Company Name: Boeing Co.
Public Availability Date: February 6, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
STAFF REPLY LETTER
STAFF REPLY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
December 24, 2003 VIA OVERNIGHT COURIER
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Shareholder Proposal Concerning Shareholder Rights Plans Submitted by James
Janopaul, With John Chevedden as Proxy, for Inclusion in The Boeing Company 2004
Proxy Statement Dear Sir or Madam: We are counsel to The Boeing Company, a Delaware corporation ("Boeing" or the
"Company"). On October 28, 2003, Boeing received a proposed shareholder
resolution and supporting statement from James Janopaul, with John Chevedden as
proxy (the "Proponent" or "Mr. Chevedden"), for inclusion in the proxy statement
to be distributed to the Company's shareholders in connection with its 2004
Annual Meeting (the "2004 Proxy Statement"). Later, on November 20, 2003, the
Proponent submitted a revised shareholder resolution and supporting statement
(together, the "Proposal"). The Company, as it is permitted to do pursuant to
Staff Legal Bulletin No. 14 at E(2) and after a conversation between Mark
Pacioni, the Company's Assistant Corporate Secretary and Counsel, and Mr.
Chevedden, notified Mr. Chevedden of its intent to accept the revised Proposal.
A copy of the Company's correspondence in this regard is attached to this letter
as Exhibit A. We hereby request that the staff of the Division of Corporation Finance (the
"Staff") confirm that it will not recommend any enforcement action to the
Securities and Exchange Commission (the "Commission") if, in reliance on certain
provisions of Commission Rule ("Rule") 14a-8 under the Securities Exchange Act
of 1934, as amended, Boeing excludes the portions of the Proposal identified
below from its proxy materials. Further, in accordance with Rule 14a-8(j), on behalf of Boeing, the undersigned
hereby files six copies of this letter and the Proposal, which is attached to
this letter as Exhibit B. One copy of this letter, with copies of all
enclosures, is being simultaneously sent to the Proponent.
The Proposal The Proposal relates to shareholder rights plans and states, in relevant part:
RESOLVED: Shareholders request that our Directors increase shareholder voting
rights and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item as soon as may be practical. Also
once this proposal is adopted, any material change or removal of this proposal
is requested to be submitted to a shareholder vote as a separate ballot item at
the earliest possible shareholder ballot. The Proposal supporting statement goes on to state that the Proposal
gives our Directors the flexibility to ignore our shareholder votes if our
Directors seriously believe they have a good reason. Summary of Bases for Exclusion
We have advised Boeing that it properly may exclude the Proposal or portions
thereof from its 2004 Proxy Statement and form of proxy for the following
reasons: 1. The entire Proposal may be excluded pursuant to Rule 14a-8(i)(10) because the
Company has already substantially implemented the Proposal.
2. The entire Proposal may be excluded pursuant to Rules 14a-8(i)(3)/14a-9 and
Rule 14a-8(i)(6) because the Proposal is impermissibly vague and indefinite,
and, therefore, potentially misleading. 3. Portions of the Proposal are excludable under Rules 14a-8(i)(3)/14a-9 because
they contain statements or assertions of fact that are materially false or
misleading. 4. The Proposal's supporting statement is excludable under Rules
14a-8(i)(3)/14a-9 because it will require detailed and extensive editing in
order to bring it into compliance with the proxy rules. The reasons for our conclusions in this regard are more particularly described
below. Explanation of Basis for Exclusion
At the outset, we direct the Staff's attention to the fact that this Proposal is
one of five submitted to the Company this year by John Chevedden. Mr. Chevedden,
in his own right as a shareholder, has submitted a proposal requesting that the
Company's Board of Directors (the "Board") amend the bylaws to provide that an
independent director serve as Chairman of the Board. In addition, he has
submitted four other proposals in his capacity as "proxy" for certain
shareholders. These include: 1. A proposal requesting a shareholder vote on golden parachutes, "submitted by"
Thomas Finnegan, with Mr. Chevedden as proxy; 2. A proposal recommending that the Company's Board declassify itself,
"submitted by" Ray T. Chevedden, with Mr. Chevedden as proxy;
3. A proposal requesting shareholder approval of a Company poison pill,
"submitted by" James Janopaul, with Mr. Chevedden as proxy; and
4. A proposal requesting a Board policy that directors and executive officers
commit to hold a certain level of Company stock obtained through exercise of
stock options, "submitted by" David Watt, with Mr. Chevedden as proxy.
