws raise any substantial social, economic or
other policy matters which would take the instant Proposal outside the "ordinary
business" exclusion.3 If this were to be the standard, then any proposal that
touched on such matters could force a proposal to be placed in a company's proxy
statement, notwithstanding the actual nature of the relief sought under the
proposal. In the recent letters we have reviewed under new Rule 14a-8(i)(7), the
SEC has looked to the nature of the relief sought under the proposal and ruled
accordingly. We find the following letters to be particularly appropriate in
reviewing the instant request for relief under Rule 14a-8(i)(7). In Allstate Corporation (February 16, 1999), for example, a proposal was filed
seeking to organize an independent stockholder committee to investigate and
prepare a report on issues including, among other things, a variety of alleged
illegal activities which had been undertaken by Allstate, whether management was
aware of any such activities, other state legal actions against Allstate, the
validity of those actions and recommendations on how costs relating to these
actions could be controlled. Allstate argued, and the staff concurred, that the
proposal related to Allstate's ordinary business operations, which in that
matter was the general conduct of a legal compliance program. According to the
proposal, in Allstate, multiple consent awards had already been entered into,
and fines had been paid by the company for such unlawful activities. Moreover,
the proposal alleged various other deceptive mail campaigns the company had been
involved in, multiple fraud suits pending against the company, as well as other
alleged improper denials by the company of insurance claims totaling billions of
dollars. These facts notwithstanding, the company argued that it was impractical
under Rule 14a-8(i)(7) for stockholders to be able to evaluate allegations of
illegal activities and, more importantly, that management already did this on a
day-to-day basis. There, even with a host of negative publicity in the press,
and the fact that consent judgments had already been entered by the company for
certain claims, the staff looked to the language of the proposal and the relief
sought, and concluded that what was actually sought by the stockholder in the
proposalcompliance with applicable lawswas excludable, as the conduct of a
legal compliance program by Allstate properly fell within its ordinary business
operations. Similarly, in Associates First Capital Corporation (February 23, 1999) a group
of stockholders filed a proposal to form an independent committee of outside
directors to develop and enforce a policy of preventing predatory lending
practices which violated federal and state laws and report on it to
stockholders. The proponents sought such information from Associates, which was
then alleged to be the largest sub-prime lender. The proposal was also lodged in
light of a then-recent investigation by the Senate Special Committee on Aging of
predatory lending practices, simultaneous Department of Justice scrutiny of the
sub-prime lending industry, and a claim of at least one Federal Trade Commission
lawsuit. Notwithstanding the negative publicity about all of these
activitieswhich allegedly violated a variety of federal and state lawsthe
proposal was also excluded under Rule 14a-8(i)(7), utilizing the same rationale
as in Allstate. Moreover, the staff has also continued to permit the exclusion of proposals
implicating social or other substantial policy issues, where even a portion of
the relief addressed ordinary business matters. In Wal-Mart Stores, Inc. (March
15, 1999), a proposal sought for a report to be prepared on that company's
actions to ensure it did not purchase from suppliers who manufactured items
using forced labor, convict labor, child labor or who failed to comply with laws
protecting their employees' wages, benefits, working conditions, freedom of
association and other rights. After review of the proposal, the staff noted that
although the proposal appeared to address matters outside the scope of ordinary
business, paragraph 3 of the description of matters to be included in the report
related to ordinary business operations. In this connection, paragraph 3 related
to the registrant's policies to implement wage adjustments to ensure adequate
purchasing power and a sustainable living wage. Further, the staff determined
that the entire proposal could be excluded under Rule 14a-8(i)(7), reiterating
the Division's practice not to permit revisions of a proposal under Rule
14a-8(i)(7). Hence, even if the staff views a portion of the Proposal as raising
matters of ordinary business, the entire proposal should be excluded outright
under Wal-Mart. C. ANALYZING PLAN BENEFIT CHANGES FOR PURPOSES OF LEGAL COMPLIANCE AS WELL AS
REVIEWING PENDING LEGISLATIVE AND REGULATORY ACTIVITIES AS THEY COULD AFFECT THE
COMPANY PROSPECTIVELY ARE ALL ACTIVITIES WITHIN THE COMPANY'S ORDINARY BUSINESS
OPERATIONS. The recent lessons of Allstate, Associates and Wal-Mart, as applied to the
instant Proposal, are clear. Where a proposal on its face seeks a report
implicating matters of ordinary business of the Company, it is subject to
exclusion in its entirety under Rule 14a-8(i)(7). In the first place, the
essence of the Proposal relates directly to the Company's own ongoing legal
compliance activities. In this connection, analyzing the legality of the
Company's benefit plan changes (including all design, coverage and
administration issues relating thereto) is already part of the day-to-day
function and responsibility of a specialized group of IBM in-house corporate
headquarters attorneys, known as the IBM Human Resources Law Group ("HRLG").
Inasmuch as the legal issues relating to the Company's many plan benefits are
complex, and subject to a variety of federal, state and local governmental
regulations, IBM's HRLG members maintain their specialized legal expertise in
all matters relating to employee benefit plan design and administration, and
take particular care to help ensure that the Company's benefit plans remain in
compliance with all applicable laws, which include, among others, tax, labor,
and equal employment opportunity laws. As such, members of the HRLG interface
regularly with such federal agencies as the Internal Revenue Service, the
Department of Labor, the Pension Benefit Guaranty Corporation and the Equal
Employment Opportunity Commission, as well as a host of other agencies at the
state and local level responsible for human resources matters. In addition, the
HRLG supplements their own expertise through appropriate retention of outside
counsel, who also maintain specialized legal expertise on all aspects of
employee benefit plans. The HRLG further builds upon their own expertise through
regular interaction with their peers in other companies, attending and speaking
at external legal seminars in order to keep abreast of the law, as well as
participating in specialized industry groups which are also knowledgeable on
these complex matters. Assessing the potential impact on the Company of claims, including litigation,
brought against the Company, as well directing the Company's overall litigation
strategy, is another ordinary business matter handled by the IBM HRLG. See, e.g.
CBS Inc. (January 21, 1983)(proposals relating to the settlement of a libel suit
brought against CBS by General William Westmoreland, and the release of a report
which was the subject of a discovery request therein both properly excluded by
staff as relating to the conduct of the company's ordinary business operations
(i.e. the conduct of litigation instituted against the company)). Here, the
instant Proponent's concern that the Company may have "exposed itself to the
risks of costly discrimination suits by employees and the possibility of adverse
court rulings" merely relates to this ordinary business matter which is handled
on a day-to-day basis by our HRLG. The HRLG is integrally involved in overseeing
all claims, as well as supervising all litigation, brought against the Company
which may arise in connection with our many employee benefit plans. Such claims
can range from an initial administrative level request by an employee to the
plan administrator, to complaints and other charges lodged with, or by, various
governmental agencies, including, as in the instant matter, investigations
initiated by such agencies. Further, the HRLG is involved in directing all state
and federal court litigation on human resources matters (including all claims
and suits under our employee benefit plans following the exhaustion of
administrative remedies). An important role of the HRLG membersteaming together
with other IBM internal and external counsel and our own human resources
professionalsis to assess the impact on the Company of each claim brought
against the Company, as well as potential claims which have not yet been raised.
The Company, with an effective analysis from this team, is in each instance, in
a position to make an informed and intelligent decision on what the best course
of action for the Company should be. All of the above-referenced tasks are
undertaken and handled by the Company on a day-to-day basis as part of our
ordinary business operations. Finally, the Proposal's calling for a review of pending legislation on this
matter, as well as proposed regulatory activities, in order to assess its
potential impact on the Company, is yet another ordinary business matter for
IBM. In connection with the specific matters raised by the Proposal, IBM's HRLG
is integrally involved in reviewing proposed legislation as well as
participating in the ongoing regulatory process, both in Washington, as well as
at the state and local level, in order to help ensure that IBM is both kept
aware of such activities, and takes appropriate action with respect to pending
legislation and regulations. In this connection, the HRLG works together with
our Corporate Governmental Programs Office, which is charged with the primary
mission of analyzing and commenting on pending and potential regulatory and
legislative initiatives of the very type sought in the instant Proposal. Furthermore, IBM's Corporate Governmental Programs Office is responsible for
managing IBM's worldwide public policy issues, strategies, and government
relations. These responsibilities include formulating IBM's position on all
public policy issues, representing IBM's views to government decision makers as
part of the public policy debate, and coordinating all IBM representations,
either directly or through industry associations, before governments on public
policy issues. In this connection, our Corporate Governmental Programs Office is
staffed with experienced and specialized professionals well-versed in the
issues, who focus, report and comment on a variety of regulatory and legislative
issues pending worldwide which have an impact on our Company. Our Governmental
Programs Office also maintains good public relations and effective relationships
with all elected officials and government departments that affect our business.
