Company Name: Stride Rite Corp.
Public Availability Date: January 16, 2002
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 5, 2001
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Stride Rite Corporation, Omission Pursuant to Rule 14a-8 of a
Shareholder Proposal Submitted by the New York City Employees' Retirement System
and the New York City Teachers' Retirement System
Ladies and Gentlemen:
I am writing on behalf of The Stride Rite Corporation, a Massachusetts
corporation (the "Company"), pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, as amended, to respectfully request that the Staff of the
Division of Corporation Finance (the "Staff") of the Securities and Exchange
Commission (the "Commission") concur with the Company's view that, for the
reasons stated below, the shareholder proposal (the "Proposal") submitted by the
New York City Employees' Retirement System and the New York City Teachers'
Retirement System (the "Proponents") properly may be omitted from the proxy
statement and form of proxy (the "Proxy Materials") to be distributed by the
Company in connection with its 2002 Annual Meeting of Shareholders.
Pursuant to Rule 14a-8(j)(2), I am enclosing six copies of this letter and the
Proponents' letter transmitting the Proposal. A copy of this letter also is
being sent to each of the Proponents as notice of the Company's intent to omit
the Proposal from the Proxy Materials.
I. The Proposal
The Proposal consists of (i) six "Whereas" clauses relating to reported human
rights violations in overseas operations of U.S. companies and a program of
independent monitoring standards (the "Standards") purportedly established by
some companies, which Standards incorporate the conventions of the International
Labor Organization ("ILO"), (ii) five principles contained in the fifth
"Whereas" clause that are set forth as examples of eight of the ILO conventions
that are incorporated in the Standards and (iii) a resolution that reads as
follows:
Therefore, be it resolved that the company commit itself to the implementation
of a code of corporate conduct based on the aforementioned ILO human rights
standards by its international suppliers and in its own international production
facilities and commit to a program of outside, independent monitoring of
compliance with these standards.
The full text of the Proposal is set forth in the letter from the Proponents
attached hereto as Exhibit A. A copy of the eight ILO conventions listed as
examples in the Proposal is attached as Exhibit B (the text of all 180 ILO
conventions are over 6 inches. Accordingly we have not included them. However,
we will provide them at your request).
II. Summary
This letter is to inform you, pursuant to Rule 14a-8(j), that the Company
intends to omit the Proposal from its Proxy Materials. The Company believes that
the Proposal properly may be omitted as follows:
1. Pursuant to Rule 14a-8(i)(3), the Proposal violates the Commission's proxy
rules because (i) the Proposal is vague and misleading under Rule 14a-8(i)(3),
and (ii) the Proposal violates the 500 word limit of Rule 14a-8(d);
2. Pursuant to Rule 14a-8(i)(6), the Company lacks the authority to implement
the Proposal due to its misleading nature; and
3. Pursuant to Rule 14a-8(i)(7), the Proposal relates to the Company's ordinary
business operations.
III. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(3) Because it
violates the Commission's Proxy Rules.
The Proposal properly may be omitted from the Company's Proxy Materials under
Rule 14a-8(i)(3), which states that a proposal may be omitted if the proposal is
contrary to any of the Commission's proxy rules, including Rule 14a-9. The
Company believes that the Proposal violates Rule 14a-9 and Rule 14a-8(d). The
Proposal violates Rule 14a-8(i)(3) because it is vague, indefinite and
misleading and thus in violation of Rule 14a-9. In addition, by seeking to
circumvent the Commission's limitation on the length of proposals submitted to
500 words, the Proposal violates Rule 14a-8(d).
A. The Proposal Should Be Excluded under Rule 14a-8(i)(3) Because it is Vague,
Indefinite and Misleading and thus in Violation of Rule 14a-9.
The Staff consistently has taken the position that a company may exclude a
proposal pursuant to Rule 14a-8(i)(3) if the proposal is vague, indefinite and,
therefore, potentially misleading. A proposal is sufficiently vague, indefinite
and potentially misleading to justify exclusion where "neither the stockholders
voting on the proposal, nor the company in implementing the proposal (if
adopted), would be able to determine with reasonable certainty exactly what
measures or actions the proposal requires." See Bristol-Myers Squibb Co.
(February 1, 1999) (the Staff concurred in the omission of a shareholder
proposal under Rule 14a-8(i)(3) because the proposal's vagueness, in requesting
that shareholders refer certain plans to the board, precluded the shareholders
from determining with reasonable certainty either the meaning of the resolution
or the consequences of its implementation); Philadelphia Electric Co. (July 30,
1992) (the Staff concurred in the omission of a shareholder proposal under Rule
14a-8(i)(3) where a proposal's references to the Bible and Roman law rendered
the proposal so vague that neither shareholders voting on the proposal nor the
company in implementing the proposal would be able to determine with any
certainty the exact actions or measures required by the proposal).
The Proposal is vague, indefinite and misleading because from the face of the
Proposal, shareholders will not know what they are being asked to consider and
upon what they are being asked to vote. The Staff has taken no action with
respect to the exclusion of most proposals that are similar to the Proposal. See
Ann Taylor Stores Corporation (March 13, 2001) (the Staff concurred with the
exclusion of a proposal that was identical to the Proposal in all respects, save
for the exception of a few words); Kohl's Corporation (March 13, 2001) (SEC took
no action against exclusion under 14a-8(i)(3) of almost identical proposal by
the New York City Fire Department Pension and the Connecticut Retirement Plans
and Trust Fund); see also; H.J. Heinz Company (May 25, 2001) (similar proposal
calling for standards established by the Council on Economic Priorities was
properly excluded because it was vague, indefinite and potentially misleading);
TJX Companies (March 14, 2001) (proposal calling for implementation of standards
based on SA8000 Social Accountability was properly excluded under 14a-8(i)(3));
Revlon, Inc. (March 13, 2001) (same); McDonald's Corporation (March 13, 2001)
(same).
