Company Name: Bank of New York Co., Inc.
Public Availability Date: February 28, 2003
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 24, 2003
Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549.
Attention: Chief Counsel, Division of Corporation Finance
Re: Shareholder Proposal by the Employees Pension Plan of the American
Federation of State, County and Municipal Employees
Ladies and Gentlemen:
In accordance with Rule 14a-8(j) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), The Bank of New York Company, Inc. (the "Company")
hereby requests your concurrence that the Company may exclude from its proxy
statement (the "Proxy Statement") for its 2003 annual meeting of shareholders
the shareholder proposal (the "Proposal") and the statement supporting the
proposal (the "Supporting Statement") submitted to the Company on behalf of the
Employees Pension Plan of the American Federation of State, County and Municipal
Employees (the "Proponent"). The Proposal requests that the Company's Board of
Directors (the "Board") amend the Bylaws of the Company to establish a procedure
by which one or more shareholders who own a combined minimum of three percent of
the Company's common stock may ensure the inclusion of shareholder nominees to
the Board in the Company's Proxy Statement and on the Company's proxy card. A
copy of the Proposal and Supporting Statement is attached as Annex A hereto.
Five additional copies of this letter, including the Proposal and Supporting
Statement, are enclosed herewith in accordance with Rule 14a-8(j). The Company
actively engaged in negotiations with the proponent in an effort to agree on a
basis which would allow the proponent to withdraw its proposal. Such
negotiations unfortunately proved fruitless. Although the Company does not
expect to file its definitive proxy statement before March 31, 2003, the Company
requests to be allowed to make this submission even though it is later than 80
calendar days before the Company files its definitive proxy statement and form
of proxy because it attempted to resolve its differences with the proponent by
negotiation.
Grounds for Excluding the Proposal Pursuant to Rule 14a-8
1. Rule 14a-8(i)(8)Relates to Election of Directors
Rule 14a-8(i)(8) under the Exchange Act permits the exclusion of a shareholder
proposal from a company's proxy materials if it "relates to an election for
membership on the company's board of directors or analogous governing body." The
Securities and Exchange Commission (the "Commission") has stated that "the
principal purpose of [Rule 14a-8(i)(8)] is to make clear, with respect to
corporate elections, that Rule 14a-8 is not the proper means for conducting
elections or effecting reforms in elections of that nature, since other proxy
rules, including Rule 14a-11 are applicable thereto."
1 SEC Release No. 34-12598
(July 7, 1976).
In line with the Commission's statement quoted above, the staff of the
Commission (the "Staff") has consistently granted no-action relief pursuant to
Rule 14a-8(i)(8) in connection with shareholder proposals seeking to require a
company to include shareholder nominees in the company's proxy materials,
because rather than establishing procedures for nomination or qualification
generally, such proposals would establish a procedure that may result in
contested elections of directors. See, e.g., Storage Technology Corp., 2002 SEC
No-Act. LEXIS 418 (March 22, 2002) (permitted exclusion of a shareholder
proposal requiring the name of each candidate nominated by a shareholder to be
included in the proxy materials); United Road Services, Inc., 2000 SEC No-Act.
LEXIS 631 (May 5, 2000) (permitted exclusion of a proposal to amend the
company's by-laws to require that shareholder-nominated candidates for director
who have not been approved by the board, or any committee of the board, be
listed in the company's proxy statement and on its proxy card); Coca Cola
Company, 2000 SEC No-Act. LEXIS 80 (January 24, 2000); BellSouth Corp., 2000 SEC
No-Act. LEXIS 81 (January 24, 2000); Boeing Company, 2000 SEC No-Act. LEXIS 95
(January 24, 2000); Black & Decker Co., 2000 SEC No-Act. LEXIS 35 (January 18,
2000); Newmont Mining Corp., 2000 SEC No-Act. LEXIS 36 (January 18, 2000) (all
five concurring in the exclusion of proposals that shareholders who own a
combined minimum of three percent of the company's common stock can ensure the
inclusion of shareholder nominees to the board in the company's proxy
materials); Storage Technology Corp., 1998 SEC No-Act. LEXIS 387 (March 11,
1998) (permitted exclusion of a proposal that the board amend the Company's
governing instruments to require that the proxy statement include a list of
shareholder nominees, each selected by at least three shareholders holding a
certain number of the Company's shares); BellSouth Corp., 1998 SEC No-Act. LEXIS
151 (February 4, 1998) (permitted exclusion of a proposal to amend the by-laws
to provide that shareholder nominees to the board be included in the Company's
proxy materials even if the board recommends a vote against such person); Unocal
Corp., 1991 SEC No-Act. LEXIS 246 (February 8, 1991) (permitted exclusion of a
proposal to adopt a bylaw amendment requiring management to include the name of
any shareholder-nominated candidate in the company's proxy materials).