In establishing a public position on the issues that affect our business, the
Company considers whether that position conforms to IBM's policies and
practices, as well as its potential impact. The Governmental Programs Office
also has its own dedicated in-house legal counsel, as well as access to outside
consultants and lawyers in order to help ensure that the Company remains abreast
of all potential changes in applicable laws and regulations affecting the
Company. For many years, the HRLG has teamed with the Corporate Governmental
Programs Office on pending issues affecting employee benefits, and has been
involved in the review of both existing laws and pending legislation and
regulations such as those noted in the Proposal, as part of its ordinary
business operations. In a variety of letters, the staff has permitted registrants, under the ordinary
business exclusion, to omit other stockholder proposals seeking reports where,
as here, the subject matter underlying the report implicated ordinary business
matters of the company. For example, in Citicorp (January 8, 1997), a proposal
calling for the board to prepare a report summarizing a review of the Company's
policies and procedures in place to monitor the use of bank accounts by
customers to transfer capital. There, the stockholder claimed that the proposal
raised "important policy issues," including the debt crisis in Latin America
caused by the movement of funds out of Latin America (i.e. capital flight). The
stockholder noted that the registrant was being investigated by the Department
of Justice on its handling of more than $100 million in funds for the brother of
the ex-president of Mexico, who was then in jail accused of massive corruption.
The proponent also highlighted various media articles on the subject, pointing
to the bank's involvement in the movement of such funds, and that the U.S. House
and Senate banking committees would be holding hearings on the matter. These
facts notwithstanding, the staff concurred with the registrant that the essence
of the proposal related to the company's policies and procedures governing
relationships with its customers in a manner designed to ensure compliance with
applicable laws. The proposal was therefore omitted under the ordinary business
exclusion (i.e., the monitoring illegal transfers through customer accounts).
The next year, Citicorp was also able to exclude another stockholder proposal
seeking for the corporation to form an independent committee of outside
directors to oversee the audit of contracts with foreign entities to ascertain
if bribes and other payments of the type prohibited by the Foreign Corrupt
Practices Act were made to any foreign nationals, and to report on it annually
to shareholders. In the staff's view, the proposal was directed at matters
relating to the conduct of the corporation's ordinary business operations (i.e.,
initiation of a compliance program). See Citicorp (January 9, 1998). See also
Crown Central Petroleum Corporation (February 19, 1997 (proposal calling for the
registrant to investigate whether it and its franchisees were in compliance with
applicable laws governing sales of cigarettes to minors, and report on it to
stockholders properly excluded under former Rule 14a-8(c)(7)(i.e., the sale and
advertising of a particular product and compliance with regulations)); Lockheed
Martin Corporation (January 29, 1997)(proposal to evaluate and report on whether
the company had a legal compliance program that was adequate to prevent and
respond to violations of law, particularly with respect to laws and regulations
concerning conflicts of interest and the hiring of former government officials
and employees related to registrant's ordinary business operations and was
properly excluded); United HealthCare Corporation (February 26, 1998)(proposal
to appoint committee of outside directors to oversee the company's anti-fraud
compliance program and issue a report to shareholders properly excluded as
"ordinary business" (i.e. the general conduct of a legal compliance program):
Humana Inc. (February 25, 1998)(to same effect). The principles that can be gleaned from these staff letters to exclude the above
proposals seeking reports on ordinary business matters are fully applicable to
exclude the instant Proposal as a matter relating to our own Company's ordinary
business operations. We believe the instant Proposal, taken as a whole, also
relates to our own employment-related matters. The Company's maintaining
compliance with a variety of employment-related governmental statutes and
regulations is an ordinary business matter handled by our HRLG. Similarly,
handling employment-related claims and litigation, and making intelligent
assessments of the impact of such claims and litigation on the Company under
applicable laws (including all of the anti-discrimination laws cited in the
Proposal) is another "ordinary business" matter for our HRLG and internal human
resources professionals. Finally, reviewing proposed legislation and regulations
of the type described in the Proposal, and determining the potential impact of
such proposed legislation and regulations on our business, is another ordinary
business matter handled by our HRLG together with our Corporate Governmental
Programs Office professionals. Since the issues noted by the Proponent are
already undertaken by the Company in the ordinary course of our business, they
relate to the Company's ordinary business operations under Rule 14a-8(i)(7), and
therefore creating a "report" on such matters would do nothing but exalt form
over substance. See SEC Release 34-20091 (August 16, 1983). In sum, the Company continues to believe it best to confine the resolution of
ordinary business matters to our management and board of directors. Therefore,
the instant Proposal, which seeks a report on matters related to the Company's
ordinary business operations, should be excluded under Rule 14a-8(i)(7).
Further, since we do not believe the Proposal raises any significant policy
issues sufficient to take it outside the realm of ordinary business, the Company
respectfully requests for the Proposal to be excluded in its entirety under Rule
14a-8(i)(7). For the reasons stated 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 entire Proposal is omitted from
IBM's proxy materials for the 2000 Annual Meeting. We are sending the Proponent,
through its counsel, a copy of this letter, thus advising it of our intent to
exclude the Proposal from the proxy materials for the Annual Meeting. If the
staff disagrees with the Company's conclusion that the Proposal may be omitted
from the proxy materials, I request the opportunity to confer with you prior to
the issuance of your position. If you wish any further information on this
matter, please call me at 914-499-6148. Counsel for the Proponent is also
requested to copy the undersigned on any response he may choose to make to the
Commission. Thank you for your attention and interest in this matter. Very truly yours, Stuart S. Moskowitz Senior Counsel cc: Amalgamated Bank of New York/Long View Collective Investment Fund in care of
Cornish F. Hitchcock, Attorney at Law 1100 17th Street, NW Washington, DC 20036 -----FOOTNOTES----- 1 Los Angeles Times, Thursday, Home Edition, "LEGISLATION WOULD HELP WORKERS IN
DEFENSE LAYOFFS," July 26, 1990. The article reported that House Bill 3999,
introduced by Rep. Mary Rose Oakar (D-Ohio), would provide about $200 million
for programs including more unemployment benefits for defense workers,
educational grants for retraining, and reimbursement money for job-search and
relocation expenses. The program also sets aside funds for entrepreneurs who
want to market their defense-industry know-how in the private sector. The bill
would create an administrative staff, but not a new bureaucracy, Oakar said at a
public hearing in Paramount on Monday. She said the policy-making committee
would include the heads of already-existing departments, such as the Labor
Department, Defense Department and Small Business Administration. House Bill 5327, authored by Barbara Boxer (D-Greenbrae), would return 10% of
defense cuts to the communities affected by the loss of these federal funds. The
secretary of labor would determine which areas would be eligible. Cities could
use the money for job training or other needed programs. Her bill also penalizes
contractors that relocate, requiring them to leave behind 20% of their
contracts' value when they move their facilities and leave employees behind. Boxer also introduced legislation she said will help communities recover from
the closing of military bases, which is another aspect of defense cutbacks. One
bill provides financial incentives to federal employees who accept early
retirement. Another gives military employees first crack at federal jobs when
their base is taken over by another agency. A third bill mandates 60 days'
notice when the government eliminates jobs at a military base. 2 For example it was widely reported earlier this month that ExxonMobil
announced that it would end new enrollment for spousal benefits which its gay
and lesbian workers' domestic partners previously enjoyed at Mobil. Although 5
of 6 large companies still do not offer these benefits, the recent trend has
been to provide them. See, e.g., Oppel, Richard, "Less A Benefit at Exxon," NY
Times, December 12, 1999, Week In Review page 2, column 5. 3 This is particularly so in the instant matter, since much of the recent
activities in Washington on the matter of cash balance conversions actually
emanated from the actions of an organized group of IBM employees and another
labor union sympathetic to their cause, who have taken issue with the Company's
benefit plan changes, and who have been using such benefit changes as a
springboard for local IBM employee union organizing efforts, as well as a
vehicle for energizing their various legislators and regulators into looking
further at this matter. While the IBM employees and the unions disagree with the
plan decisions made by the Company, and would like to expand the group of
employees who would be eligible for participation in various plan benefits,
since the determination and implementation of these day-to-day business matters
is particularly within the province of the Company's management, Rule
14a-8(i)(7) was specifically designed to exclude such proposals from a Company's
proxy materials. See SEC Release 34-40019, Amendments to Rules on Shareholder
Proposals (as published in the Federal Register on May 28, 1998). By the same
token, the instant Proposal, seeking a report on the impact on the Company of
these plan benefit decisions in light of existing and prospective legislation
and regulation, similarly relates to our Company's ordinary business operations,
and should also be excluded under Rule 14a-8(i)(7). [LETTER OF INQUIRY 2]
January 20, 2000 Securities and Exchange Commission Division of Corporation Finance Washington, DC 20549 Re: Proposal of The Amalgamated Bank of New York/Longview Collective Investment
Fund (the "Proponent") on IBM's Cash Balance Pension Plan Ladies and Gentlemen: Please let this letter serve to reply to the letter dated January 14, 2000
submitted by Cornish F. Hitchcock, Esq., counsel for the Proponent (the
"Response Letter"). The Company continues to believe that the Proposal implicates nothing other than
our ordinary business operations, notwithstanding the Proponent's attempt to
characterize the Proposal as raising substantial policy issues. When we view
this stockholder's proposal for what it seeks, giving proper regard to the
current level of debate associated with cash balance plans, we continue to view
this Proposal as an excludable ordinary business matter. We encourage the SEC to
apply the so-called "duck test"1 and view the Proposal in this same light. We believe that IBM's pension plan decision-making, the manner in which IBM
currently handles its own legal compliance activities, and IBM's existing review
and comment procedures for handling prospective legislative and regulatory
actions, are all matters which fall within the Company's ordinary business
operations. As such, the Proposal, which implicates these matters, should be
excluded under Rule 14a-8(i)(7). Contrary to the Proponent's suggestion, the
recent activities in Washington involving cash-balance pension plans do not
cause this matter to rise to the level of a significant social issue which, like
Cracker Barrel,2 "reemerged as a consistent topic of widespread public debate."