The Proposal requests that the Company commit itself to the implementation of a
code of conduct based on these Standards, which incorporate the ILO conventions,
but does not fairly summarize those Standards. Indeed, the Proposal sets forth
only five broad principles citing eight ILO conventions. As written, the
Proposal appears to require the Company to base this code of conduct on all of
the ILO conventions, which number in excess of 180 or in the alternative, to
choose which ILO conventions not to consider without any guidance or other
principle being stated by the Proponents. Even if the Proponents intended to
incorporate only the eight ILO conventions that specifically are referenced in
the "Whereas" clauses, the Proposal still fails to adequately summarize those
conventions so as to properly inform shareholders and precisely define what they
are being asked to approve. Each individual convention contains numerous
articles that the Company would be required to follow. Indeed, each "single"
convention is four to ten pages in length and contains up to 33 separate
articles. As a result, not only will the Company and its shareholders be unable
to comprehend what actions or measures the Company would have to take in the
event that the Proposal were adopted, but actions ultimately taken by the
Company pursuant to the Proposal could differ significantly from actions
contemplated by shareholders in voting on the Proposal.
The text of the Proposal requests that the Company base a code of conduct on the
Standards, which appear to be a set of broadly framed human rights standards
that incorporate the ILO conventions and contain sweeping statements regarding
child and forced labor, trade unions, collective bargaining and discrimination.
However, as noted above, the Proposal fails to set forth those conventions and
instead sets forth only five broad principles that are included therein.
Certainly, a statement of five principles as a summary of hundreds of
conventions (or even eight conventions, for that matter) does not pass muster
under even the most expansive view of minimally adequate disclosure. The eight
conventions alone include 140 articles and an aggregate of 46 pages. The
articles and pages in all 180 plus conventions are too numerous to count. The
ILO conventions incorporated in the Standards would place numerous obligations
on the Company that shareholders could not possibly know by reading the
Proposal. For example, ILO Convention 138 is summarized in the Proposal as
follows:
"There shall be no use of child labor."
However, adoption of that convention would require the Company and its suppliers
do the following, none of which appears in the Proposal, and all of which,
intended originally as labor policy to be implemented on a national and
international level, is wholly inappropriate in its application to a single
company:
undertake to pursue a national policy to ensure the effective abolition of
child labor and raise progressively the minimum age for admission to employment
or work to a level consistent with the fullest physical and mental development
of young persons;
specify, in a declaration appended to its ratification, a minimum age for
admission to employment or work within its territory;
ensure that the minimum age for employment is not less than the age of
completion of compulsory schooling and, in any case, not less than 15 years; and
determine the minimum age for admission to employment or work that by its
nature or circumstances is likely to jeopardize the health, safety or morals of
young persons is not less than 18 years.
Thus, only by reading the ILO conventions would shareholders understand the true
impact of adoption of the Proposal.
In addition, the Proposal calls for "independent monitoring of corporate
adherence" to the Standards. The Proposal fails to define what would constitute
"independent monitoring" or who would qualify as an independent monitor. For
example, if the Company employed the Company's independent outside accounting
firm as a monitor, would the fact the Company pays a fee to perform such
services prevent them from being considered independent? Would the Company be
required to hire a social organization that would not charge a fee for such
monitoring? Because the Proposal offers the Company no guidance in this respect,
as well as for the reasons outlined above, the Proposal is so incomplete as to
be vague, indefinite and misleading within the scope of Rule 14a-9, and
therefore subject to exclusion under Rule 14a-8(i)(3).
The Proposal is distinguishable from the proposals addressed in Microsoft
(September 14, 2000) and Oracle (August 15, 2000) where the Staff refused to
concur in the omission of a proposal under Rule 14a-8(i)(3). In Microsoft and
Oracle, the proposals requested that the company implement a list of human
rights principles, known as the China Principles. However, in Microsoft and
Oracle, rather than proposing sweeping standards that incorporate voluminous ILO
conventions that would be applicable to company operations anywhere in the
world, the proposals specifically set forth in their entirety eleven principles
to which they were limited. Moreover, those principles applied to Microsoft and
Oracle's operations only in China and were designed to address issues
specifically relating to worker human rights in that country.
The language of the Proposal is nearly identical to the language of shareholder
proposals in AnnTaylor and Kohls, referenced above. However, rather than calling
for "full implementation" of the Standards, as the proposals did in AnnTaylor
and Kohls, the proposal here calls for "the implementation of a code of
corporate conduct based on the" Standards. Such a proposal is even more vague
and indefinite than the ones which companies properly excluded in AnnTaylor and
Kohls, since this proposal requires the additional step by the Company of
implementing a code of conduct based on the Standards, rather than only adopting
the Standards as they are. By adding this additional step, the actions resulting
from the shareholder's vote are even further attenuated from the actions for
which the proposal asks the shareholder to vote. A shareholder who voted in
favor of the proposal could not realistically imagine what the practical result
of such a vote would be. Thus, in the view of a shareholder, the proposal is
even more vague, indefinite and misleading than proposals that were properly
excluded in AnnTaylor and Kohls.
B. The Proposal Should Be Excluded under Rule 14a-8(i)(3) Because it Purports to
Circumvent the 500-Word Limit of Rule 14a-8(d).
Rule 14a-8(d) provides that a shareholder proposal may be excluded from a
company's proxy statement if the proposal and its supporting statements, in the
aggregate, exceed 500 words.1 By omitting the text of the ILO conventions
incorporated in the Standards sought to be adopted under the Proposal, the
Proponents seeks to circumvent Rule 14a-8(d). The Proposal states that the
Standards "incorporate the conventions of the ILO on workplace human rights"
which, as discussed above, exceed 180 in number. We have not attempted to count
the number of words in all 180 conventions, or even in the eight specifically
referenced conventions. Nevertheless they are, in either case, most assuredly
well in excess of 500 words. Surely, a shareholder should not be permitted to do
an end run around the requirements of the proxy rules by incorporating
voluminous materials not available to shareholders.