The Company respectfully submits that the Proposal is substantially identical to
the shareholder proposals in the Coca Cola Company, BellSouth Corp. (January 24,
2000), Boeing Company, Black & Decker Co. and Newmont Mining Corp. no-action
letters cited above. The Proposal would require the Company to include in its
Proxy Statement, in addition to nominees supported by the Board, any nominee
supported by shareholders that hold three percent or more in the aggregate of
the Company's outstanding common stock. Because this would require the Company
to include shareholder nominees in its proxy materials, and result in the
contested election of directors, the Proposal may properly be excluded pursuant
to Rule 14-8(i)(8).
2. Rule 14a-8(i)(3)Violation of Proxy Rules
A proposal may be omitted under Exchange Act Rule 14a-8(i)(3) if "the proposal
or supporting statement is contrary to any of the Commission's proxy rules,...."
The Proposal would establish procedures for contested elections of directors
that are inconsistent with Rule 14a-12 and other rules governing proxy contests
promulgated by the Commission. The Commission's rules require, among other
things, that persons seeking to solicit proxies in favor of an opposition slate
of directors file a separate proxy statement with the Commission. The inclusion
of shareholder nominees for election to the Board in the Company proxy materials
would create confusion and is contrary to the policy and procedure of the
Commission's rules, which contemplate that disclosure regarding nominations to
the board of directors in opposition to candidates selected by a company will
stand apart from the general proxy disclosure of the company.
3. Rule 14a-8(i)(2)Violation of State Law
A proposal may be omitted under Exchange Act Rule 14a-8(i)(2) if "the proposal
would, if implemented, cause the company to violate any state ... law to which
it is subject." I am admitted to practice law in the state of New York, the
Company's state of incorporation. In my opinion, the Proposal, if implemented,
would violate New York law because it would be an impermissible restriction of
the Board's authority to manage the business and affairs of the Company and
would result in disparate treatment of holders of the same class of capital
shares.
Section 701 of the New York Business Corporation Law ("NYBCL") charges the board
of directors with the authority to manage the business and affairs of the
company. Section 620(b) of the NYBCL provides that this authority can be
restricted by a corporation's certificate of incorporation or an amendment
thereto in limited instances. However, neither the NYBCL nor the Company's
Restated Certificate of Incorporation contains any provision that limits the
Board's authority to manage the business and affairs of the Company in a way
that is relevant to the provision of an "access right" to the Company's proxy
statement for shareholder-nominated candidates for board election.
Under the NYBCL, directors of a corporation are required to act in the best
interests of the corporation and its shareholders. See, e.g., Dankoff v. Bowling
Proprietors Ass'n of America, Inc., 69 Misc.2d 658 (1972). Courts have
recognized that under New York state law, directors of a corporation owe a
fiduciary duty to the corporation and to the corporation's shareholders. See,
e.g., Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557 (1984); Feinberg
Testamentary Trust v. Carter, 652 F. Supp. 1066 (1987); Bensen v. American
Ultramar, 1996 U.S. Dist. LEXIS 1222. Accordingly, under New York law, the Board
is required to use its best judgment and select nominees for election which it
reasonably believes will be the best candidates. If the Proposal were
implemented, the Board might be required to include nominees in the proxy
statement even though the Board believes that the inclusion of such candidates
is not in the best interest of the Company and its shareholders. This would
restrict the authority of the Board to manage the business and affairs of the
Company. The NYBCL specifically requires that any restrictions on the authority
of a board of directors to manage the business and affairs of a corporation be
set forth in the certificate of incorporation in compliance with the special
requirements of Section 620(b) of the NYBCL. Because the Proposal, if
implemented, would result in the inclusion of a restriction on the Board's
authority in the Bylaws, it would violate Section 701 of the NYBCL.
Section 501(c) of the NYBCL provides that "subject to the designations, relative
rights, preferences and limitations applicable to separate series and except as
otherwise permitted by subparagraph two of paragraph (a) of section five hundred
five of this article [relating to certain allowable restrictions on stock
options], each share shall be equal to every other share of the same class." The
courts have interpreted this principle to the effect that every shareholder of
the same class is to be treated equally. See, e.g., Bank of New York v. Irving
Bank Corp., 536 N.Y.S.2d 923, 924, (Sup.Ct.N.Y.Co. 1988) ("each share shall be
equal to every other share of the same class"); Fe Bland v. Two Trees Management
Co., 66 N.Y.2d 558, 569, ("what the subdivision requires is that shares of the
same class be equal in all respects to every other share of the class, save only
those classes which because they can be issued in separate series may
differentiate as to rights and preferences between the separate series").