(Response Letter p.3) Instead, we view this as a matter being fueled in part by
a number of vocal IBM employees who, with the aid of certain unions, seek to
challenge the Company's decision-making on this matter. The legal analysis,
however, under Rule 14a-8(i)(7), should be made in light of existing precedent,
not hyperbole. In this connection, we also find it somewhat surprising for the Proponent to
suggest, in its "Analysis of Pertinent Authorities" (Response Letter pp. 7-8)
that the national health care reform issue, and the stockholder proposals
associated therewith, truly support its current position that the instant
Proposal raises significant social issues which would take the Proposal outside
of Rule 14a-8(i)(7). In addition to the fact that there were numerous national
health care reform proposals lodged in the early 1990s by a variety of different
stockholders with different corporations, thus giving some credence to a claim
that the national health care reform issue was more than a company issue, a
reading of the actual stockholder proposals and the Commission's no-action
letters on the national health care reform issue makes clear that such proposals
do not support the Proponent's position. The Commission uniformly and
continuously rejected all attempts from earlier stockholder proponents to
characterize their proposals on national health care reform as anything other
than ordinary business. Moreover, the Commission's consistent decision-making on
this subject matter occurred both before and after the Cracker Barrel decision.
A simple comparison of those earlier national health care reform proposals to
the instant one should now lead the Commission to the conclusion that if all of
those national health care reform proposals implicated nothing more than
ordinary business, the instant Proposal, which the Proponent admits is modeled
after one of those proposals (Response Letter p.8), should now be similarly
excluded under Rule 14a-8(i)(7). For example, in Pepsico, Inc. (March 7, 1991), the staff concluded that a
shareholder proposal calling for the establishment of a "committee of the Board
consisting of outside and independent directors for the purpose of evaluating
the impact of a representative cross section of the various health care reform
proposals being considered by national policy makers on the company" could be
excluded from their proxy materials as ordinary business under former Rule
14a-8(c)(7). Notwithstanding the purported "policy nature" of the Pepsico
proposal and the independent board committee report sought by the stockholder
proponent, the Commission staff, employing a pre-Cracker Barrel facts and
circumstances analysis, found no substantial social or other important policy
issue in the proposal which would take it outside of the ordinary business
exclusion, and determined that it could properly be omitted from the company's
proxy materials. Utilizing this same reasoning, a variety of other registrants were also able to
omit very similar stockholder proposals relating to the impact of national
health care reform legislation on their companies under the ordinary business
exclusion. See Albertson's Inc. (two letters dated March 19, 1992)(separate
decisions of the Commission declining to review the Division of Corporation
Finance's letters dated February 10, 1992 excluding stockholder proposals from
both NYCERS and UBC General Officers' Pension Fund relating to national health
care reform on ordinary business grounds); Dole Food Company (February 10,
1992)(proposal seeking to establish committee of the Board "for the purpose of
evaluating the impact of a representative cross section of the various health
care reform proposals being considered by national policy makers on the company"
properly excluded by staff as ordinary business, as proposal was determined to
be directed at involving the company in the political or legislative process
relating to an aspect of the company's operations. By letter dated March 19,
1992, the Commission declined to review the staff's position in Dole.); GTE
Corporation (February 10, 1992)(proposal from Carpenters General Officers and
Representatives Retirement and Pension Plan that directors establish a Health
Care Review Committee of the Board "for the purpose of evaluating the impact of
various health care reform proposals on the company" properly excluded by staff
as ordinary business, as proposal was determined to be directed at involving the
company in the political or legislative process relating to an aspect of the
company's operations); Minnesota Mining and Manufacturing Co. (February 10,
1992)(proposal by United Brotherhood of Carpenters General Officers and
Representatives Retirement and Pension Fund that directors establish a Health
Care Review Committee of the Board "for the purpose of evaluating the impact of
various health care reform proposals on the company" properly excluded by staff
as ordinary business, as proposal was found to be directed at involving the
company in the political or legislative process relating to an aspect of the
company's operations); Brunswick Corporation (February 10, 1992)(proposal to
establish a committee of the board to prepare a report (i) comparing health
standards, methods of administration, costs and financing of health care plans
in all countries where the company does business, and (ii) describing any
aspects of governmental policy affecting those plans which should be included in
the development of a national health insurance plan in the United States, was
properly excluded by staff under former Rule 14a-8(c)(7) as directed at
involving the company in the political or legislative process relating to an
aspect of the company's operations); Tribune Company (March 6, 1991)(proposal
seeking a report which included "an evaluation of the impact of a representative
cross section of the various health care reform proposals being considered by
national policy makers on the company" properly excluded by staff as part of the
company's ordinary business operations); Minnesota Mining and Manufacturing
Company (February 6, 1991)(proposal by United Brotherhood of Carpenters General
Officers' Pension Fund to have the company's board prepare a special report
including "an evaluation of the impact of a representative cross section of the
various health care reform proposals being considered by national policy makers
on the company" properly excluded by staff as part of company's ordinary
business operations); Knight-Ridder, Inc. (January 23, 1991)(proposal requesting
a report, including "an evaluation of the impact of a representative cross
section of the various health care reform proposals being considered by national
policy makers on the corporation" properly excluded by staff as ordinary
business); Albertsons, Inc. (January 22, 1991)(proposal from the United
Brotherhood of Carpenters General Officers' Pension Fund seeking a special
report of the company's board including, inter alia, an "evaluation of the
impact of a representative cross section of the various health care reform
proposals being considered by national policy makers on the company" properly
excluded by staff as ordinary business). Following review of a January 25, 1991
letter from the stockholder proponent in Albertsons, Mr. William E. Morley, then
Chief Counsel-Associate Director (Legal) at the SEC wrote to the stockholder
proponent and stated that he was "unable to conclude that there is any basis for
reversing the Division's response of January 22.") It is noteworthy that the New
York City Employees' Retirement System (NYCERS), the stockholder proponent in
both the 1992 Brunswick and Dole letters, challenged the SEC's determinations
that its proposals could be excluded, moving in each instance for a preliminary
injunction in separate actions in the U.S. District Court for the Southern
District of New York. District Judge Patterson denied NYCERS' motion in the
Brunswick matter, upholding the Commission's determination that the proposal
could be excluded. See New York City Employees' Retirement System v. Brunswick
Corp., 15 E.B.C. 1266 (S.D.N.Y. 1992). While District Judge Conboy granted
NYCERS' motion in Dole, 15 E.B.C. 1467 (S.D.N.Y. 1992), such decision was
dismissed by the U.S. Court of Appeals for the Second Circuit as moot. New York
City Employees' Retirement System v. Dole Food Co., 969 F.2d 1430, 15 E.B.C.