In a similar context, the Staff has stated that the incorporation of web site
content into shareholder proposals may violate the proxy rules. See Templeton
Dragon Fund (June 15, 1998) "reference to Proponent's Internet site in the
supporting statement potentially may violate the proxy process requirements.")
See also The Boeing Company (Feb. 23, 1999) (reference to a third-party web site
excluded as false or misleading); Emerging Germany Fund (Dec. 22, 1998).
Similarly, the Proponents seek to incorporate external sources into the Proposal
and thereby circumvents the 500-word limit of the proxy rules. Further, as
discussed below, the text of ILO is an integral part of the Proposal, which asks
the Company to commit to the implementation of a code of conduct based on these
complex and lengthy standards.
We are aware that in the past, the Staff did not permit Eastman Kodak Company to
exclude proposals requiring Kodak to endorse the environmental standards known
as the "Ceres Principles" on the grounds that the proposals and the principles
together exceeded 500 words. See, e.g., Eastman Kodak Co. (Jan. 7, 1993). We
believe that the Proposal is distinguishable from the one submitted to Kodak.
First, Kodak was only asked to endorse the Ceres Principles, not to utilize them
to implement a code of conduct. An endorsement would simply be a manifestation
of a company's agreement with certain principles. In contrast, implementation of
a code of conduct would require close analysis of the numerous and lengthy ILO
standards, followed by the creation of a workable code of conduct based on these
standards. Thus, in order to understand what such a code of conduct would look
like, the shareholder would necessarily have to examine the Standards
themselves, rather than limiting itself to the text that would appear on the
Company's proxy statement. Further, the Ceres Principles are contained in a
single document which is easily summarized in a one page list, whereas the ILO
imposes hundreds of requirements contained in multiple sources. Because the
Proposal effectively exceeds 500 words, it may be properly excluded under Rule
14a-8(i)(3).
As stated above, a shareholder cannot fully comprehend the impact on the Company
of adoption of the Proposal without reading the ILO conventions. Accordingly,
the text of the ILO conventions would have to be included in the Proposal, which
for purposes of Rule 14a-8(d)'s word limitation, would cause the Proposal to be
many times in excess of the number of words permitted by Rule 14a-8(d). As a
result, the Proposal violates Rule 14a-8(d) and is excludable under Rule
14a-8(i)(3).
IV. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(7) Because it Relates
to the Company's Ordinary Business Operations.
A proposal may be excluded from a company's proxy statement pursuant to Rule
14a-8(i)(7) if it "deals with a matter relating to the company's ordinary
business operations." In Release No. 34-40018 (May 21, 1998) (the "1998
Release"), accompanying the Commission's 1998 Amendments to Rule 14a-8, the
Staff acknowledged that the general underlying policy of the ordinary business
operations exclusion is "to confine the resolution of ordinary business problems
to management and the board of directors, since it is impracticable for
stockholders to decide how to solve such problems at an annual meeting."
As stated in the 1998 Release, the policy underlying the ordinary business
exclusion rest on two central themes. First, the 1998 Release contemplated that
"certain tasks are so fundamental to management's ability to run a company on a
day-to-day basis" that they are not proper subjects for shareholder proposals,
including, in particular, proposals relating to "the management of the
workforce, such as the hiring, promotion, and termination of employees." Second,
the 1998 Release states that the Staff will consider "the degree to which the
proposal seeks to `micro-manage' the company by probing too deeply into matters
of a complex nature upon which shareholders, as a group, would not be in a
position to make an informed judgment. This may come into play ... where the
proposal involves intricate detail, or seeks to impose specific time-frames or
methods for implementing complex policies." Although the Staff reversed its
position in Cracker Barrel Old Country Stores, Inc. (October 13, 1992) regarding
the automatic exclusion of employment-related shareholder proposals raising
social policy issues, the 1998 Release specifically noted that "reversal of the
[Cracker Barrel] position does not affect the Division's analysis of any other
category of proposals under the exclusion, such as proposals on general business
operations." Under the 1998 Amendments to Rule 14a-8, the Staff acknowledged
that "there is no bright-line test to determine when employment-related
shareholder proposals raising social policy issues fall within the scope of the
`ordinary business' exclusion" but noted that the Staff "will make reasoned
distinctions" relying on a case-by-case analysis and taking into account such
factors as the nature of the proposal and the circumstances of the company to
which it is directed.
The Proposal seeks the Company's commitment to the implementation of a code of
conduct based on the Standards, which are a set of global human rights standards
incorporating all 180 ILO conventions. While several of the principles addressed
in the ILO conventions touch upon social policy concerns, a vast majority of the
issues directly relate to the Company's ordinary business operations. For
example, the Proposal includes a requirement that the Company and its suppliers
commit themselves to a code of conduct based on the standard that "all workers
have the right to form and join trade unions and bargain collectively."
Moreover, the Proposal states that "worker representatives ... have access to
all workplaces necessary to enable them to carry out their representation
functions." Clearly these mandates deal directly with the Company's ordinary
business operations in the area of management and labor relations. In recent
years, the Staff has concluded that determinations involving collective
bargaining units as well as the negotiations between companies and unions
regarding wages, hours and working conditions are ordinary business issues
within the scope of Rule 14a-8(i)(7). See Modine Manufacturing Co. (May 6, 1998)
(the Staff concurred in the omission of a shareholder proposal under Rule
14a-8(i)(7) because a portion of the proposal dealing with the company's
policies regarding trade unions and collective bargaining related to ordinary
business operations).
In addition, the ILO's mandate regarding working hours (that the working hours
of employees of the Company and its suppliers should not exceed eight hours a
day or 48 hours per week) also clearly relates to the Company's ordinary
business operations. On several occasions, the Staff has determined that an
employer's policy with respect to employee hours relates to the Company's
ordinary business operations, and that shareholder proposals relating to such
issues may be excluded pursuant to Rule 14a-8(i)(7). See Intel (March 18, 1999)
(the Staff concurred in exclusion of a shareholder proposal requesting adoption
of an Employee Bill of Rights that would dictate such ordinary business
operational matters as employee work hours); see also Toys `R' Us (March 18,
1998) (the Staff concurred in omission of a shareholder proposal under Rule
14a-8(i)(7) because the proposal, in focusing upon such issues as working
conditions, wages and working hours for employees of company suppliers, dealt
primarily with ordinary employment-related matters).