A copy of each of these proposals is attached to this letter as Exhibits C
through F. We submit that Mr. Chevedden's attempts to submit multiple shareholder
proposals, clearly authored and pursued through the shareholder proposal process
by himself, under the aegis of "proxy" for other shareholders, constitute a
clear abuse of the plain wording and intent of the Rule 14a-8. Given the nature
and magnitude of the abuse of process considered here, we are asking the Staff
to permit the Company to omit from its 2004 Proxy Statement the proposals
submitted to the Company by Mr. Chevedden (other than the one he submitted in
his own right as a shareholder). Our arguments in this regard are discussed in
detail in our prior no-action letter requests submitted to the Commission during
the 2003, 2002 and 2001 proxy seasons and are incorporated by reference into
this letter. See The Boeing Co. (Feb. 26, 2003) (proposal regarding annual
election of directors); The Boeing Co. (Feb. 26, 2003) (proposal regarding
shareholder rights plans); The Boeing Co. (Feb. 18, 2003) (proposal regarding an
independent board chairman); The Boeing Co. (Feb. 18, 2003) (proposal regarding
shareholder approval for golden parachutes); The Boeing Co. (Feb. 18, 2003)
(proposal regarding performance-based stock options); The Boeing Co. (Mar. 2,
2002); The Boeing Co. (Feb. 13, 2002); The Boeing Co. (Feb. 7, 2002); The Boeing
Co. (Feb. 6, 2002); The Boeing Co. (Feb. 20, 2001); The Boeing Co. (Feb. 13,
2001); The Boeing Co. (Feb. 8, 2001); The Boeing Co. (Feb. 7, 2001).
Among other issues, Mr. Chevedden's purported submission of multiple proposals
as "proxy" for other shareholders puts the Company in a difficult position in
the matter of disclosing to its shareholders the identity of the true proposal
proponents. Mr. Chevedden would have us name as the proposal proponents the
shareholders for whom he acts as proxy. However, in view of his exclusive
control over the drafting, negotiation, revision and no-action letter process
incident to these proposals, we believe it would be false and misleading for the
Company to name anyone but Mr. Chevedden as the proponent for each of the
proposals. Were the Company to do otherwise, its proxy statement would
misleadingly suggest that each of the proposals at issue here was submitted by a
different individual, when in fact they were all submitted and written under Mr.
Chevedden's direction and control. We know of at least one instance where the Staff has granted relief in the
manner the Company is requesting. See TRW Inc. (Jan. 24, 2001) ("TRW") (proposal
excluded based on Proponent's solicitation of nominal proponent and fact that
Proponent had drafted proposal). The relief granted in TRW was short-lived,
however, because Mr. Chevedden now does not include the shareholder's telephone
number, and often omits the shareholder's address, in any correspondence
regarding the proposals in order to preclude the target company from contacting
the shareholder so that it may develop a TRW-type no-action letter.
Nevertheless, we believe that Mr. Chevedden's consistent and repeated abuse of
the one proposal per proponent rule, Rule 14a-8(c), merits and provides a
sufficient basis for the relief the Company is requesting. Accordingly, we ask
that the Staff concur that the Company may omit the Proposal.
1. The entire Proposal may be excluded pursuant to Rule 14a-8(i)(10) because the
Company has already substantially implemented the Proposal.
The Company does not currently maintain a shareholder rights plan and has no
current intention to adopt such a plan. On August 26, 2003, the Board approved
the following policy statement (the "Policy Statement"):
Boeing does not have a shareholder rights plan and has no present intention to
adopt one. Subject to its continuing fiduciary duties, which may dictate
otherwise depending upon the circumstances, the Board intends to submit any
future rights plan to a vote of the shareholders. A certified copy of the relevant portions of the Board minutes setting forth the
Policy Statement is attached to this letter as Exhibit G. This Policy Statement
was adopted following the Board's review of a presentation concerning the
shareholder proposals that received significant levels of shareholder support at
the Company's 2003 annual meeting. The Policy Statement will be included in the
Company's revised corporate governance guidelines that will be available on the
Company's website and disseminated in its 2004 Proxy Statement.
By letter of September 17, 2003, the Company advised Mr. Chevedden of the
Board's adoption of the Policy Statement and that the Board has no current
intention to adopt a shareholder rights plan. Mr. Chevedden has chosen to submit
the Proposal, despite being advised of the Board's adoption of a policy that
obviates the need for the Proposal, and despite three recent instances where the
Staff permitted companies to exclude Mr. Chevedden's poison pill proposals based
on the companies' substantial implementation of the proposal. See AutoNation,
Inc. (Mar. 5, 2003) ("AutoNation"); Citigroup, Inc. (Feb. 25, 2003)
("Citigroup"); Bank of America Corp. (Feb. 18, 2003) ("Bank of America").