Implementation of the Proposal would cause the Company to violate Section 501(c)
of the NYBCL because a distinction would be made between holders of the same
class of common stock of the Company, based on the percentage ownership (greater
than three percent) of such holders.
In accordance with Rule 14a-8(j), the Company is contemporaneously notifying the
Proponent, by copy of this letter, of its intention to omit the Proposal and
Supporting Statement from the Proxy Statement.
If the Staff disagrees with my conclusion regarding the exclusion of the
Proposal and Supporting Statement, or if additional information is desired in
support of the Company's position, I would appreciate an opportunity to speak
with you by telephone prior to the issuance of a written response. If you have
any questions regarding this request, or need any additional information, please
telephone me at (212) 635-1075.
Very truly yours,
/s/
Paul A. Immerman
Senior Counsel, The Bank of New York
-----FOOTNOTES-----
1 Rule 14a-11 has been rescinded, but several of the provisions that were
previously in Rule 14a-11 have been moved to current Rule 14a-12, which now
governs proxy solicitations in contested director elections. SEC Release No.
34-42055 (October 22, 1999).
[APPENDIX]
RESOLVED, that the shareholders of The Bank of New York Company, Inc. ("BNY")
urge the board of directors to take the necessary steps to amend the Bylaws of
BNY to establish a procedure by which a Nominating Shareholder (defined below)
may ensure the inclusion of a Qualified Nominee (defined below) in BNY's proxy
statement and on BNY's proxy card.
The procedure should require the Nominating Shareholder to provide to BNY in
writing, a reasonable length of time before the meeting, a notice containing the
same information about both the Nominating Shareholder and the Qualified Nominee
as is required regarding other nominees and participants in a solicitation
pursuant to Schedule 14A (the "Disclosure"). The procedure may require the
Nominating Shareholder to assume all liability relating to the above disclosure
and to agree to abide by all applicable laws and regulations, including, without
limitation, Rule 14a-12, with respect to the use of any soliciting material
other than BNY's proxy statement.
In addition to the Disclosure, the procedure should require BNY to include in
its proxy materials a 500-word statement by the Nominating Shareholder in
support of the Qualified Nominee's candidacy (the "Statement"). The procedure
should also set forth a process for resolving disputes regarding whether the
Disclosure and Statement comply with Rule 14a-9.
A Nominating Shareholder should be defined as one or more shareholders that hold
in the aggregate 3% or more of BNY's outstanding common stock. A Qualified
Nominee is a person who has consented to being named in the proxy statement and
to serving as a director if elected.
SUPPORTING STATEMENT
Shareholders currently have no meaningful control over the process by which
candidates are selected for election to company boards of directors. BNY's
bylaws state that shareholders may suggest candidates, but there is no
requirement that the candidates be placed on the ballot. Indeed, there is no
indication in any of BNY's last five proxy statements that any shareholder
nominee was considered.
We believe that direct access to the proxy for purposes of electing a director
nominated by shareholders is the most effective mechanism for ensuring diverse
opinions and promoting independent oversight. We believe that BNY would benefit
from such shareholder input, in light of its disappointing recent performance
and subpar corporate governance practices.
In October 2002, BNY disclosed that it would increase its loan loss provision by
$185 million to reflect the deteriorating quality of certain loans and would
adjust its equity investment portfolios downward by $210 million, reducing
earnings by 36 cents per share. On November 7, 2002, BNY's stock closed at
$25.68, down 43% from its 2002 high of $45.35.
The "corporate governance quotient" assigned to BNY by Institutional Shareholder
Services, the largest proxy advisory service, indicates that BNY's governance
practices rank below 67% of S&P 500 companies and 59% of companies in the banks
group. The rating reflects, among other things, the presence of non-independent
directors on the nominating, compensation and audit committees.
We urge shareholders to vote FOR this proposal.
[INQUIRY LETTER]
November 14, 2002
Mr. J. Michael Sheppard, General Counsel & Executive Vice President
The Bank of New York Company, Inc.
One Wall Street
New York, NY 10286
Dear Mr. Sheppard:
On behalf of the AFSCME Employees Pension Plan (the "Plan"), I write to give
notice that pursuant to the 2002 proxy statement of The Bank of New York
Company, Inc. (the "Company"), the Plan intends to present the attached proposal
(the "Proposal") at the 2003 annual meeting of shareholders (the "Annual
Meeting"). The Plan is the beneficial owner of 8,268 shares of voting common
stock (the "Shares") of the Company, and has held the Shares for over one year.