Further, the Staff has determined that an employer's policies with respect to
wage adjustments and the so-called "living wage" relate to ordinary business
operations, and that such shareholder proposals may be properly excluded
pursuant to Rule 14a-8(i)(7). See Wal-Mart Stores, Inc. (March 15, 1999) (the
Staff concurred in the omission of a shareholder proposal under Rule 14a-8(i)(7)
because a portion of the proposal dealing with "sustainable living wage" issues
infringed upon the company's ordinary business operations); see also K-Mart
Corp. (March 12, 1999) and The Warnaco Group (March 12, 1999), in which the
Staff reached the same conclusion as in Wal-Mart Stores, Inc. with respect to a
similar shareholder proposal.
Further evidence that the Proposal relates to the Company's business operations
is that the Company has already implemented labor standards in its terms of
engagement (the "Terms of Engagement") with its vendors, attached hereto as
Exhibit C. The Terms of Engagement address many of the Company's policies that,
as noted in the previous paragraphs, the Staff has already agreed are part of a
company's ordinary business operations. For example, the Terms of Engagement set
the maximum length of the work week of employees of suppliers and prohibit child
labor, prison labor and exploitation of employees. The Terms of Engagement are
the basis of the Company's relationships with its suppliers, relationships that
have a direct impact on the quality of the Company's product and the cost of
operating its business. Thus, standards that would in any way alter this
relationship are clearly excludable as relating to the Company's ordinary
business operations.
The Proposal also seeks to micro-manage the Company's business operations, since
the ILO conventions touch upon nearly every aspect of the Company's and its
suppliers' relationship with their respective employees in intricate detail. For
example, in addition to dictating the number of hours a day that an employee
should work and dictating standards for employee wages, the conventions would
require that the Company and its suppliers:
set the minimum age for employment which is likely to jeopardize the health,
safety or morals of young person at no less than 18 years;
provide workers' representatives with access to their workplace facilities;
commit itself to a 40-hour work week;
provide maternity leave of not less than 14 weeks;
take steps to ensure that any worker required to transport loads manually
receive training in techniques to safeguard health and prevent accidents; and
provide each worker with a minimum of three weeks of paid vacation every year.
The conventions establish the minimum age of employees, dictate the type of
benefits to be provided to employees (including health insurance and maternity
leave), set the maximum number of hours employees may work and outline safety
provisions to which the Company and their suppliers, must adhere. The mandates
would apply worldwide without regard to employees' desires, local laws or local
customs.
And indeed, the Company's operation under the terms of a code of conduct based
on the Standards would cause the Company to violate the laws of the People's
Republic of China, where many of the Company's suppliers are located. The
Proposal calls for a code of conduct that allows "workers ... the right to form
... trade unions," based on ILO Convention 87. ILO Convention 87 states in
Article 2 that "[w]orkers ... shall have the right ... to join organisations of
their own choosing without previous authorisation." Article 3 states that "[t]he
public authorities shall refrain from any interference which would restrict" a
labor organization's ability to organize and administer its program. Such
provisions are incompatible with the organized labor structure of China.
According to "1999 Country Report on Economic Policy and Trade PracticesChina,"
published in March, 2000 by the Bureau of Economic and Business Affairs of the
U.S. Department of State, China severely restricts the activities of organized
labor. China's Trade Union Law states that workers who wish to form a union at
any level must receive approval from a higher-level government-run trade
organization, conflicting with Article 2's prohibition against a worker's right
to join a union without previous authorization. Moreover, unions are legally
required to join the All-China Federation of Trade Unions, a national umbrella
organization controlled by the Communist Party. This requirement conflicts with
the ILO provision that prohibits control of a union by a public authority. Thus,
the Standards would be unworkable and counterproductive in a part of the world
where the Company does much of its business. Without the requirements of the
Proposal, the Company currently imposes standards with respect to its suppliers
in China that both protect workers and are practicable, given China's unique
political and labor system. The interference with the Company's ordinary
business operation that the Proposal seeks would deny the flexibility the
Company needs to perform its daily operations, and ultimately harm the workers
the Proposal claims to protect by restricting its ability to conduct business in
certain parts of the world.
Many of the benefits that the Company and its suppliers would be forced to
provide to their employees under the Proposal are not even customary in the
United States. These benefits could not be implemented by the Company without
careful analysis on the part of the board of directors of the potential costs of
such benefits. How can shareholders acting once a year at an annual meeting,
without the benefit of any meaningful analysis that would enable them to make an
informed judgment, make decisions regarding such matters? Clearly, shareholder
intervention on such matters would amount to micro-management of the Company's
day-to-day operations.
Through the principles briefly addressed in the Proposal and delineated at
length in the ILO conventions, the Standards address a broad spectrum of issues.
The scope of these Standards demonstrates that the Proposal on the whole relates
to the Company's ordinary business operations, encompassing nearly every aspect
of the Company and its suppliers' businesses, and seeks to micro-manage the
Company. This cannot be masked by the fact that some of these issues also touch
upon broader social policy concerns. In recent years, the Staff has noted that a
proponent in submitting a shareholder proposal with an enumerated list of human
rights standards to which a company must adhere may not circumvent the ordinary
business operations exclusion by intermingling ordinary business issues with
significant policy issues. See Wal-Mart Stores, Inc. (March 15, 1999) (the Staff
concurred in omission of a shareholder proposal which requested the company to
report on actions taken to ensure that its suppliers do not, among other things,
use child or slave labor, because a single element of the proposal, regarding
sustainable living wages, related to ordinary business operations); see also
K-Mart Corp. (March 12, 1999) and The Warnaco Group (March 12, 1999) (the Staff
concurred in omission as to both under Rule 14a-8(i)(7) with regard to similar
proposals where one aspect of the proposals required the companies to implement
policies regarding a sustainable living wage, an ordinary business operation
within the scope of Rule 14a-8(i)(7)); Chrysler Corp. (February 18, 1998) (the
Staff permitted exclusion of a proposal which required the company to review and
report to shareholders on its international codes and standards with respect to
six principles, one of which related to ordinary business). In light of the
foregoing, the Proposal relates the Company's ordinary business operations and
is excludable under Rule 14a-8(i)(7).