2339 (2nd Cir. 1992). More importantly, however, what was not clearly pointed
out by Mr. Hitchcock in his response letter was that the final decision of the
Court of Appeals dismissing Dole's appeal for mootness also vacated the judgment
of the district court for the very purpose of removing its precedential value
and of restoring the issue that the District Court purported to decide (whether
the matter fell within the ordinary business exception) to the status of an open
question. See New York City Employees' Retirement System v. Dole Food Co., 969
F.2d at 1435, 15 E.B.C. at 2343-44. While Mr. Hitchcock now relies heavily on
the District Court opinion in Dole, he simply neglects to call out this most
critical fact in his analysis. (Response Letter pp. 7-9). Inasmuch as the
registrant in Dole had the same concern at the time of its own appeal, the final
opinion by the Court of Appeals for the Second Circuit made clear to all
interested readers that: [A]ny objection by Dole that the district court's disposition of this case will
be res judicata as to any future suit is incorrect. As noted earlier, the usual
procedure when a civil case becomes moot on appeal is to vacate the judgment
below and remand with directions to dismiss the case. [Citations omitted.] The
reason for this is precisely to avoid giving preclusive effect to a judgment
never reviewed by an appellate court. [Citations omitted.] The legal question of
whether Rule 14a-8 mandates inclusion of NYCERS' proposal in Dole's proxy
statement therefore remains unresolved. For the foregoing reasons the appeal is dismissed as moot. The order of the
district court is vacated and the case is remanded with directions to dismiss
the action. 969 F.2d at 1435, 15 E.B.C. 2343-44 (emphasis added). Moreover, to the extent that there was any substantive comment on the District
Court's opinion at the U.S. Court of Appeals level in Dole, it can be found in
the concurring opinion of Senior Judge Pollack, and consists of his clear
criticism of the District Court's opinion, not approval. Senior Judge Pollack
concurred specifically with vacating the district court's order and restoring
the question to "unresolved." He explained: I concur in the result reached by the Court. I dissented from the Court's order
of May 28, 1992 which decreed merely that the appeal from the order of the
District Court be dismissed as moot. At that time, it appeared to me that the District Court erred in disregarding
the long line of SEC no-action letters stating that health care reform proposals
identical or similar to the proposal at issue here may be excluded under Rule
14a-8(c)(7). The SEC's interpretation of its own administrative regulations is
entitled to great weight. [Citations omitted.] As I viewed it, NYCERS' proposal
called for no corporate decision to take or not take any action, and, in fact,
did not involve corporate policy at all, and therefore was an undisguised
attempt to involve Dole in a national political debate. The SEC's no-action
letter and in general its position on shareholder proposals involving health
care reform (consisting of no-action letters on 12 health care reform proposals
submitted by shareholders to companies in the last two years) made this a
classic case for deferral to the SEC. The Opinion on this appeal now concludes that "the order of the district court
is vacated and the case is remanded with directions to dismiss the action," thus
implementing the usual procedure when a civil case becomes moot on appeal. The
holding specifically states that the "legal question of whether Rule 14a-8
mandates inclusion of NYCERS' proposal in Dole's proxy statement remains
unresolved." I therefore now withdraw my dissent for practical reasons and concur in the
result reached by the Court. 15 E.B.C. at page 2344 (emphasis added). It is also interesting, given Mr. Hitchcock's heavy reliance on the District
Court's decision in Dole, that he has completely neglected to make any reference
whatsoever to the more recent decisions of the Commission in Brown Group, Inc.
(March 29, 1993 and May 6, 1993), or of his own subsequent appeal of such matter
directly to the U.S. Court of Appeals for the Second Circuit. In Brown Group,
Inc., the SEC concurred with the registrant's request to omit a proposal from
the Amalgamated Clothing and Textile Workers Union ("ACTWU"), which proposal
requested that "the Board of Directors establish a Committee of the Board
("Committee") for the purpose of evaluating the impact of various health care
reform proposals on the Company" and report on it to shareholders. In an unsuccessful attempt to characterize their proposal as raising matters
beyond "ordinary business," the ACTWU, then also relying on Dole, maintained
that health care costs would likely be decisively affected by the course of the
public policy debate and sought a policy-level analysis of the issue because of
the "potential impact" on company expenses and because of the purported
significant public policy issues concerning health care. Notwithstanding the intervening decision in Dole, the staff, as well as the full
Commission, properly ignored the Dole ruling and rejected the ACTWU's request to
characterize their proposal as raising any substantial policy issues. As a
result, the SEC concurred with the registrant's request to exclude the proposal
as part of the company's ordinary business operations. See Brown Group, Inc.
(March 29, 1993 and May 6, 1993). Following such determination of the Commission in Brown Group, Inc., the ACTWU
immediately petitioned the U.S. Court of Appeals for the Second Circuit to
review the decision of the Commission not to bring an enforcement action against
the Brown Group for omitting the stockholder proposal, and named the SEC as the
respondent. See Amalgamated Clothing & Textile Workers Union v. SEC, 15 F.3d 254
(2d Cir. 1994). However, the Second Circuit dismissed ACTWU's petition based on
its lack of jurisdiction over the matter. In so doing, the Circuit Court went on
to instruct the union that: If ACTWU believed that Brown improperly omitted the proposal from its proxy
materials, its proper course was to seek a judicial determination of the
propriety of Brown's actions in the district court. Amalgamated Clothing & Textile Workers Union v. SEC, 15 F.3d at 258. In dismissing the ACTWU's petition for lack of jurisdiction, the Second Circuit
did not reach the merits of whether ACTWU's proposed shareholder resolution
should have been included in Brown's proxy materials or whether the issue was
moot. Although the issue was virtually identical to the Dole matter, as well as most
of the other letters we have cited above on national health care reform
legislation, and although Mr. Hitchcock also goes on to admit in his reply
(Response Letter p.8) that "[t]he Fund's proposal here follows the NYCERS
model," Mr. Hitchcock has failed to cite or distinguish the Brown Group, Inc.
letter in any way, notwithstanding his own involvement in the appellate
litigation. We believe there are no meaningful distinctions between any of the
earlier national health care reform proposals and the instant one. As such, we
continue to believe the SEC should not treat the current Proposal on cash
balance pension plan legislation any differently from the way it has uniformly
handled each of the earlier stockholder proposals on national health care reform
legislation. The Proposal should be excluded as part of the Company's ordinary
business operations. We also find the Proponent's reliance on the District Court opinion in ACTWU v.
Wal-Mart Stores, 821 F. Supp. 877 (SDNY 1993) to be misplaced. That decision
held that a proposal seeking a report on the registrant's equal employment
opportunity and affirmative action policies fell outside the scope of the
registrant's ordinary business operations. While we note that Mr. Hitchcock was
also involved in that litigation, the Wal-Mart proposal (and the court's
holding) had absolutely nothing to do with the activities sought by the instant
Proposaltracking claims, legislation and regulations in order to create a
report determining their potential impact on the Company. In this connection, we
believe the only Wal-Mart letter on point here is the one we originally cited in
our request for no-action relief: See Wal-Mart Stores, Inc. (March 15,
1999)(where a proposal, in part, raised ordinary business matters, the entire
proposal was properly excluded by the Commission staff in accordance with the
Division's practice not to permit revisions of a proposal under Rule
14a-8(i)(7)). As we noted in some detail in our earlier letter, this Company
already performs each of the activities sought under the instant Proposal as
part of our ordinary business operations. For this same reason, we continue to
view each of the Commission's letters in Allstate, Associates First Capital and
Citicorp as highly relevant to the resolution of this matter. Indeed, we find more than substantial similarity between the national health
care reform legislation proposals, which were uniformly rejected as ordinary
business by the SEC, and the instant Proposal, which purports to turn our
Company's pension plan decision making into a social issue. Similar to the
earlier proposals addressing potential national health care reform legislation,
which were uniformly rejected by the Commission as "ordinary business," the
instant Proposal which seeks for a committee of independent directors to prepare
a report on the "potential impact on the Company of pension-related proposals
now being considered by national policy makers" should be similarly rejected as
falling within Rule 14a-8(i)(7). Notwithstanding that national health care
reform was on the political agenda during the Bush administration, constituted
one of the cornerstones of the Clinton presidential campaign, and remained high
on President Clinton's agenda during the early years of his administration, the
Commission uniformly rejected multiple attempts by a variety of individual and
other union-affiliated stockholder proponents to turn such matter into a
substantial policy issue. As none of those many earlier stockholder proposals
cited above were found by the SEC to fall outside the ordinary business
exclusion, we see no reason for any different result to be reached here with the
instant Proposal.3 To paraphrase from a recent U.S. Supreme Court decision,
despite the instant Proponent's best effort, following the lead of earlier
stockholder proponents, and repeating the mantra "national policy makers" in its
current Proposal, does not transform this Proposal, which implicates ordinary
business matters, into one with substantial policy implications.4 We also do not believe that the current activities in Washington, which have
been instigated in part by a small group of IBM employees with the aid of
certain unions, should have any bearing on the analysis of the Proposal itself.