Under Rule 14a-8(i)(10), a company may exclude a proposal if the Company is
already doingor substantially doingwhat the proposal seeks to achieve. The
purpose of the exclusion is to "avoid the possibility of shareholders having to
consider matters, which have been favorably acted upon by the management" or the
board of directors and thereby avoid confusing shareholders or wasting corporate
resources on a matter that is moot. SEC Release No. 34-12598 (July 7, 1976). To
be moot, the proposal need not be implemented in full or precisely as presented.
Rule 14a-8(i)(10) does not require exact correspondence between the actions
sought by a shareholder proponent and the issuer's actions in order for the
shareholder's proposal to be excluded. Exchange Act Release No. 20091 (Aug. 16,
1983). Rather, the standard is whether a company's particular policies,
practices and procedures compare favorably with the guidelines of the proposal,
See SEC Release No. 34-20091 (Aug. 16, 1983), at II.E.6. As presently drafted, the Proposal requests that the Company's Board "increase
shareholder voting rights and submit the adoption, maintenance or extension of
any poison pill to a shareholder vote as a separate ballot item as soon as may
be practical." The intent of the Proposal is to ensure that the "adoption,
maintenance or extension" of a poison pill be subject to shareholder input. In
our view, the Board's Policy Statement accomplishes this intent.
The Board's Policy Statement, which effectively fully implements the Proposal,
is well within the boundaries defined by prior Staff decisions wherein issuers
were deemed to have substantially implemented shareholder proposals for purposes
of Rule 14a-8(i)(10). In AutoNation, the company received a proposal from Mr.
Chevedden requesting that the AutoNation board of directors "redeem any poison
pill previously issued (if applicable) and not adopt or extend any poison pill
unless such adoption or extension has been submitted to a shareholder vote."
AutoNation argued that it had substantially implemented the proposal because (1)
it did not currently maintain a shareholder rights plan and (2) its board of
directors, upon the recommendation of its corporate governance committee, had
adopted a policy statement that it "will not adopt or extend any poison pill
unless such adoption or extension has been submitted to a shareholder vote." In
supplemental correspondence, AutoNation responded to several objections raised
by Mr. Chevedden. First, AutoNation confirmed that its board had adopted the
policy, effective immediately, based on the "good faith exercise of its
fiduciary duties in accordance with applicable Delaware corporate law" and that
the "Board's adoption of the Policy followed consideration of the [p]roposal by
the Special Committee of the Board of Directors, which had been appointed during
2002 to consider corporate governance issues facing the Company." Second,
AutoNation refuted Mr. Chevedden's objections that the board did not notify
company stockholders or the Commission of its adoption of the policy, by
pointing out that under Commission rules such notification is not required.
Finally, AutoNation refuted Mr. Chevedden's objection that the policy may be
revoked in the future without a vote of the company's shareholders by stating
that Mr. Chevedden did not provide any precedent or support for Proponent's implication that the Division
is precluded from finding "substantial implementation" of the Proposal as a
result of the Policy being subject to future revocation by the Board.... The
revocability of the Policy is consistent with other Company policies and the
well-settled principle of corporate governance that current directors may not
irreversibly bind future directors from discharging their fiduciary duties....
Proponent's argument is disingenuous in implying that "substantial
implementation" of the Proposal, which would not be binding on the Company even
if approved by the Company's stockholders, requires irrevocable action by the
Board. Based on these arguments, the Staff permitted AutoNation to omit the proposal
from its proxy materials, noting AutoNation's "representation that it does not
have a current rights plan in place and that the board has adopted a policy that
requires a shareholder vote in order to adopt or extend a rights plan."
In Citigroup, the Staff also permitted Citigroup to exclude Mr. Chevedden's
poison pill proposal based on its representation that Citigroup does not have a
current rights plan in place and that its board of directors has adopted a
resolution that requires shareholder approval in order to adopt or extend a
rights plan. There, the proposal recommended that the board "redeem any poison
pill previously issued (if applicable) and not adopt or extend any poison pill
unless such adoption or extension has been submitted to a shareholder vote." In
January 2003, Citigroup's board of directors adopted a resolution stating, in
part, that "the Board of Directors may not adopt or extend a shareholder rights
plan or `poison pill' without the approval of the stockholders of the Company."