The Proposal is distinguishable from the proposals addressed in Microsoft
(September 14, 2000) and Oracle (August 15, 2000) where the Staff refused to
concur in the omission of the proposals under Rule 14a-8(i)(7). In Microsoft and
Oracle, the proposals requested that the company implement eleven specific
principles in one country, China. These principles were designed to address a
specific, known problem in that country. The proposals in Microsoft and Oracle
are more analogous to the shareholder proposal addressed in Toys `R' Us, Inc.
(February 8, 1999). In Toys `R' Us, the Staff refused to concur with the
company's position that a shareholder proposal seeking the company to implement
the MacBride Principles could be excluded under Rule 14a-8(i)(7), The MacBride
Principles sought to ensure that the company did not discriminate in Northern
Ireland on the basis of religion in the hiring, promotion or termination of
employees. Similar to the Microsoft and Oracle proposals, the Toys `R' Us
proposal, consisting of nine specific principles, sought to address a documented
problem in one country. In contrast, the Proposal requests that the Company
implement a code of conduct based on numerous broadly drafted and highly complex
ILO conventions which would affect the Company's operations worldwide without
regard to the appropriateness of any given convention in any particular
locality.
V. The Proposal Should Be Excluded under Rule 14a-8(i)(6) Because it is
Impermissibly Vague and Indefinite, and Therefore Beyond the Company's to
Effectuate, and Thus Violates Rule 14a-8(i)(6).
Rule 14a-8(i)(6) provides that a shareholder proposal may be excluded from a
company's proxy statement if it is sufficiently vague that the company "would
lack the power or authority to implement" the proposal because the company would
be unable to determine what actions should be taken. See Int'l Business Machines
Corp. (January 14, 1992); Dryer v. SEC, 287 F.2d 773, 781 (8th Cir. 1961) ("it
appears to us that the proposal as drafted and submitted to the company, is so
vague and indefinite as to make it impossible for either the board of directors
or the stockholders at large to comprehend precisely what the proposal would
entail").
The Proposal requests that the board of directors commit the Company to the
implementation of a code of conduct based the Standards. As discussed above, it
is impossible to determine from the Proposal what the Company's obligations
would be if the board so committed the Company and its suppliers to
implementation of a code of conduct based on the Standards, thereby committing
itself to broadly written ILO conventions that would be applicable to the
Company's operations worldwide. If the Proposal were adopted, the Company would
be required to become familiar with the intricacies of each ILO convention and
make arbitrary decisions as to how to implement broadly stated social and
political goals. Moreover, the Company would continue to be obligated to comply
with a multiplicity of foreign laws and regulations. Neither the Proposal nor
the ILO conventions themselves provide any guidance to the Company as to how to
reconcile conflicts between the ILO conventions and foreign and local laws and
regulations. For example, the ILO conventions mandate collective bargaining and
organization of employees, notwithstanding the fact that such activities may
violate the law in certain foreign jurisdictions. This may, in itself, render
the Proposal excludable pursuant to Rule 14a-8(i)(6). In fact, the Company
already adheres to its own labor standards according to its standard terms of
engagement between it and its suppliers. See Exhibit C. These standards allow
the Company to pursue goals of fair labor practices without the imposition of
standards that may be incompatible with the varied nature of agreements and
situations that the Company faces in its ordinary course of business.
From the face of the Proposal, the shareholders and the Company could have
widely divergent views regarding what obligations the Proposal would place on
the Company. This uncertainty is exacerbated by the fact that significant
implementation would have to occur at the supplier level, since the Company
contracts out all manufacturing operations. Further, it is unclear how the
Company could reconcile conflicts between the ILO conventions and foreign laws.
Due to these material uncertainties, the Company would lack the power or
authority to implement the Proposal, making it subject to exclusion under Rule
14a-8(i)(6).
The Proposal is distinguishable from the proposals addressed in Microsoft
(September 14, 2000) and Oracle (August 15, 2000) where the Staff refused to
concur in the omission of a proposal under Rule 14a-8(i)(6). As discussed above,
in Microsoft and Oracle, the proposals requested that the company implement a
list of human rights principles, known as the China Principles. However, in
Microsoft and Oracle, rather than proposing sweeping standards that incorporate
voluminous and complex ILO conventions that would be applicable to company
operations anywhere in the world, the proposal specifically set forth in their
entirety eleven principles to which it was limited. Thus, the Proposal would be
significantly more onerous for the Company to attempt to implement than the
proposals in Microsoft or Oracle.
For the reasons set forth above, the Company respectfully requests that the
Staff concur with its view that it may properly omit the Proposal. Should the
Staff disagree with the Company's conclusions, or should any additional
information be desired, the Company would appreciate the opportunity to confer
with the Staff concerning these matters prior to the issuance of your response.
Any questions or comments with respect to the subject matter of this letter
should be addressed to the undersigned at Goodwin Procter LLP, Exchange Place,
Boston, MA 02109 (telephone: 617-570-1000) or, in my absence, please contact
Charles W. Redepenning, Jr., General Counsel of the Company at The Stride Rite
Corporation, 191 Spring Street, P.O. Box 9191, Lexington, Massachusetts
02420-9191 (telephone: 617-824-6000)
Thank you for your consideration.
Very truly yours,
/s/
Ettore A. Santucci, P.C.