Moreover, the fact that members of Congress have asked certain administrative
agencies look at the matter of cash balance conversions, and may be proposing
bills relating to cash balance pension plans, should not transform this
Proposal, which implicates ordinary business matters, into anything more. See
Wal-Mart Stores, Inc., supra (March 15, 1999). While the Proponent appears to be
influenced by various media characterizations of this matter (see Response
Letter pp. 2, 3, 6, 11, 12, Exhibit 1 and Exhibit 3), we do not believe this
matter should be resolved based upon hyperbole.5 As we also noted in our initial
letter, the Company has in place a comprehensive review and compliance team that
addresses the matters raised by the Proposal. The administration of our
Company's pension benefits, including the related activities performed by our
Human Resources Law Group (HRLG) and Governmental Programs Office, is one of
many matters that IBM manages in the normal course of our business operations.
There is nothing so unique about the instant issue to make it fundamentally
different from the management of many other components of our ordinary business
operations. Finally, as we also explained in our earlier letter, the Company
assesses the potential impact of all claims and related litigation, monitors
applicable laws and regulations affecting our Company, and comments upon
proposed legislation and regulations being considered from time to time by
national policy makers which we deem to be important through our HRLG and
Governmental Programs Office teams, all in the ordinary course of our business.
We continue to believe that permitting an exception to Rule 14a-8(i)(7) for
these day-to-day management issues because of mere allegations of discrimination
and/or references to various governmental inquiries into the general subject
matter of cash balance pension plans is improper. In short, we continue to
believe that this Proposal should be omitted under Rule 14a-8(i)(7), and
respectfully renew our request for exclusion of the Proposal on this basis. Thank you for your continuing attention and interest in this matter. Sincerely yours, Stuart S. Moskowitz Senior Counsel cc: Comish F. Hitchcock, Esq. -----FOOTNOTES----- 1 Securities and Exchange Commission v. Gary A. Smith, 1992 WL 67832 (U.S.
District Court, N.D. III. 1992) (Docket No. 92C 0811)("If it quacks like a duck
and it walks like a duck, the SEC should have the power to find out if it is a
duck."): Tidelands Marine Service v. Patterson, 719 F.2d 126, 128 at n.3 (5th
Cir. 1983)("That which looks like a duck, walks like a duck, and quacks like a
duck will be treated as a duck even though some would insist upon calling it a
chicken."); BMC Industries Inc. v. Barth Industries, Inc., 160 F.3d 1322, 1337
at n.28 (11th Cir. 1998)(noting that the so-called "duck test" has received wide
support from the courts, citing multiple cases). 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 excludable under former Rule 14a-8(c)(7)). 3 In this connection, over 300 companies have established cash balance pension
plans in the last ten years. We have found no proposals challenging any of such
plan implementations. The dearth of stockholder proposals on this subject is
perhaps the most telling evidence that there is no substantial social issue
associated with the establishment of such plans which needs to be addressed in a
company's proxy materials. In fact, the only stockholder proposals we found and
cited in our earlier letter were the ones from 1984 through 1991 urging
companies to adopt portable pension plans. As the Company also noted in our
earlier letter, the staff uniformly excluded all of such other proposals as
"ordinary business." (See pp. 3-4 of Company's letter of December 22, 1999). 4 See Eastman Kodak Company v. Image Technical Services, Inc., et al., 504 U.S.
451, 471, 112 S.Ct. 2072, 2085 at n.18 (1992)("Despite petitioner's best effort,
repeating the mantra "interbrand competition" does not transform this case into
one over an agreement the manufacturer has with its dealers that would fall
under the rubric of Continental T.V."). 5 Not only are there generally two sides to every story, there are often times
multiple viewpoints within the same news organization's editorial board on the
same issue. In this connection, Pensions & Investments, which published the
editorial "Learning from IBM"which the Proponent relies upon and attached as
Exhibit 3 to its Response Letterlater published another editorial, this time
under the byline of its Editorial Director, entitled "Next Stop. Socialism" in
its October 18, 1999 issue. This more recent article outlines the opposing
viewpoint on the propriety of the changes we made to our pension plan. We are
attaching this editorial as Attachment 1 hereto. [APPENDIX]
RESOLVED: The shareholders of International Business Machines ("IBM" or the
"Company") request the Board of Directors to establish a committee of outside
directors to prepare a report at reasonable expense to shareholders on the
potential impact on the Company of pension-related proposals now being
considered by national policy makers, including issues under review by federal
regulators about the legality of cash balance pension plan conversions under
federal anti-discrimination laws, as well as legislative proposals affecting
cash balance plan conversions and related issues. SUPPORTING STATEMENT IBM finds itself at the center of a national controversy following the 1999
conversion of IBM's "defined benefit" pension plan to a so-called "cash balance"
plan. This conversion has led to charges that the cash balance plan
discriminates unfairly and unlawfully against older workers and workers with a
high number of years of service. IBM's conversion to a cash balance plan has attracted regulatory and legislative
attention. IBM's actions were the focus of a hearing before the Senate Committee
on Health, Education, Labor and Pensions in September 1999. The Equal Employment
Opportunity Commission ("EEOC") has announced the appointment of a national team
of experts to examine the legality of cash balance plan conversions under the
Age Discrimination in Employment Act. The Internal Revenue Service is conducting
its own analysis of discrimination issues, in coordination with the EEOC and the
Department of Labor. These agencies will examine whether actions such as IBM has
taken violate anti-discrimination provisions in ERISA and federal tax laws. The controversial nature of the issue is evidenced by the IRS' decision to "put
a moratorium on the approval of any more [cash balance plan conversions] until
it sorts out the complex issues," according to The Wall Street Journal. And the
controversy does not end there. The Clinton Administration is planning to
introduce legislation regarding cash balance conversions. Members of Congress
have already introduced their own bills on issues such as the legality of such
conversions, disclosure to employees about the impact of plan conversions, and
employee choice between a new cash balance plan or a previous defined benefit
plan. We are concerned that, apart from the negative impact that this conversion has
had on IBM's reputation as an employer, the Company has exposed itself to the
risks of costly discrimination suits by employees and the possibility of adverse
court rulings that could have a negative impact on shareholders. In our view, management's handling of this issue has not inspired confidence.