In addition, the Plan intends to hold the Shares through the date on which the
Annual Meeting is held.
The Proposal and Proof of Ownership are attached. I represent that the Plan or
its agent intends to appear in person or by proxy at the Annual Meeting to
present the Proposal. I declare that the Plan has no "material interest" other
than that believed to be shared by stockholders of the Company generally. Please
direct all questions or correspondence regarding the Proposal to Michael Zucker
at 202-429-5024.
Sincerely,
/s/
GERALD W. McENTEE
Chairman
GWMcE:mas
Attachment
[INQUIRY LETTER]
February 13, 2003
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, NW
Washington, DC 20549
Re: Shareholder proposal of AFSCME Employees Pension Plan; No-action request by
The Bank of New York Company
Dear Sir/Madam:
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the AFSCME
Employees Pension Plan (the "Plan") submitted to The Bank of New York Company,
Inc. ("BONY" or the "Company") a shareholder proposal (the "Proposal") urging
BONY's board to amend the Company's bylaws to establish a procedure by which a
Nominating Shareholder (as defined in the Proposal) may ensure the inclusion of
a Qualified Nominee (also defined in the Proposal) in BONY's proxy statement and
on BONY's proxy card.
In a letter to the Commission dated January 24, 2003, BONY stated that it
intends to omit the Proposal from its proxy materials being prepared for the
2003 annual meeting of shareholders. BONY argues that the Proposal is excludable
(i) under Rule 14a-8(i)(8), because it would establish a procedure that would
result in contested elections of directors; (ii) under Rule 14a-8(i)(3), on the
ground that the Proposal, if implemented, would violate the Commission's other
proxy rules; and (iii) under Rule 14a-8(i)(2), as violating New York law by
infringing on the power of the board to manage the business and affairs of the
corporation and discriminating among shareholders of the same class. As
discussed more fully below the positions BONY raises in (i) and (ii) are without
merit. The position raised in (iii) is but a rehashing of arguments about New
York law that were raised more completely by Sears in its request for a
no-action letter. The Plan detailed why this sort of resolution is permitted
under New York law in an opinion of Friedman, Kaplan, Seiler & Adelman, that was
attached to its submission in the Sears matter. A courtesy copy of the Friedman,
Kaplan, Seiler & Adelman opinion is attached. In sum, the Plan respectfully
submits that BONY has failed to meet its burden of showing that it is entitled
to rely on any of the three exclusions it cites.
In addition, BONY admits that it failed to file a request for a no-action letter
within the 80 days preceding the filing of its definitive proxy material, but
asks the Commission to excuse that lapse because it was "actively engaged in
negotiations with the proponent in an effort to agree to a basis which would
allow the proponent to withdraw its proposal." In truth, these negotiations
consisted of a single substantive telephone conversation on January 2, 2003, and
a number of earlier efforts to schedule that conversation. Negotiations ended in
that call on January 2, at which point, BONY had 9 days remaining before the
80-day deadline. Instead, of meeting the deadline, BONY let it pass, and filed
its request 24 days after the end of "negotiations." While BONY may be able to
provide a good reason to be excused from its obligation to meet the 80-day
deadline, the telephone conversation on January 2 with the proponents is not
among them.
For all of the reasons herein, BONY's request for no-action relief should be
denied.
Rule 14a-8(i)(8): Relates to an Election for Membership on the Company's Board
of Directors
Rule 14a-8(i)(8) permits exclusion of a proposal if it "relates to an election
for membership on the company's board of directors or analogous governing body."
(This exclusion is referred to herein as the "Election Exclusion.") BONY
contends that the Proposal falls within this exclusion because it would foster
contested elections of directors. BONY is correct that the SEC staff has, in
recent years, excluded proposals similar to the Proposal on the ground that they
were likely to lead to contested director elections. The Plan believes that the
Election Exclusion should not be applied as a blanket exclusion of all proposals
seeking stockholder access to management's proxy, and respectfully requests that
the position be reconsidered. Specifically, we urge the SEC staff to permit such
proposals that, like the Proposal, do not circumvent the Commission's proxy
rules governing election contests or the disclosure requirements contained in
Schedule 14A.