LIBC/1322473.3
-----FOOTNOTES-----
1 The Company did not give the Proponents notice within 14 days of the failure
to comply with Rule 14a-8(d) because the Company believes such notice would be
futile. It would be impossible to include the necessary information in the
Proposal (i.e. the text of the ILO conventions) and come within the 500 word
count.
[INQUIRY LETTER]
STRIDE RITE CORPORATION/ GLOBAL HUMAN RIGHTS STANDARDS
Whereas, Stride Rite Corporation has extensive overseas operations, and
Whereas, reports of human rights abuses in the overseas subsidiaries and
suppliers of some U.S.-based corporations has led to an increased public
awareness of the problems of child labor, "sweatshop" conditions, and the denial
of labor rights in U.S. corporate overseas operations, and
Whereas, corporate violations of human rights in these overseas operations can
lead to negative publicity, public protests, and a loss of consumer confidence
which can have a negative impact on shareholder value, and
Whereas, a number of corporations have implemented independent monitoring
programs with respected human rights and religious organizations to strengthen
compliance with international human rights norms in subsidiary and supplier
factories, and
Whereas, these standards incorporate the conventions of the United Nation's
International Labor Organization (ILO) on workplace human rights which include
the following principles:
1) All workers have the right to form and join trade unions and to bargain
collectively. (ILO Conventions 87 and 98)
2) Workers representatives shall not be the subject of discrimination and shall
have access to all workplaces necessary to enable them to carry out their
representation functions. (ILO Convention 135)
3) There shall be no discrimination or intimidation in employment. Equality of
opportunity and treatment shall be provided regardless of race, color, sex,
religion, political opinion, age, nationality, social origin, or other
distinguishing characteristics. (ILO Convention 100 and 111)
4) Employment shall be freely chosen. There shall be no use of force, including
bonded or prison labor. (ILO Conventions 29 and 105)
5) There shall be no use of child labor. (ILO Convention 138), and,
Whereas, independent monitoring of corporate adherence to these standards is
essential if consumer and investor confidence in our company's commitment to
human rights is to be maintained,
Therefore, be it resolved that the company commit itself to the implementation
of a code of corporate conduct based on the aforementioned ILO human rights
standards by its international suppliers and in its own international production
facilities and commit to a program of outside, independent monitoring of
compliance with these standards.
[INQUIRY LETTER]
October 25 2001
Mr. Charles W. Redepenning, Jr.
Secretary
Stride Rite Corporation
191 Spring Street
Lexington, MA 02420-9191
Dear Mr. Redepenning:
As Comptroller of New York City, I am the custodian and trustee of the New York
City Employees' Retirement System and the New York City Teachers' Retirement
Systems (the "Systems"). The Systems' boards of trustees have authorized me to
inform you of our intention to offer the enclosed proposal for consideration of
stockholders at the next annual meeting.
It calls for the implementation of a uniform, verifiable, international standard
for workers rights based on the conventions of the United Nations' International
Labor Organization (ILO). Its adoption would benefit our company by helping to
ensure that it is not associated with human rights violations in the workplace.
I submit the attached proposal to you in accordance with rule 14a-8 of the
Securities Exchange Act of 1934 and ask that it be included in your proxy
statement.
Letters from Citibank certifying the Systems' ownership, for over a year, of
161,436 shares of Stride Corporation common stock, are enclosed. The Systems
intend to continue to hold at least $2,000 worth of these securities through the
date of the annual meeting.
We would be happy to discuss this initiative with you. Should the board decide
to endorse its provisions as company policy, our funds will ask that the
proposal be withdrawn from consideration at the annual meeting. Please feel free
to contact Mr. Patrick Doherty of my office at (212) 380-2651, if you have any
further questions on this matter.
Sincerely,
/s/
Alan G. Hevesi
AGH: pd:ma
Enclosure
H:workrights
[INQUIRY LETTER]
January 8, 2002
Office of the Chief Counsel
Division of Corporate Finance
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Stride Rite Corporation;
New York City Employees' Retirement System and New York City Teachers'
Retirement System Shareholder Proposal
To Whom It May Concern:
I write on behalf of the New York City Employees' Retirement System and New York
City Teachers' Retirement System (the "Funds") in response to the December 5,
2001 letter sent to the Securities and Exchange Commission by Goodwin Proctor
LLP on behalf of The Stride Rite Corporation ("Stride Rite" or the "Company").
In that letter, Stride Rite contends that the Funds' shareholder proposal (the
"Proposal") may be excluded from the Company's 2002 proxy statement and form of
proxy (the "Proxy Materials").
Stride Rite argues that the Proposal may be omitted under Rule 14a-8(i)(3), i(6)
and (i)(7). I have reviewed the Proposal, as well as the December 5, 2001
letter. Based upon that review, as well as a review of Rule 14a-8, it is my
opinion that the Proposal may not be omitted from Stride Rite's 2001 Proxy
Materials. Accordingly, the Funds respectfully request that the Division deny
the relief that Stride Rite seeks.
I. The Proposal
The Proposal consists of a series of whereas clauses followed by a resolution.
The whereas clauses describe: (a) five internationally recognized ILO workers'
rights standards relating to trade unions and collective bargaining,
discrimination, and child and forced labor; and (b) a system of independent
monitoring. These clauses are followed by a resolve clause that states:
Therefore, be it resolved that the company commit itself to the implementation
of a code of corporate conduct based on the aforementioned ILO human rights
standards by its international suppliers and in its own international production
facilities and commit to a program of outside, independent monitoring of
compliance with these standards.
Thus the Proposal is, in effect, bipartite. The Company is requested to commit
itself and hold its international suppliers to a code of conduct based on a
limited number of specified human rights standards and to the outside monitoring
of that compliance.
II. The Company's Opposition and The Funds' Response
Stride Rite has requested that the Division grant "no-action" relief pursuant to
three provisions of SEC Rule 14a-8: (1) Rule 14a-8(i)(3), which prohibits false
and misleading statements and violations of the 500 word limit established in
Rule 14a-8(d); (2) Rule 14a-8(i)(6), which deprives a company of the authority
to implement misleading proposals; and (3) Rule 14a-8(i)(7) which applies to
matters concerning a company's "ordinary business". Pursuant to Rule 14a-8(g),
Stride Rite bears the burden of proving that one or more of these exclusions
apply. As detailed below, the Company has failed, in each instance, to meet that
burden.