A similar result based on similar facts was reached in Bank of America, where
the Company had adopted a policy that no poison pill "shall be effective without
the affirmative vote of a majority of the votes cast by the stockholders
entitled to vote". AutoNation, Citigroup and Bank of America are distinguishable from other letters
where the Staff has declined no-action relief pursuant to Rule 14a-8(i)(10)
notwithstanding the fact that the companies responded to poison pill proposals
by adopting board policies. For example, in Sabre Holdings Corp. (Mar. 20, 2003)
("Sabre"), the Staff did not accept the company's argument that it had
implemented Mr. Chevedden's poison pill proposal, even though Sabre's board of
directors had adopted the following policy: The Corporation does not currently have in place any stockholders rights plan
(also known as a "poison pill"). The Board believes that it is appropriate to
seek stockholder approval for the adoption of any poison pill. The Board may, in
exercising its fiduciary responsibilities under the circumstances, approve the
adoption of a poison pill before obtaining stockholder approval, subject to the
determination by a majority of the independent directors that such adoption
would be in the best interests of the Corporation's stockholders in order to
avoid the delay reasonably anticipated to obtain stockholder approval. The
Corporation would seek stockholder approval at the next annual meeting for any
poison pill adopted by the Board. Similarly, in 3M Co. (Jan. 28, 2003) ("3M") the Staff denied relief under Rule
14a-8(i)(10) notwithstanding the following 3M board of directors policy:
The Board's policy is that it will only adopt a rights plan if either (1)
stockholders have approved adoption of the rights plan or (2) the Board in its
exercise of its fiduciary responsibilities, including a majority of the
independent members of the Board, makes a determination that, under the
circumstances existing at the time, it is in the best interests of 3M's
stockholders to adopt a rights plan without the delay in adoption that would
come from the time reasonably anticipated to seek stockholder approval.
The key difference between the board policies adopted in AutoNation, Citigroup
and Bank of America, on the one hand, and the policies adopted in Sabre and 3M,
on the other, is that the latter included a "fiduciary-out" provision, while the
former did not. In our view, this is the distinguishing feature upon which the
Staff's decisions to predicate relief under Rule 14a-8(i)(7) was based in each
of these no-action letters. We recognize that the Board's Policy Statement contains a "fiduciary out"
provision. However, we submit that this should not preclude the Staff from
granting the Company's request for relief under Rule 14a-8(i)(7) for two
reasons. First, Mr. Chevedden's Proposal itself includes a "fiduciary out"
provision. Second, any commitment by the Company's Board to submit all future
shareholder rights plans for a shareholder vote without a "fiduciary-out" would
be impermissible under the laws of the State of Delaware, the Company's
jurisdiction of incorporation. Mr. Chevedden's Proposal, read in its entirety, itself includes a
"fiduciary-out" provision. The proposal recommends that
our Directors submit the adoption, maintenance or extension of any poison pill
to a shareholder vote as a separate ballot item as soon as may be practical.
Also once this proposal is adopted, any material change or removal of this
proposal is requested to be submitted to a shareholder vote as a separate ballot
item at the earliest possible shareholder ballot. The supporting statement for the Proposal goes on to state that the Proposal
"gives our Directors the flexibility to ignore our shareholder vote if our
Directors seriously believe they have a good reason." Accordingly, Mr.
Chevedden's Proposal, like the Policy Statement adopted by the Company's Board,
recognizes that the Board in the exercise of its fiduciary duties may determine
that obtaining shareholder approval is not appropriate. Mr. Chevedden's Proposal actually accords with Delaware state law and the
Company's Policy Statement on this matter. A "fiduciary-out" from a commitment
limiting the discretion of the Company's Board with respect to the adoption,
maintenance or redemption of a shareholder rights plan is required under the
laws of the State of Delaware. The Company is a Delaware corporation. Attached
to this letter as Exhibit H is an opinion by Delaware counsel, Richards, Layton
& Finger, P.A. ("Delaware Counsel"), which we incorporate by reference. As
described in full in Exhibit H, Delaware Counsel has opined that "any commitment
by the a board of directors of a Delaware corporation to submit all future
stockholder rights plans to a vote of the corporation's stockholders without a
fiduciary-out would be impermissible under the laws of the State of Delaware."