The language of the Election Exclusion provides little guidance regarding its
scope. Because of the breadth of its language, it could be interpreted to
exclude all proposals touching on the election of directors. However, the SEC
staff has not interpreted the Election Exclusion so broadly, and has required
companies to include in their proxy statements many different proposals that
concern the election of directors, including proposals asking companies to
declassify their board, see, e.g., Boeing Co. (Feb. 23, 1999); adopt cumulative
voting, see, e.g., Archer Daniels Midland (June 20, 1996); adopt director tenure
limits or mandatory retirement ages, see, e.g., LSB Industries (Feb. 17, 1997);
and nominate two candidates for each open board seat, see, e.g., SBC
Communications Inc. (Jan. 31, 2001; review denied, Mar. 16, 2001).
All of these permitted proposals certainly "relate to" the election of
directors. For example, a proposal seeking board declassification would, if
implemented, result in each director standing for election every year rather
than once every three years. The institution of cumulative voting could
significantly change the dynamics of voting in director elections, making it
easier for a small bloc of shareholders to ensure the election of a particular
director candidate. In addition, nominating two candidates for each open
directorship would require shareholders to make choices about the competing
slates in each director election.
Interpreting the Election Exclusion to permit some proposals touching on
director elections is consistent with the scant history and SEC commentary that
exists regarding the exclusion. For much of the shareholder proposal rule's
history, the first paragraph of the rule, which set forth the general parameters
of the process, provided, "This rule does not apply, however, to elections to
office." See, e.g., Exchange Act Rel. No. 3998 (Oct. 10, 1947) (Rule
X-14A-8(a)); Exchange Act Rel. No. 4979 (Jan. 6, 1954) (same); Exchange Act Rel.
No. 8206 (Dec. 14, 1967) (Rule 14a-8; "This rule does not apply, however, to
elections to office or to counterproposals to matters to be submitted by
management."). The rule did not contain any additional explanation regarding the
meaning of this language.
In 1976, the Commission removed language regarding elections and
counterproposals from the first paragraph of the rule, and created two
additional substantive bases for exclusion. When this change was first
suggested, the Commission proposed a company could exclude a proposal that
related to a "corporate, political or other election to office." In the final
version, however, the Commission deleted the words "corporate, political or
other" from the provision. The Commission did so to dispel a misunderstanding
among commentators that the Commission had "intended to expand the scope of the
existing exclusion to cover proposals dealing with matters previously held not
excludable by the Commission, such as cumulative voting rights, general
qualifications for directors, and political contributions by the issuer."
Exchange Act Rel. No. 12999 (Nov. 22, 1976). Thus, the Commission was clear that
it did not intend to bar all proposals dealing in any way with the election of
directors.
The SEC staff has been required to determine how the Election Exclusion should
apply to proposals that concern director election but are not one of the three
types of proposals specifically mentioned in Release No. 12999. As mentioned
above, the SEC staff has declined to allow companies to exclude proposals
affecting the frequency of elections and director tenure, in addition to the
proposals on cumulative voting, director qualifications and political
contributions identified in the release. This more permissive interpretation is
consistent with the policy that underlies the proxy rules: "to place
stockholders in a position to bring before their fellow stockholders matters of
concern to them as stockholders in such corporation...." Exchange Act Rel. No.
19135 (Oct. 14, 1982). It is difficult to imagine an issue of more urgent
concern to shareholders than one relating to the election of directors,
individuals who are charged with safeguarding shareholders' interests and
overseeing management on the shareholders' behalf.
Shareholder Access Proposals
Proposals seeking shareholder access to management's proxy statement
(hereinafter, "Shareholder Access Proposals"), however, have met with an
inconsistent response from the SEC staff, and the most recent letters have
permitted exclusion. Compare Dravo Corporation (Feb. 21, 1995) (not permitting
exclusion); Pinnacle West Capital Corp. (Mar. 26, 1993) (same); and Union Oil
(Feb. 24, 1983 and Jan. 29, 1981) (same) with Unocal Corp., (Dec. 20, 1990)
(allowing exclusion); Toys "R" Us, Inc. (Apr. 3, 2000) (same); and Boykin
Lodging Company (Mar. 22, 2000) (same).
Although the precise formulation may vary, Shareholder Access Proposals
generally provide that shareholdersoften only those holding more than a
threshold amount of stockmay nominate a candidate to serve on a company's
board, and require the company to include the nominee's name and certain other
information on the company proxy statement and proxy card. Here, the Proposal
urges BONY's board to amend the Company's bylaws to establish a procedure by
which any holder or group of holders owning 3% or more of BONY's outstanding
common stock (the "Nominating Shareholder") may nominate a single candidate (a
"Qualified Nominee") who would be included in BONY's proxy statement and card.