A. The Proposal is Not Vague, Indefinite, False or Misleading and May Not Be
Omitted Under Rule 14a-8(i)(3).
(1) The Proposal is Readily Comprehensible.
Stride Rite argues that the Proposal is so vague that if it were adopted, the
shareholders would be unable to determine what actions or measures it requires.
The Company underestimates the intelligence of shareholders by assuming that
they will not be able to comprehend the concept and intent of the Proposal. That
is simply not the case. The Proposal is concise and clear; by its terms it
requires the Company to commit to (1) implementing a code of conduct for itself
and its international suppliers that is based on a set of well-defined
principles, and (2) establishing outside monitoring and verification of
compliance.
The Commission has, on numerous occasions, allowed proposals containing
precisely such types of standards, include those calling for adoption of the
CERES Principles, the Sullivan Principles and the MacBride Principles, to be
included in proxy statements. Most recently, the Division refused to grant
no-action relief concerning a series of similar resolutions urging the adoption
of various human rights principles in connection with a series of companies'
international operations and the operations of their overseas suppliers. See,
e.g., PPG Industries, Inc. (January 22, 2001); Warnaco Group, Inc. (March 14,
2000); Oracle Corporation (August 15, 2000); Microsoft Corporation (September
14, 2000).
In support of its request for "no action" relief, the Company has cobbled
together a series of ill-conceived arguments and claims that the Proposal is
vague and confusing. It is not. The Proposal would not, as the Company argues,
require the Company to base the proposed code of conduct on all the ILO's 180
Conventions, nor would it require the Company to blindly pick and choose among
them. The plain terms of the Proposal ask the Company to implement a code of
conduct based solely on the five ILO human rights standards specifically
referenced (with citation to the relevant Conventions), and commit to
independent monitoring of compliance. The Company's repeated assertions that its
shareholders will be unable to comprehend this straightforward resolution are
baseless.
The Company also claims that adoption of the Proposal would require it to
interpret and comply with a multitude of highly complicated and technical
Conventions. For example, it claims that it would be required to somehow pursue
a national policy to eradicate child labor, and to "specify, in a declaration
attached to its ratification, a minimum age for admission to employment or work
within its territory." Naturally, these assertions are absurd. The Company has
pulled out of context language from the ILO Convention dealing with ratification
by member states of child labor prohibitions. The Proposal does not ask the
Company to ratify the ILO Conventions, but simply implement and enforce a code
of conduct based on the five human rights principles it sets forth. Stride
Rite's arguments should be dismissed as a transparent effort to manufacture
confusion where none exists.
The decisions cited by the Company to support exclusion on Rule 14a-8(i)(3)
grounds are readily distinguishable. For example, in Bristol-Meyers Squibb
Company (February 1, 1999), the excluded proposal was wholly incomprehensible,
asking that the Corporation "adopt a policy not to test its products on unborn
children or cannibalize their bodies, but pursue preservation, not destruction
of their lives." The proposal contained "several disjointed statements presented
in a rambling fashion" and included references to both the Bible and Roman law.
Similarly, in Philadelphia Electric Company (July 30, 1992), the proposal that
was excluded provided that "a Committee of small stockholders of limited members
100-1000-5000 shares, to consider and refer to the Board of Directors a plan or
plans that will in some measure equate with the gratuities bestowed on
Management, Directors and other employees." As the Corporation in that instance
wrote, the statement is subject to innumerable interpretations; "the reader is
left without a clear understanding of what is intended."
Stride Rite also seeks to rely on a series of inapposite decisions issued in
March 2001, in which the Staff declined to take action on a set of
standards-based proposals that differed in important respects from the Proposal
at issue here. For instance, the Staff chose to take no action on the exclusion
of proposals that would have committed companies to "`full implementation' of
the SA8000 Social Accountability Standards", the terms of which, unlike the
standards at issue here, were not set forth in the proposals' text. See Kohls
Corporation (March 13, 2001); H.J. Heinz Company (May 25, 2001); TJX Companies
(March 14, 2001); Revlon. Inc. (March 13, 2001); McDonald's Corporation (March
13, 2001). Equally distinguishable is AnnTaylor Stores Corporation (March 13,
2001), in which the Staff granted "no action" relief concerning a proposal
seeking to commit the company to "full implementation" of "these human rights
standards." In contrast to that language, which the Staff found vague and
indefinite, the Proposal here contemplates specific action: the implementation
of a code of conduct fashioned by the Company but based on the clearly
articulated "aforementioned ILO human rights standards."
(2) The Proposal Does Not Exceed the 500-Word Limit on Shareholder Proposals.
Rule 14a-8 provides that a shareholder proposal may be excluded from a company's
proxy statement if the proposal and any accompanying supporting statement exceed
500 words. The Proposal does not exceed this limit; while it includes references
to specified ILO conventions, those documents themselves are not part of the
Proposal.
The Company tries to argue that, by merely citing outside documents, the
Proposal incorporates those documents for purposes of the 500-word limitation.
The Company's argument cannot prevail; it would deny proponents of shareholder
proposals the ability to direct fellow shareholders to sources to verify and
expand upon the information presented in the resolution. See e.g., Electronic
Data Systems Corporation (March 24, 2000).