Moreover, given the complexity of the issues here, it is difficult for
shareholders to obtain an independent assessment of the issues. We believe that the Board of Directors should take a more active stance towards
protecting shareholders' interests. We therefore urge the creation of a
committee of outside directors to independently analyze the impact that current
regulatory actions and legislative proposals could have on IBM and to report
those findings to shareholders. We urge you to vote FOR this proposal. [LETTER OF INQUIRY 3]
14 January 2000 Office of the Chief Counsel Division of Corporation Finance Securities & Exchange commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Shareholder proposal from Amalgamated Bank of New York Long View Collective Investment Fund to International Business Machines Corp. Dear Counsel: I write on behalf of the Amalgamated Bank of New York LongView Collective
Investment Fund (the "Fund") in response to the letter from counsel for
International Business Machines Corp. ("IBM" or the "Company") dated 22 December
1999, in which IBM advises that it plans to omit the Fund's shareholder
resolution from the Company's 2000 proxy materials. For the reasons set forth
below, the Fund respectfully asks that you deny the relief IBM seeks. The Fund's Resolution The Fund's resolution asks IBM's board of directors to establish a committee of
outside directors to: prepare a report at reasonable expense to shareholders on the potential impact
on the Company of pension-related proposals now being considered by national
policy makers, including issues under review by federal regulators about the
legality of cash balance pension plan conversions under federal
anti-discrimination laws, as well as legislative proposals affecting cash
balance plan conversions and related issues. The Supporting Statement explains the background of this proposal, noting how
IBM's conversion from a "defined benefit" pension plan to a "cash balance" plan
in 1999 prompted a national controversy over the question of whether cash
balance plans discriminate unfairly and unlawfully against older workers and
workers with a high number of years of service. IBM's actions crystallized the issue and ignited a round of Senate hearings on
pension issues that began in September 1999. The Equal Employment Opportunity
Commission ("EEOC") announced the appointment of a national team of experts to
examine the legality of cash balance plan conversions under the Age
Discrimination in Employment Act ("ADEA"). The Internal Revenue Service is
conducting its own analysis of discrimination issues, in coordination with the
EEOC and the Department of Labor, to determine whether actions such as IBM has
taken violate anti-discrimination provisions in the Employment Retirement Income
Security Act ("ERISA") and the Internal Revenue Code (the "Code"). In addition, the IRS announced a moratorium on the approval of any more cash
balance plan conversions until it has sorted out these issues. The Clinton
Administration is planning to introduce legislation, and Members of Congress
have introduced their own bills on issues such as the legality of such
conversions, disclosure to employees about the impact of plan conversions, and
employee choice between a new cash balance plan or a previous defined benefit
plan. The Supporting Statement expresses concern about the negative impact that this
controversy has had on IBM's reputation as an employer, as well as the risk of
costly discrimination suits by employees. Given that management's actions have
landed the Company in this controversy, and given the complexity of the issues,
the resolution asks the board of directors to take a more active role by having
an independent committee analyze the impact that current regulatory actions and
legislative proposals could have on the Company. In response, IBM asserts that the proposal deals with the "ordinary business" of
the Company and may therefore be excluded under Rule 14a-8(i)(7). Under Rule
14a-8(g). IBM bears the burden of demonstrating why the Fund's proposal may be
excluded, and as we now demonstrate, the Company has not sustained its burden.
The "Ordinary Business" Exclusion In the 1976 Release adopting the predecessor of Rule 14a-8(i)(7), the Commission
stated that the touchstone for deciding whether a proposal involves "ordinary
business" is whether it raises issues that "are mundane in nature and do not
involve any substantial policy or other considerations." Release No. 34-12999,
41 Fed. Reg. 52994, 52998 (3 December 1976)("1976 Release")(emphasis added). In 1998 the Commission revised Rule 14a-8 to renumber, but not to change
substantially the text of the "ordinary business" exclusion. Release No.
34-40018.63 Fed. Reg. 29106 (28 May 1998). What did change was the Commission's
interpretative approach. In the Preamble to the 1998 rule amendments, the
Commission announced its intent to reverse the per se approach of Cracker Barrel
Old Country Stores, Inc. (13 October 1992; 15 January 1993), which provided that
all employment-related shareholder proposals would be excludable as involving
"ordinary business." The Release announced that the Division would return to the
"case-by-case" approach that prevailed prior to Cracker Barrel. 63 Fed. Reg. at
29108. The 1998 Release made several points that guide the analysis here. By way of
background, the Release noted how the Division has from time to time, and "in
light of experience dealing with proposals in specific subject areas and
reflecting societal views," reversed its position on specific topics that had
once been regarded as "ordinary business," but which had acquired policy
significance as a result of legislative and other policy debates, e.g., plant
closings, the manufacture of tobacco products, executive compensation and golden
parachutes. Id. & nn.34-37. Consistent with that approach, the Commission stated its belief that Cracker
Barrel should be reversed because "[s]ince 1992, the relative importance of
certain social issues relating to employment matters has reemerged as consistent
topic of widespread public debate," id. & n.39, citing as authority certain news
accounts of discrimination suits filed against Texaco and Shoney's. The Release
added that the "extensive policy discussions" of Cracker Barrel during the
comment period gave the Commission "a better understanding of the depth of
interest among shareholders in having an opportunity to express their views to
company management on employment-related proposals that raise sufficiently
significant social policy issues." Id. The Commission reaffirmed that the (i)(7) exclusion would generally protect
management's ability to run the company on a day-to-day basis without
shareholder oversight, while adding that "proposals relating to such matters but
focusing on sufficiently significant social policy issues (e.g., significant
discrimination matters) generally would not be considered to be excludable,
because the proposals would transcend the day-to-day business matters and raise
policy issues so significant that it would be appropriate for a shareholder
vote." Id. (emphasis added). It is the Fund's position that the current debate over cash balance plans
presents policy issues that are not present with respect to the sort of specific
benefits-related proposals that the Division has excluded in the past. Those
proposals generally involved an appeal to management to exercise its discretion
to provide one benefit or another to company employees. The Fund's proposal, by
contrast, asks the board to conduct an independent examination of national
policy issues and how current proposals might affect the company. Such a proposal is totally different in character from requests to include
eyeglass or dental coverage, and the existence of a national policy debate on
cash balance plans is undeniable, given the current activity by federal agencies
and Congress on important questions of employment discrimination. Moreover,
since the time the resolution was submitted, the public character of this issue
is underscored by its appearance in the current presidential race. THE WALL
STREET JOURNAL reported on 15 December 1999 (at A24)under a headline trumpeting
how presidential candidates Gore and Bauer have discovered a "potent issue"that
there is public "unease about shifts in pension plans," with the lead paragraph
noting how those candidates "share a bond beyond their mutual interest in being
presidentconcern about the pensions of IBM workers." A copy of that article is
attached as Exhibit 1. The Cash Balance Conversion Controversy Perhaps the best place to begin is with a question: What exactly is a cash
balance pension plan? ERISA and the Code divide the universe of retirement plans into two broad
categories: A "defined contribution plan," such as a 401(k) plan, which provides "an
individual account for each participant and for benefits based solely on the
amount contributed to the participant's account any income, expenses, gains and
losses, any forfeitures of accounts of other participants which may be allocated
to such participant's account." ERISA § 3(34); Code § 414(i). Contributions may
be a fixed percentage of pay for all participants or may vary in accordance with
an employee's cash or deferred election under a 401(k) plan. A "defined benefit plan," which is any pension plan other than a defined
contribution plan. ERISA § 3(35); Code § 414(j). Traditional defined benefit
plans provide for an annuity benefit that is generally based on final average
pay, e.g., a percentage of one's highest average pay times one's years of
service. Traditional plans may also provide early retirement subsidies if an
employee has worked for a specified number of years. A cash balance plan is a hybrid of these two models that is not expressly
recognized by ERISA. Cash balance plans can resemble defined contribution plans
in that one's individual account will increase in value over time as a result of
interest and compensation credit and because each employee is credited with a
hypothetical allocation that is the same percentage of his or her compensation
for that year. Cash balance plans differ from the defined contribution plan
model, however, because an employee's benefits do not derive solely from one's
allocated contributions plus investment return. They are thus treated as defined
benefit plans and are subject to the funding provisions and other legal
requirements applicable to defined benefit plans. Traditional defined benefits plans are particularly attractive to older workers
or those with a number of years worked at a particular company, particularly
those close to retirement. With the benefit levels defined, the investment risk
is on the employer, not the employee. In addition, as these workers approach
retirement age, the value of anticipated benefits will surge, given that the
benefits paid are often keyed to one's final and highest pay levels. And therein lies the issue, which was well summarized in testimony from the
Department of the Treasury in its September 1999 Senate testimony: Most of the recent controversy relating to the use of cash balance pension plans
has focused on conversions of traditional defined benefit plan structures into
cash balance plans. When an employer amends a defined benefit plan that has a
traditional final average pay defined benefit formula to provide for a cash
balance plan formula, there is a very real change in accrual patterns that can
adversely affect certain workers. Older workers who were nearing the peak years
of their economic accrual under the traditional plan formula will be deprived of
the opportunity to realize those large accruals. These workers might quite
understandably view the plan change as tantamount to a pay cut. When IBM announced its plans to convert its system in mid-1999, the proposed
cutbacks were so extreme and the effect on senior workers so pronounced that the
conversion shone a national spotlight on a significant policy issue that had not
been previously considered: Do cash balance conversions that have such a
disparate impact on senior workers violate federal laws barring discrimination
based on age? The public character of this controversy is demonstrated by the
following activities in various forums: ERISA and the Code allow "qualified" benefit plans to receive favorable tax
treatment to the benefit of employer and employees alike. Responding to the
concern that cash balance conversions may result in unlawful discrimination, the
IRS has suspended approvals of favorable tax treatment under ERISA for employers
seeking to convert traditional plans to cash balance plans. The IRS, EEOC and Labor Department are jointly analyzing whether cash balance
plans violate federal anti-discrimination laws. Copies of the EEOC press
releases are attached as Exhibit 2. The Senate Committee on Health, Education, Labor and Pensions made cash balance
conversions the focus of a September 1999 hearing that kicked off what Chairman
Jeffords said would be a year-long examination of pension issues. In his opening
remarks, Chairman Jeffords expressed his concern about "mid-career workers with
long years of service" being "caught in a crack when these plans are converted,"
adding that he was "deeply concerned about allegations of age discrimination in
the design and operation of the plans. IBM's conversion was a major focus of the
hearing, with the Committee receiving testimony from IBM's senior vice president
for human resources and from IBM employees. Individual legislators have already proposed legislation, including one backed
by the Clinton Administration. Among the legislative proposals to date (citing
principal sponsors only) are:
H.R. 2759, introduced by Rep. Hinchey, would require notice of reduced future
accruals of benefits and an opportunity for employees to remain in the existing
plan rather than being forced to switch to the new plan; the bill would also
prevent the adoption of plan amendments that "wearaway" future benefit accruals.