The Proposal would require that the information required by Schedule 14A with
respect to both the Nominating Shareholder and the Qualified Nominee be provided
to BONY at the time of the nomination. The Proposal also provides that the
Nominating Shareholder must agree to abide by all applicable legal requirements,
including, without limitation, Rule 14a-12, to the extent soliciting materials
other than the Company's proxy statement are used.
The Proposal is designed to improve BONY's corporate governance by providing a
substantial shareholder or group of shareholders with a cost-effective way to
participate meaningfully in the director nomination and election processes.
Currently, the incumbent board has exclusive access to management's proxy
statement for the purpose of nominating director candidates. A shareholder that
wishes to sponsor a board candidate must shoulder all of the expenses associated
with such a campaign, including costs associated with preparing, printing and
mailing a separate proxy statement and tabulating a separate proxy card, which
can total hundreds of thousands of dollars.
Because the cost is so high, only those seeking control of the company typically
wage director campaigns. Providing a more level playing field with respect to
the nomination of director candidates is a logical outgrowth of the principle
that shareholders have the exclusive power to elect directors. Providing access
to management's proxy will enable shareholders to fulfill their monitoring role
more effectively. See Melvin A. Eisenberg, "Access to the Corporate Proxy
Machinery," 83 Harv. L. Rev. 1489 (1970); Carol Goforth, "Proxy Reform as a
Means of Increasing Shareholder Participation in Corporate Governance: Too
Little, But Not Too Late," 43 Am. U. L. Rev. 379 (1994).
The "Contested Election" Rationale and the Commission's Proxy Rules
In permitting exclusion of Shareholder Access Proposals, the SEC staff has
reasoned that such proposals, "rather than establishing procedures for
nomination or qualification generally, would establish a procedure that may
result in contested elections of directors." See, e.g., United Road Services,
Inc. (May 5, 2000); The Black & Decker Corp. (Jan. 18, 2000); The Coca-Cola
Company (Jan. 24, 2000). In some cases, the staff has explained further that the
establishment of such a procedure "is a matter more appropriately addressed
under Rule 14a-11 [now 14a-12]." See, e.g., Unocal Corp. (Feb. 8, 1990);
BellSouth Corp. (Feb. 4, 1998). BONY relies on these decisions to urge that it
be permitted to exclude the Proposal.
The Commission has inconsistently applied the "contested election" rationale to
proposals dealing with election procedures, and is now applying it in a way that
undermines, rather than bolsters the Commission's current disclosure regime.
There is no basis in the history of the Election Exclusion for the distinctions
the Commission is now making. Further, public policy considerations militate
against the exclusion of Shareholder Access Proposals simply because they make
it more likely the bylaws will be amended to establish a process that makes it
more likely that individuals will challenge incumbent directors.
The SEC staff has supported its use of the contested election rationale by
quoting language from a 1976 release proposing minor changes to the Election
Exclusion. In that release, the Commission stated, "[T]he principal purpose of
the provision is to make clear, with respect to corporate elections, that Rule
14a-8 is not the proper means for conducting campaigns or effecting reforms in
elections of that nature, since other proxy rules, including Rule 14a-11 [now
14a-12], are applicable thereto." Exchange Act Rel. No. 12598 (July 7, 1976).
That statement does not directly address the propriety of Shareholder Access
Proposals. It does, however, contain two principles useful in interpreting the
Election Exclusion: first, that Rule 14a-8 should not be used as a mechanism to
conduct a campaign in favor of or against a particular candidate for the board;
and second, that the SEC staff is concerned that certain proposals reforming the
election process could interfere with the Commission's regulation of proxy
solicitations.
The Plan agrees that the shareholder proposal rule itself should not be used to
nominate director candidates or oppose one or more candidates nominated by the
board. There has been little controversy when the SEC staff has invoked the
Election Exclusion to allow exclusion of self-nominating proposals, for example,
or proposals urging shareholders to vote against one or more incumbent
directors. The Proposal does neither of these things.
The Proposal does, however, seek to reform the process by which directors are
nominated and elected at BONY. It is possible to construe "effecting reforms in
elections of that nature" as referring toand thus supporting exclusion ofall
proposals aimed at reforming the corporate election process. However, the SEC
staff has not taken this position: rather, it has determined that certain
election procedure proposalsthose that do not result in a "contested election"
are not excludable, while Shareholder Access Proposals may be excluded.