Coupled with the Proposal itself and the opinion of Delaware counsel, we do not
believe that the fact that the Company's Policy Statement includes a
"fiduciary-out" provision should be a basis for the Staff to deny the Company's
request for relief under Rule 14a-8(i)(7). In this respect, the Proposal and the
Company's Policy Statement in the instant case accord more closely with those
considered in AutoNation, Citigroup and Bank of America. As in AutoNation,
Citigroup and Bank of America the Company does not presently maintain a
shareholder rights plan and it has adopted a Policy Statement that fully effects
the intent of the Proposal. This Policy Statement is itself substantially
similar to the Proposal which itself concedes to the Board the flexibility to
ignore the shareholder vote if it "seriously believes it has good reason."
Mr. Chevedden attempts to distinguish the Proposal from the Board's Policy
Statement by stating that the Proposal "is intended to enhance shareholder
rights beyond our Directors' statement by providing for a shareholder vote any
time a poison pill is adopted and a shareholder vote if this policy is
materially changed or discontinued." The Board's Policy Statement is clear: the
Board intends to submit any future rights plan to a vote of the shareholders,
subject to its continuing fiduciary duties. Mr. Chevedden's attempted
distinction is simply without merit. As pointed out in AutoNation, Mr. Chevedden
has adduced no precedent or support for the implication that a Commission
finding of "substantial implementation" requires irrevocable action by the
Board. Moreover, as discussed above, any commitment by the Board to submit all
future shareholder rights plans for a shareholder vote without a "fiduciary-out"
would be contrary to Delaware law and Mr. Chevedden's proposal.
Finally, the fact that the Policy Statement does not address the redemption of
any previously issued poison pill is not relevant to a determination of whether
the Policy Statement "substantially implements" the Proposal because the Company
does not currently have a shareholder rights plan in effect. Accordingly, we
believe that the Company has substantially implemented Mr. Chevedden's Proposal
and may properly exclude it from its 2004 Proxy Statement pursuant to Rule
14a-8(i)(10). 2. The entire Proposal may be excluded pursuant to Rules 14a-8(i)(3)/14a-9 and
Rule 14a-8(i)(6) because the Proposal is impermissibly vague and indefinite and,
therefore, potentially misleading. In the alternative, we believe the Proposal is properly excludable from the
Company's 2004 Proxy Statement because the Proposal is impermissibly vague,
indefinite and, therefore, potentially misleading, in contravention of Rules
14a-8(i)(3)/14a-9 and Rule 14a-8(i)(6). The Staff has consistently concluded that a proposal can be excluded under Rules
14a-8(i)(3)/14a-9 if (a) it is so vague and indefinite that it would be
difficult for a company implementing it and for shareholders voting on it to
determine with any reasonable certainty what measures the proposal would require
if it were approved, (b) the proposal involves highly speculative determinations
concerning the definition of certain terms used in the proposal, or (c) it is so
vague and indefinite that it is potentially misleading since any action by a
company to implement the proposal would have to be made without guidance from
the proposal and consequently in possible contravention of the intention of the
shareholders who voted in favor of the proposal. See Smithfield Foods, Inc.
(July 18, 2003) (allowing the company to exclude the proposal under Rule
14a-8(i)(3) as vague and indefinite based, in part, on the company's arguments
that (i) the proposal did not inform shareholders of what the company would be
required to do if the proposal were approved and (ii) if the shareholders were
to approve the proposal, the company would not know what action to take to
fulfill the request); Johnson & Johnson (Feb. 7, 2003) (allowing the company to
exclude the proposal under Rule 14a-8(i)(3) as vague and indefinite based, in
part, on the company's argument that the proposal was devoid of any description
of the "Glass Ceiling Report" or the recommendations "flowing from it" so
shareholders would not understand what they were being asked to consider from
the text of the proposal); PG&E Corp. (Mar. 1, 2002) (allowing the company to
omit proponent's proposal because the proposal was vague and indefinite, based
on the company's argument that neither the shareholders nor the company's board
of directors would be able to determine what actions the company would have to
take to comply with the proposal); Philadelphia Electric Co. (July 30, 1992)
(allowing the company to omit the proposal because it was "so inherently vague
and indefinite that neither the shareholders voting on the proposal, nor the
company in implementing the proposal (if adopted), would be able to determine
with any reasonable certainty exactly what actions or measures the proposal
requires"); Philip Morris Cos. (Feb. 7, 1991) (allowing the company to omit the
proposal because it "appear[ed] to involve highly subjective determinations
concerning what constitute[d] `advocate,' `encourage,' `bigotry,' `hate,' and
`aiding in any way'" and because it "would be vague and indefinite to
shareholders voting on the proposal as well as potentially misleading since any
action taken by management, upon implementation could be significantly different
from the actions envisioned by shareholders voting on the proposal").