Indeed, as the Company admits, in a nearly identical situation the Staff flatly
refused to allow Eastman Kodak Company to exclude proposals requiring Kodak to
endorse the environmental standards contained in the CERES Principles on the
ground that the proposals and principles together exceeded 500 words. See
Eastman Kodak Co. (January 7, 1993). The Company's effort to distinguish this
Proposal on the ground that it seeks to have the Company "implement" a code of
conduct based on certain standards rather than "endorse" them, utterly misses
the point of the Commission's length restrictions on shareholder proposals. In
adopting that restriction, the Commission noted that extremely long resolutions
"constitute an unreasonable exercise of the right to submit proposals at the
expense of other shareholders and tend to obscure other material matters in the
proxy statements of issuers, thereby reducing the effectiveness of such
documents." The distinction between implementation and endorsement is irrelevant
to these concerns. Moreover, the length of the outside document is similarly
irrelevant, notwithstanding the Company's argument to the contrary. The length
of a proposal either meets the length restriction or it does not. The citation
to the eight ILO Conventions neither raises the cost of the Proposal nor
obscures other important matters.
Finally, the Company's reliance on statements by the Staff that proposal
references to information posted on the internet may be false and misleading or
violate the proxy process requirements are similarly misplaced. Websites are not
static; their content can change hourly. The problems associated with references
to a data source that is not fixed is not applicable to static documents like
the ILO Conventions, or, for that matter, the CERES Principles.1
B. The Proposal may Not be Excluded Under Rule 14a-8(i)(6) as it is Clear and
Unambiguous and is Within the Company's Power to Effectuate.
As discussed in detail above, the Company's claims pursuant to Rule 14a-8(i)(3)
that the Proposal is vague and indefinite are baseless. Thus, its allegation
that it cannot discern what actions the Proposal requires must also be
dismissed.
Moreover, the Company's further claim that the Proposal may be excluded because
shareholders and the Company could disagree about what obligations the Proposal
would place on the Company also lacks foundation. As the Company concedes, in
Microsoft (September 14, 2000) and Oracle (August 15, 2000), the Staff recently
refused to allow the omission of more voluminous and equally broad human rights
proposals pursuant to Rule 14a-8(i)(6). Accordingly, the Proposal should not be
excluded pursuant to Rule 14a-8(i)(6).
C. The Proposal Raises Substantial Policy Issues and May Not be Excluded
Pursuant to Rule 14a-8(i)(7).
Stride Rite next argues that the Proposal raises matters that are within the
scope of ordinary business; accordingly, the Company urges that the Proposal be
excluded under Rule 14a-8(i)(7). However, as the Commission has written,
proposals that involve matters of ordinary business must nevertheless be
included in the proxy statement if they deal with matters with "significant
policy, economic or other implications inherent in them." Release Number
34-12999. The Proposal raises issues that are at the forefront of international
discourse concerning globalization and free trade. The Proposal can, by no
means, be deemed devoid of policy significance.
Last year, the Staff flatly refused to grant "no action" relief to a company
seeking to exclude from its proxy statement a provision similar to the one at
issue here. See American Eagle Outfitters, Inc., (March 20, 2001). Indeed, the
Commission has often recognized the overarching significance of human rights
issues when dealing with resolutions involving, e.g., the Sullivan Principles
and the MacBride Principles. Recently, the Commission rejected arguments similar
to those raised by Stride Rite in the Warnaco, Oracle and Microsoft cases. The
resolutions at issue in those cases asked the companies to endorse a set of
principles similar to those advanced by the Proposal.
The Company has argued that any reference to labor relations brings the Proposal
within the ambit of ordinary business; that cannot be the case. The "ordinary
business" exclusion is designed to guard against proposals that seek to
micro-manage a company. The Commission has specifically acknowledged this policy
in its refusal to grant no-action relief in the Microsoft case. At issue in that
case was a resolution that called upon Microsoft's Board of Directors to adopt
the U.S. Business Principles for Human Rights of Workers in China. The second
one of those principles deals directly with labor matters; the principle
provides that "facilities and suppliers shall adhere to wages that meet workers'
basic needs, fair and decent working hours, and at a minimum, to the wage and
hour guidelines provided by China's national labor laws." The Proposal addresses
labor relations in an equally global sense, setting forth a general prohibition
against discrimination, a broad recognition of the freedom to unionize and a
basic bar against forced or child labor. Such general direction in no way
interferes with the management's ability to run the Company.
The remainder of the Company's arguments rely on its repeated assertion that a
plethora of irrelevant ILO Conventions that are cited nowhere in the text of the
Proposal would impose onerous burdens on the Company's daily operations if the
Proposal were adopted. That flawed premise is addressed above. Accordingly, the
Proposal should not be excluded pursuant to Rule 14a-8(i)(7).
Conclusion
For the reasons stated above, the Funds respectfully submit that Stride Rite's
request for no-action relief should be denied. Should you have any questions or
require any additional information, please contact me.
Thank you for your time and consideration.
Very truly yours,
/s/
Sara C. Kay
Senior Counsel
cc: Enrique G. Colbert, Esq.
-----FOOTNOTES-----
1 For these reasons, the Company's statement that it need not provide 14 days
written notice of failure to comply with Rule 14a-8(d) because such notice was
futile is baseless. There is no legitimate basis for arguing that the text of
the ILO Conventions should have been included in the Proposal, and thus no basis
for excusing the Company from its obligations under the Rules.
[STAFF REPLY LETTER]
January 16, 2002
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Stride Rite Corporation
Incoming letter dated December 5, 2001
The proposal requests that the board commit to the implementation of a code of
conduct based on ILO human rights standards.
We are unable to concur in your view that Stride Rite may exclude the proposal
under rule 14a-8(d). Accordingly, we do not believe that Stride Rite may omit
the proposal from its proxy materials in reliance on rule 14a-8(d).
We are unable to concur in your view that Stride Rite may exclude the proposal
under rule 14a-8(i)(3). Accordingly, we do not believe that Stride Rite may omit
the proposal from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Stride Rite may exclude the proposal
under rule 14a-8(i)(6). Accordingly, we do not believe that Stride Rite may omit
the proposal from its proxy materials in reliance on rule 14a-8(i)(6).
We are unable to concur in your view that Stride Rite may exclude the proposal
under rule 14a-8(i)(7). Accordingly, we do not believe that Stride Rite may omit
the proposal from its proxy materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Grace K. Lee
Attorney-Advisor |