The basis for this distinction is difficult to discern, especially in light of
the SEC staff's treatment of recent proposals asking companies to nominate two
or more persons for each open board seat and to include information about all
nominees in the proxy statement and on the proxy card ("Double Nominee
Proposals"). Double Nominee Proposals, like Shareholder Access Proposals, would
bring about a major change to the process for electing directors. With respect
to the Double Nominee Proposals, a contested election would surely occur because
the incumbent board could recommend that stockholders vote for only half (or
fewer) of the candidates. Nonetheless, the SEC staff has not allowed companies
to exclude these proposals. See, e.g., General Electric Company (Jan. 12, 2001)
(rejecting argument that Double Nominee Proposal created contested election,
justifying exclusion under Rule 14a-8(i)(8)); General Motors Corp. (April 7, 2006) (Apr. 10,
2000) (same).
The SEC staff's concern regarding circumvention of the other proxy rules,
evident in Release 12598, may explain its inconsistent treatment of Double
Nominee Proposals and Shareholder Access Proposals. Specifically, the SEC staff
may believe that because under the Double Nominee Proposals the incumbent board
nominates all candidates, violations of the other proxy rules could not occur.
The Double Nominee Proposals do require all "SEC-required declarations"
presumably referring to the information about the nominees required by Schedule
14Ato be included in management's proxy statement. However, the Double Nominee
Proposals do not prohibit candidates who are not recommended by the incumbent
board from sending out their own solicitation materials or even circulating a
separate proxy card without complying with the proxy rules. Indeed, if such
candidates were serious about winning the election, they would likely engage in
at least some solicitation activity.
By contrast, the procedure established pursuant to the Proposal would ensure
that Nominating Shareholders and Qualified Nominees do comply fully with all of
the Commission's proxy rules. As an initial matter, the proxy rules do not
require that the specified disclosure regarding candidates not nominated by the
incumbent board appear in a separate document from management's proxy statement
or that shareholders shoulder all of the substantial financial burden of
sponsoring a candidate for a company's board. Rule 14a-3(a) provides that "No
solicitation subject to this regulation shall be made unless each person
solicited is concurrently furnished or has previously been furnished with a
publicly-filed preliminary or definitive proxy statement containing the
information specified in Schedule 14A...." Management's proxy statement, so long
as it contained the Schedule 14A information with respect to the Qualified
Nominee and the Nominating Shareholder, would satisfy this requirement.
Other proxy rules govern the solicitation process, and the Proposal contemplates
that Nominating Shareholders and Qualified Nominees must agree to abide by all
of these rules in order to obtain the benefit of inclusion in management's proxy
statement. For example, Rule 14a-4 imposes certain requirements regarding the
form and content of a proxy card and requires that "[n]o person conducting a
solicitation subject to this section shall deliver a form of proxy ... to any
security holder unless the security holder concurrently receives, or has
previously received, a definitive proxy statement that has been filed with the
Commission pursuant to [Rule 14a-6(b)]."
Similarly, Rule 14a-12 allows written solicitation before shareholders have
received a proxy statement only if shareholders are provided with certain
information regarding all the participants in the solicitation and there is a
legend advising shareholders of certain information. A Nominating Shareholder
and Qualified Nominee could comply with these rules by ensuring that no separate
proxy cards are distributed prior to the dissemination of management's proxy
statement, and by providing participant information in any written solicitation
material distributed before the proxy statement.
To conclude that a reform of the kind effected by the Proposal is "more
appropriately addressed under [Rule 14a-12]" thus creates an unnecessary
dichotomy between the Proposal's procedure and the Commission's proxy rules. Far
from undermining those rules, the Proposal ensures that Nominating Shareholders
and Qualified Nominees will comply with them in order to take advantage of the
advantages conferred by the Proposal. Nothing in the rules themselves prevents
such compliance. The Commission's staff may monitor compliance by Nominating
Shareholders and Qualified Nominees, just as they do when shareholders sponsor
director candidates without the benefit of access to management's proxy
statement.
The purpose of the proxy rulescomplete and accurate disclosure of information
regarding matters to be voted on by shareholderscan be served as well under a
shareholder access regime as under the current system. Shareholders, who have
limited control rights under our governance system, must rely on directorstheir
elected representativesto safeguard their interests. Shareholders thus have a
vital interest in ensuring that the procedures used to nominate and elect
directors result in an effective and vigilant board; they should be permitted to
express their opinions on whether a shareholder access regime is preferable to
the current system in this regard. These public policy considerations support
including the Proposal in BONY's proxy statement, despite the fact that it may
make contested director elections more likely.
It is also worth noting that BONY's board could implement the Proposal, which is
non-binding, in a way that would avoid a contested election. For example, BONY's
board could provide that if a shareholder validly nominates a Qualified Nominee
pursuant to the shareholder access procedure, the board would decline to
renominate one of the incumbent directors. Alternatively, the board could
provide that the size of the board could be increased by board resolution or
by-law (within any constraints established by the charter) to accommodate a
Qualified Nominee. In both cases, the number of candidates would not exceed the
number of open seats on the board and there would be no election contest.