The Proposal is impermissibly vague, indefinite and, therefore, potentially
misleading because: 1. The Proposal is contradictory in that the resolution portion of the Proposal
requests that the Board "submit the adoption, maintenance or extension of any
poison pill to a shareholder vote" while the supporting statement for the
Proposal states that the Proposal "gives our Directors the flexibility to ignore
our shareholder votes if our Directors seriously believe they have a good
reason." 2. The Proposal involves highly subjective determinations concerning what
constitutes "seriously believe" and "good reason."
3. The language of the Proposal is unclear in several other respects.
The Proposal Is Contradictory It is entirely unclear how the Board should implement the Proposal if it is
approved because of its contradictory statements. The supporting statement notes
that the Proposal "gives our Directors the flexibility to ignore our shareholder
votes if our Directors seriously believe they have a good reason." The
resolution portion of the Proposal as it is currently worded, however, does not
appear to permit the Board to "ignore" a shareholder vote regarding poison pills
for "good reason," nor does it provide any other form of flexibility in this
regard. In fact, in paragraph 9, the Proponent states that the Proposal "is
intended to enhance shareholder rights beyond our Directors' statement by
providing for a shareholder vote any time a poison pill is adopted and a
shareholder vote if this policy is materially changed or discontinued." Thus,
the Proposal is inconsistent. If the Board implements the Proposal, it is
unclear whether the Proposal is binding, or whether the Board will be permitted
to act despite the shareholders' vote if it has a "good reason." Moreover, the
shareholders voting on the Proposal will be confused as to whether what they are
approving gives the Board the authority to ignore a shareholder vote regarding
poison pills with "good reason" or not. This vagueness and indefiniteness
inherent in the Proposal are potentially misleading to shareholders and thus in
contravention of Rules 14a-8(i)(3)/14a-9 and Rule 14a-8(i)(6).
The Proposal Involves Highly Subjective Determinations of What Constitutes
"Seriously Believe" and "Good Reason" Furthermore, even assuming that the supporting statement would effectively
qualify the proposed resolution, the Proposal would involve highly subjective
determinations concerning what it means for the Board to "seriously believe"
there is a "good reason" to ignore the shareholders' vote. The Proponent does
not refer to the well-established concept of directors' fiduciary duties, but
instead introduces terminology that gives no indication as to what procedures
the Board would need to follow in order to establish its proper use of such veto
power or what standard should be applied to determine whether the Board in fact
"seriously believe[s]" there is a "good reason" to act despite the shareholders'
vote in favor of the Proposal. Because the Proposal does not provide the Board
with clear guidance, the Company believes that any action ultimately taken to
implement this aspect of the Proposal could be significantly different from the
action envisioned by shareholders voting on the Proposal and thus the Proposal,
as drafted, is potentially misleading to shareholders. The Language of the Proposal Is Unclear in Several Other Respects
Another vague and indefinite aspect of the Proposal is when the approval from
shareholders should be sought. The resolution portion of the Proposal
ambiguously states that shareholder approval for the adoption, maintenance or
extension of a poison pill is requested to be sought by the Company "as soon as
practicable" and that "any material change or removal of this proposal is
requested to be submitted to a shareholder vote as a separate ballot item at the
earliest possible shareholder ballot." It is unclear if the Proposal is calling
for shareholders to approve a poison pill before it is implemented or subsequent
to its implementation. The Company's interpretation and implementation of this
statement could be different from the actions envisioned by shareholders voting
on the Proposal due to the statement's vagueness and indefiniteness. Moreover,
such vagueness and ambiguity as to when the shareholder approval should be
sought leaves the Company unable to determine what action should be taken in
order to properly implement the Proposal. As noted above, the Proposal is inherently vague, indefinite and, therefore,
potentially misleading, in contravention of Rules 14a-8(i)(3)/14a-9 and Rule
14a-8(i)(6). Without further guidance, the Company would have no clear
directions regarding the actions necessary to implement the Proposal and would
be required to make highly subjective determinations concerning important
aspects of the Proposal. As a result, the shareholders would likely have widely
divergent views of the actions that would be expected of the Company, and
neither the shareholders nor the Board would be able to determine what actions
the Company would need to take to comply with the Proposal. Accordingly, the
Company is of the view that the Proposal may be omitted from its 2004 Proxy
Statement pursuant to Rules 14a-8(i)(3)/14a-9 and Rule 14a-8(i)(6).