S. 659/H.R. 1176, introduced by Sen. Moynihan and Rep. Weller, would
strengthen disclosure requirements for cash balance conversions and other plan
amendments giving rise to a significant reduction in the rate of benefit
accrual. Companies would have to explain to individual workers how a plan
conversion would affect that individual, and companies that fail to comply with
the detailed disclosure requirements in the bill could be sued by individual
workers, and a company could lose the tax-qualified status enjoyed by its plan.
H.R. 1102, introduced by Reps. Portman and Cardin, would require more specific
disclosure to individual employees of how their benefits might be cut, but is
not as extensive as the Moynihan-Weller legislation.
H.R. 3047, introduced by Rep. Matsui, represents the Administration proposal
and would require notice if there is a significant reduction in benefit
accruals.
H.R. 2902, introduced by Rep. Sanders, would direct the Secretary of the
Treasury to enforce anti-discrimination provisions of the Internal Revenue Code
against plan amendments that convert defined benefit plans into cash balance
plans.
S. 1600, introduced by Sen. Harkin, would prohibit "wearaway" of future
benefit accruals in certain situations. It is unlikely that this flurry of legislative activity will peter out with no
results. THE WALL STREET JOURNAL predicted in December 1999 that "Congressional
approval appears likely next year of legislation mandating more corporate
disclosure of the financial impact of cash-balance pensions on workers." Apart from a legislative interest in the issue, cash balance conversions have
turned into an issue in Presidential and Congressional races, with the IBM
conversion serving as the symbol that has crystallized public sentiment. As
noted above, THE WALL STREET JOURNAL reports that Al Gore and Gary Bauer have
both discovered "an important theme of the 2000 campaign: the unease among
Americans about their financial security." Of particular relevance here, the
article continued: The controversy surrounding International Business Machines Corp., which
proposed pension changes in May that would have hurt thousands of midcareer
employees, shows just how deep public concern is, and how swiftly it can become
a matter of politics. *** This explosion of interest in the issue by Congress, the Administration,
Presidential candidates and the news mediaand IBM's place at the center of the
stormmake it impossible for IBM to carry its burden of demonstrating that the
cash balance conversion issue is devoid of policy significance within the
meaning of the (i)(7) exclusion. There are several authorities that
affirmatively support our position that the Fund's position cannot be excluded,
and IBM's arguments for exclusion fail to persuade. We address those points in
the section that follows. Analysis of Pertinent Authorities There are two relevant district court cases, as well as various no-action
letters that warrant inclusion of the Fund's resolution here. In ACTWU v. Wal-Mart Stores, 821 F. Supp. 877 (S.D.N.Y. 1993), the court ruled
that the "ordinary business" exclusion did not apply to a resolution seeking a
report on corporate policies with respect to affirmative action and data on how
many women and minorities were in various executive positions. The resolution
also sought information about corporate policies regarding the use of female-and
minority-owned suppliers. In an analysis that should control here, the ACTWU
court explained that employment discrimination presented an issue that was not
devoid of policy significance, given, "among other things, the continual
interest of Congress in employment discrimination since 1964, which was most
recently underscored in the Civil Rights and Glass Ceiling Acts of 1991,"
enacted the year before submission of the ACTWU proposal. Id. at 891. Also of relevance is the ACTWU court's rejection of an argument advanced by IBM
here too, namely, that the proposal deals with implementation of corporate
policy. The court noted, inter alia, that "implementation arrangements" can
implicate "significant policy issues." Id., citing Roosevelt v. E.I. DuPont de
Nemours & Co., 958 F.2d 416, 429 (D.C. Cir. 1991). The same can be said here as
well. Similarly, in New York City Employees' Retirement System v. Dole Food Co., 795
F.2d 95 (S.D.N.Y.), vacated as moot,
969 F.2d 1430 (2d Cir. 1992), the district
court ruled in favor of including a resolution that asked a board committee to
"evaluat[e] a representative cross section of the various health care reform
proposals being considered by national policy makers on the company and their
competitive standing in domestic and international markets," citing the leading
models then being considered, and to prepare a report of its findings. 795 F.
Supp. at 97. Although that ruling was vacated by the appellate court as moot,
the reasoning is persuasive here, particularly in light of the subsequent ACTWU
decision (which remains good law) to the effect that employment discrimination
issues are not devoid of policy significance. National health care proposals were coming to the fore in late 1991, when the
NYCERS resolution was submitted and when there were various different options
under consideration by Congress, the Bush Administration, and Democratic
challengers running for President. The national debate was somewhat inchoate,
then, coming at a time when the Bush Administration was skeptical of the need
for comprehensive legislation, and the Clinton Administration's 1993 health care
plan still more than a year away. Nonetheless, the NYCERS court ruled that the
(c)(7) exclusion did not apply, correctly reasoning that even the 1991-92 level
of interest among national policy makers precluded a finding that the issue was
devoid of policy significance. Id. at 101. The court distinguished the NYCERS proposal from resolutions seeking to change
eligibility criteria for a specific company policy, Austin v. Consolidated
Edison Co. of New York, 788 F. Supp. 192 (S.D.N.Y. 1992), or that would require
the company to opine on whether various elements of foreign health plans should
be included in any U.S. national health legislation, NYCERS v. Brunswick Corp.,
789 F. Supp. 144 (S.D.N.Y. 1992). The court explained that unlike the proposal
submitted to Dole Food did not involve the company in "mundane" benefits issues
or involve the company in "making abstract political proposals," but "rather
request[ed] the corporation to study existing, concrete plans before Congress
that affect the scope of Dole's health insurance operations." Id. The Fund's proposal here follows the NYCERS model. At one level, both
resolutions deal with benefitshealth care coverage in NYCERS and pension
benefits (including possibly health care) benefits here. In addition, both focus
not on the minutiae of which employees get which benefits, but on broader policy
initiatives being considered by Congress and the Executive Branch that could
have a significant economic impact on the company. Both started with the factual
premise that the federal government was considering a variety of proposals on
the topic in question, and both posed a simple question: Is the board willing to
undertake its own independent analysis of the policy questions been debated and
how they might affect the company? Here, as in both ACTWU and NYCERS, the company argued that the subject matter of
the resolutions involved ordinary business concerns entrusted to managementWho
gets hired and promoted? Who gets what level of health care benefits? The court
in each instance disagreed that the issue could be characterized that narrowly,
concluding that the specific contents of benefits plans may be off-limits to
shareholders, but the resolutions really presented broader issues that were
appropriate for shareholders to discuss with its elected representatives, the
members of the board of directors. These cases also underscore a point that the Commission made in its 1998 Release
and that is particularly relevant here. Certain facets of an issue, be it health
care benefits, pension benefits or something else, may involve ordinary business
in many situations. With respect to some issues, however, there may come a time
when other facets of that issue move out of the realm of ordinary business and
into the policy arena. A good example, cited in the 1998 Release, is plant
closings. For many years, the Commission viewed questions about which plant to
keep open and which plant to close as a quintessential ordinary business matter.