Rule 14a-8(i)(3): Violation of the Commission's Proxy Rules
BONY claims that the Proposal is excludable pursuant to Rule 14a-8(i)(3), which
allows exclusion of proposals that are "contrary to any of the Commission's
proxy rules." As discussed above in more detail, the Proposal would not result
in any violation of the Commission's proxy rules; rather, it would require
compliance with those rules in order to obtain the benefit of shareholder
access. Accordingly, exclusion under Rule 14a-8(i)(3) is not warranted.
Rule 14a-8(i)(2): Violation of Law
BONY contends that the Proposal violates New York law and can be excluded under
Rule 14a-8(i)(2) because it would infringe on the power of the board under
section 701 of the New York Business Corporation Law ("NYBCL") to manage the
business and affairs of the corporation and would discriminate between shares of
the same class. This is the same argument that Sears raised in seeking a
no-action letter in December. The Plan refuted those arguments and detailed why
this proposal is consistent with New York law in an opinion of Friedman Kaplan
Seiler & Adelman LLP, that accompanied its January 24, 2003 response to Sears'
request for a no-action letter. That opinion concludes that the Proposal does
not violate New York law because (i) the by-law urged in the Proposal is
specifically authorized by Section 602(d) of the NYBCL, making section 701, on
which BONY relies, irrelevant; and (ii) ownership thresholds for stockholder
action similar to the 3% threshold set in the Proposal have been upheld under
New York law and thus are not an impermissible discrimination among shares of
the same class. A courtesy copy of the Friedman, Kaplan, Seiler & Adelman LLP
opinion letter is attached for your convenience.
* * * *
To conclude, the Proposal sets forth a shareholder right of access to
management's proxy statement that has been carefully designed to enhance the
participation of substantial stockholders in BONY's corporate governance while
ensuring compliance with the Commission's proxy rules. The Proposal does not
violate New York law or contain false or misleading statements. Accordingly, we
urge the SEC staff not to permit BONY exclude the Proposal in reliance on the
Election Exclusion, Rule 14a-8(i)(8), (i)(3) or (i)(2).
If you have any questions or need additional information, please do not hesitate
to call me at (202) 429-1007.
Very truly yours,
/s/
Charles J. Jurgonis
Plan Secretary
cc: Paul A. Immerman
Senior Counsel
The Bank of New York Company, Inc.
One Wall Street
New York, NY 10286
[STAFF REPLY LETTER]
February 28, 2003
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Bank of New York Company, Inc.
Incoming letter dated January 24, 2003
The proposal amends the bylaws to require that The Bank of New York include the
name, along with certain disclosures and statements, of any person nominated for
election to the board by a stockholder who beneficially owns 3% or more of The
Bank of New York's outstanding stock.
There appears to be some basis for your view that The Bank of New York may
exclude the proposal under rule 14a-8(i)(8), as relating to an election for
membership on its board of directors. It appears that the proposal, rather than
establishing procedures for nomination or qualification generally, would
establish a procedure that may result in contested elections of directors.
Accordingly, the Division will not recommend enforcement action to the
Commission if The Bank of New York omits the proposal from its proxy materials
in reliance on rule 14a-8(i)(8). In reaching this position, we have not found it
necessary to address the alternative bases for omission upon which The Bank of
New York relies.
Sincerely,
/s/
Jennifer Bowes
Attorney-Advisor
[STAFF REPLY LETTER]
February 28, 2003
Paul A. Immerman
Senior Counsel
The Bank of New York Company, Inc.
One Wall Street
New York, NY 10286
Re: The Bank of New York Company, Inc.
Incoming letter dated January 24, 2003
Dear Mr. Immerman:
This is in response to your letter dated January 24, 2003 concerning the
shareholder proposal submitted to The Bank of New York by AFSCME Employees
Pension Plan. We also have received a letter from the proponent dated February
13, 2003. Our response is attached to the enclosed photocopy of your
correspondence. By doing this, we avoid having to recite or summarize the facts
set forth in the correspondence. Copies of all of the correspondence also will
be provided to the proponent.
In connection with this matter, your attention is directed to the enclosure,
which sets forth a brief discussion of the Division's informal procedures
regarding shareholder proposals.
Sincerely,
/s/
Martin P. Dunn
Deputy Director
Enclosures
cc: Charles J. Jurgonis
Plan Secretary
AFSCME
1625 L St. N.W.
Washington, DC 20036
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