We note that in Monsanto Co. (Nov. 26, 2003), the Staff was unable to concur
with Monsanto Company's view that a similar proposal submitted to Monsanto
Company by the Proponent was excludable under Rule 14a-8(i)(3) as vague and
indefinite. However, we submit that the language in the "RESOLVED" portion of
the Monsanto proposal differs significantly from the present Proposal and the
Company's challenge is not based on the same analysis used as the basis of the
challenge in Monsanto. Accordingly, we do not believe the Staff's decision in
Monsanto is applicable to the challenge submitted herein. 3. Portions of the Proposal are excludable under Rules 14a-8(i)(3)/14a-9 because
they contain statements or assertions of fact that are materially false or
misleading. Portions of the Proposal are properly excludable under Rules 14a-8(i)(3)/14a-9
because they contain false or misleading statements, or inappropriately cast the
Proponent's opinions as statements of fact, or otherwise fail to appropriately
document assertions of fact. Rule 14a-8(i)(3) permits a company to exclude portions of a shareholder proposal
or supporting statement from its proxy statement if such portions are contrary
to any of the Commission's proxy rules, including Rule 14a-9, which prohibits
materially false or misleading statements in proxy soliciting materials. This
includes false or misleading statements, opinions stated as fact and
undocumented assertions of fact. See, e.g., Farmer Bros. Co. (Nov. 28, 2003)
(opinions stated as fact and undocumented assertions of fact); Monsanto Co.
(Nov. 26, 2003) (false or misleading statements, opinions stated as fact and
undocumented assertions of fact); Sysco Corp. (Aug. 12, 2003) (false or
misleading statements and undocumented assertions of fact); Kroger Co. (Feb. 18,
2003) (false or misleading statements). The Proponent is well aware of the
requirements of Rule 14a-8(i)(3). The Staff has repeatedly directed the
Proponent to delete or revise such statements in his shareholder proposals. See,
e.g., Monsanto Co.. (Nov. 26, 2003) (false or misleading statements, opinions
stated as fact and undocumented assertions of fact); AMR Corp. (Apr. 4, 2003)
(opinions stated as fact and undocumented assertions of fact); The Home Depot,
Inc. (Mar. 31, 2003) (false or misleading statements and undocumented assertions
of fact). First, the first three sentences of paragraph 2, which state:
We as shareholders voted in support of this topic:
Year......Rate of Support 2002......50.6%
2003......50.7% These percentages are based on yes and no votes cast. I believe this repeated
level of shareholder support is more impressive than the raw percentages because
this support followed our Directors' objections. are excludable as materially false or misleading because the statements
misleadingly imply that the Proponent's prior proposals passed, when in fact
they did not. Under Delaware law, to which the Company is subject, a shareholder
proposal is not passed unless it receives the affirmative vote of the majority
of shares present in person or by proxy and entitled to vote at the meeting. See
Del. Gen. Corp. Law §216(2). As indicated in the Form 10-Q reports filed
following the Company's annual meeting in each year indicated, the proposals
received the following percentages of the shares present and entitled to vote:
2003 (49.27%) and 2002 (49.46%). We presume that these are the "raw percentages"
to which the Proponent refers. Not once has a prior variation of the Proponent's
proposal as submitted to Boeing passed under Delaware law. The Proponent's
figures reflect the vote totals for the percentages of the votes for and against
in the same two years. This method of calculation is contrary to Delaware law
for the purpose of determining whether a proposal has passed. Describing the
prior elections solely in terms of the "yes-no" count misstates the results,
leading to confusion to the shareholders. Earlier this year, the Staff directed the Proponent to delete a similarly
misleading characterization of the vote received by his proposal from a proposal
to the Company. See The Boeing Co. (Feb. 26, 2003) (instructing the Proponent to
delete "our vote exceeded 50% at 2 annual meetings"). This is consistent with
the Staff's directions to the Proponent on numerous other occasions regarding
misleading references to the vote totals garnered by his proposals. See Northrop
Grumman Corp. (Mar. 22, 2002); Honeywell International, Inc. (Oct. 26, 2001);
APW, Ltd. (Oct. 17, 2001); Alaska Air Group, Inc. (Mar. 13, 2001). In our view,
the Proponent has demonstrated a continuing pattern of ignoring the Staff's
prior directives on this point and by so doing has forced the Company and
numerous other registrants to needlessly seek no-action relief. Accordingly, we
ask that the Staff instruct the Proponent to delete these misleading statements
entirely, without granting an opportunity for revision. Second, the fourth sentence of paragraph 2, which states "The 49%-vote favoring
management's objections equals only 31% of Boeing shares outstanding and
insiders own 20% of our stock" is properly excludable because it is misleading.