In the late 1980s, however, there emerged a public debate on the topic
culminating in congressional passage of the so-called WARN Act, which requires
notice of plant closings by an employer. The Commission concluded that plant
closing resolutions could no longer be excluded. See 63 Fed. Reg. at 29108 &
n.34, citing Pacific Telesis Group (2 February 1989). Indeed, the NYCERS court
cited this Pacific Telesis letter as a basis for its conclusion that the health
resolution there had to be included, 795 F. Supp. at 101 & n.6. It bears noting that one need not wait for the enactment of legislation for an
issue to move from the mundane to the policy level. A good example is executive
compensation, which the Commission also cited in its 1998 Release. 63 Fed. Reg.
at 29108 & n.36, citing Reebok Int'l Ltd. (16 March 1992). How much a company
pays its executives had hitherto been viewed as a quintessential ordinary
business matter until roughly a decade ago, when there was a similar public
debate on overpaid executives. Although Congress never passed a law regulating
the subject, the Commission nonetheless concluded that policy issues were
suddenly present where none previously existed here. The same phenomenon is at work here, a point that IBM's letter fails to grasp.
In the following section, we analyze IBM's specific arguments and demonstrate
why they are not well taken. Answers to IBM Objections 1. IBM begins, predictably enough (at 2-3), by citing a host of no-action
letters excluding resolutions that focused on whether the company should provide
certain benefit levels, such as whether dental or eyeglass coverage, to certain
categories of employees or retirees. Those resolutions are light years away from
this one, however. Those resolutions are characterized by a common element not
present here, namely, they all ask a company exercise its discretion to provide
a certain level of benefits to one group of employees or retirees. This is crucial to the entire analysis here. Because these proposals appeal to management's discretion on a topic is
traditionally viewed as management's prerogative, the Division has opined that
the (i)(7) exclusion applies. Here, by contrast, the resolution does not ask the
board not to delve into the minutiae of which employees ought to get which
benefits, but to focus instead of the impact that proposed legislative and
executive branch actions could have on the company. The proposal asks the board
to consider how policy proposals could affect the company in the same sense as
the national health care resolution in NYCERS. Thus, to the extent the Division
may be concerned that the Fund's proposal would open the floodgates to more
detailed benefit-related proposals, the current proposal stands on a totally
different plane. The special factual circumstances and the current context
surrounding issues of discrimination in cash balance conversions are not present
when a shareholder wants a company to exercise its discretion to offer a certain
level of retirement benefits. 2. The cited no-action letters (at 3-4) that propose creating a benefits plan
and proposals relating to the defense industry also fail to persuade. IBM relies
upon Gyrodyne Company of America, Inc. (20 August 1999), which asked the company
to exercise its discretion to end a traditional defined benefit plan and adopt a
401(k) plan. This appeal to discretion in constructing a benefits package makes
the Gyrodyne proposal functionally the same as the resolutions just discussed,
and a resolution asking a company to adopt benefit option A rather than benefit
option B is a far cry from a proposal asking the board to assess the impact of
legislation on the company. Turning to the letters involving requests to defense contractors to create an
inter-industry committee to provide certain rights, including portable pensions,
IBM's citation of these letters is off the mark for several reasons. First (or perhaps, once again), we deal with resolutions asking companies to
exercise their discretion to create certain benefits for employees, and on that
ground alone, the defense-related proposals are distinguishable. Second, IBM is not helped by the facts that contractions in the defense industry
were widely reported in the late 1980s and early 1990s and that there were two
bills introduced in Congress during those years, one to help communities hit by
a loss of defense funds and another to increase federal unemployment and
education benefits for defense workers. The two bills cited do not directly
relate to the subject matter of those defense-related resolutions and are thus
of marginal relevance at best. Moreover, an awareness by the public and media
that the defense industry was shrinking in response to a conscious government
policy to reduce military spending after the Cold War does not automatically
make any and all resolutions dealing with specific facets of that reduction a
public policy issue. Third, to the extent IBM cites employment-related letters from the late 1980s,
the Fund's resolution is far closer to the plant closing resolutions that also
arose during the late 1980s and that the Division deemed includable in Pacific
Telesis, supra, which involved specific, focused legislation that (as it
happened) was ultimately signed into law. The present situation is far closer to
the plant closing situation than the defense industry request. Fourth, the present resolution involves employment discrimination issues, which
have been a regular topic of congressional interest and which ACTWU ruled were
not devoid of public policy significance in a decision that came down after the
defense-industry resolutions that IBM cites. 3. IBM next notes (at 5-6) that the Division has excluded resolutions dealing
with same-gender domestic partners, notwithstanding media and public interest in
gay rights issues and notwithstanding the fact that some of the media spotlight
shone on IBM when it added coverage for domestic partners. Again, those
resolutions are distinguishable because they sought to persuade management to
exercise its discretion on a matter traditionally left to management under the
(i)(7) exclusion. IBM then cites (at 6-8) no-action letters such as Allstate Corp. (16 February
1999), Associates First Capital Corp. (23 February 1999) and Wal-Mart Stores,
Inc. (15 March 1999) for the proposition that a company may exclude a resolution
that involves corporate compliance with existing statutes when (in some of those
cases) the company had been a defendant in litigation alleging failing to comply
with applicable law. To the same effect are several later-cited letters (at
10-11) involving Citicorp., see letter issued (8 January 1997), and other
companies. Those cases have nothing to do with this case. The Fund's focus is on
proposed legislation and its potential effect on the company, an issue that is
not present in any manner in the letters IBM cites. Moreover, to the extent that IBM's citation of Wal-Mart seeks to suggest that
compliance issues involving controversial topics are per se ordinary business
matters, the Company never mentions the no-action letter in Dillard Department
Stores (13 March 1997), which rejected an ordinary business argument in
connection with another proposal seeking a report on Dillard's actions to
"ensure that it does not and will not do business with foreign suppliers who
manufacture items for sale in the United States using forced labor, convict
labor, or illegal child labor, or who fail to satisfy all applicable laws and
standards protecting their employees' wages, benefits, working conditions,
freedom of association, and other rights." Nothing in Wal-Mart overruled the
approach taken in Dillard, even though the latter mentioned "wages" and
"benefits" and even though the supporting statement emphasized the need for
Dillard to have "strict standards" and an "active enforcement policy." Thus,
trying to characterize the Fund's resolution as dealing with "compliance" issues
and arguing for exclusion on that basis under Wal-Mart is not a persuasive
argument. Along the same line, IBM places great stock in the fact that it has an internal
management team focused on compliance with pension laws and other laws. IBM
letter at 8-9. This is as it should be, but the point is irrelevant. The issue
here is not so much whether IBM is in compliance with current law, but what
impact current policy proposals might have on the Company. Moreover, there is an irony to this argument that IBM fails to appreciate. IBM
management was responsible for the mishandling of the Company's 1999 cash
balance conversion, an event dubbed a "debacle" by THE WALL STREET JOURNAL and a
"fiasco" by PENSIONS & INVESTMENTS, which editorialized how IBM's management had
demonstrated how not to handle a conversion (in an article attached as Exhibit
3). Under the circumstances, it rings somewhat hollow for management to be
arguing, "Trust us. We know what we're doing, and there's no need for a board
committee to take an independent look at what might be coming down the
pipeline." In the Fund's view a fresh look from an outside source is precisely
what shareholders need, given the complexity of the issue and the controversy.
The fact that IBM management has adopted a standard compliance structure does
not speak to a shareholder request that the board examine prospective changes on
the horizon. Conclusion For these reasons, the Fund respectfully asks that IBM's request be denied. We
appreciate very much for your consideration of these points. Please feel free to
contact me if additional information is required. Very truly yours, Cornish F. Hitchcock cc: Stuart S. Moskowitz, Esq. Mark E. Brossman, Esq.
[STAFF REPLY LETTER]
March 2, 2000 Response of the Office of Chief Counsel Division of Corporation Finance Re: International Business Machines Corporation Incoming letter dated December 22, 1999 The proposal would request that the board establish a committee of outside
directors to prepare a report on the potential impact on IBM of pension-related
proposals now being considered by national policy makers, including legislative
proposals affecting cash balance pension plan conversions and related issues.
There appears to be some basis for your view that IBM may exclude the proposal
under rule 14a-8(i)(7). We note that the proposal appears directed at involving
IBM in the political or legislative process relating to an aspect of IBM's
operations. Accordingly, we will not recommend enforcement action to the
Commission if IBM omits the proposal from its proxy materials in reliance on
that rule. Sincerely, Michael Ferraro Attorney-Advisor
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