These vote totals were reported in the Company's report on Form 10-Q filed
shortly after its 2003 annual meeting, the relevant portion of which is attached
to this letter as Exhibit I. The double standard that Proponent employs here is
striking. On the one hand, the Proponent notes that his proposal achieved 50.6%
and 50.7% of the "yeas and no votes cast" in 2002 and 2003, respectively. The
Proponent omits to mention that his Proposal received only 31.87% and 34.16% of
the outstanding shares entitled to be cast on his proposals in 2003 and 2002,
respectively. Yet, when referring to the "vote favoring management's objections"
in 2003, the Proponent references not only the percentage of yes and no votes
cast, but also the much lower percentage of shares outstanding. The Proponent
cannot have it both ways. If he chooses to represent the vote received in favor
of his prior proposals by referencing only the percentage of yes and no votes
cast, Proponent should be directed to do the same when referencing the vote
against his prior proposals. In the alternative, the Proponent should be
directed to state the percentages of outstanding shares voted in favor of his
prior proposals as well as against. In our view, the disparate treatment is not
only misleading, but also potentially confusing to shareholders.
In addition, the statement that "insiders own 20% of our stock" is properly
excludable because it is false. "Insiders" is a term open to many
interpretations. In the generally accepted sense of the term, however, a
company's insiders would be understood to refer to a company's directors and
executive officers as a group. The Proponent's use of the term in this case is
especially problematic because he does not define the term, but includes
shareholders not typically understood to be insiders. As disclosed in the
Beneficial Ownership table included in the Company's 2003 proxy statement, even
on a fully diluted basis, the Company's insiders, i.e., its directors and
executive officers, owned only 2.3% (18,457,459 shares) of the Company's
outstanding stock as of the record date for the 2003 annual meeting.
The Proponent apparently is using "insider" to also refer to the two
shareholders listed in the Security Ownership of More than Five Percent
Shareholders table in the Company's 2003 proxy statement. As disclosed in a
footnote to the table, one of these shareholders, State Street Bank and Trust
Company ("State Street"), which held 11.7%, is the trustee for the Company's
Voluntary Investment Plan (the "VIP"), a 401(k) retirement savings plan. As
disclosed on page 2 of the proxy statement, State Street votes the shares in the
VIP in accordance with the participants' instructions, with uninstructed shares
voted in the same manner and proportion as the instructed shares. The other
shareholder is Wachovia Corporation, which held 44,008,676, or 5.51% of the
outstanding shares. Of those shares, 40,416,876 are nonvoting shares held in
trust for a Company benefit plan, the ShareValue Plan. Accordingly, the
Proponent's attribution of insider ownership of 20% of the Company's stock is
false and misleading to shareholders. The Proponent should be required to
correct this statement to reflect the true insider percentage of 2.3%, or to
delete the statement. Third, the last two sentences of paragraph 2, which state:
The Council of Institutional Investors www.cii.org formally recommends
shareholder approval of poison pills and adoption of proposals, which achieve a
majority of votes cast. Institutional investors in general own 65% of our
company's stock. are properly excludable because they omit material information and are
misleading. These statements fail to disclose, among other things, that the
Council of Institutional Investors' ("CII") recommendations are general
recommendations only and that, as such, they do not take into account the
specifics regarding the Company, its governing instruments or the requirements
of Delaware law. The Proposal's reference to CII is juxtaposed with the assertion in the last
sentence of paragraph 2 that "Institutional investors in general own 65% of our
stock." As an initial matter, it is unclear how the Proponent derived this
number or as of which date it speaks. The Proposal includes no source for this
statement. More importantly, however, these statements, taken together, are
intended to establish a nexus, which is dubious at best, between the CII
recommendations and the Company's institutional investors. The Proposal makes no
attempt to demonstrate that any of the Company's institutional investors are
members of CII and that they will in fact follow the CII recommendations. These
last two sentences in paragraph 2 are intended to imply that the Company's
institutional investors are members of CII and will follow CII's recommendations
relative to shareholder approval of shareholder rights plans. This is not only
misleading, but also something the Proposal makes no attempt to substantiate.
Courts have found similar representations to be misleading under Rule 14a-9. For
example, in Lone Star Steakhouse & Saloon v. Adams ("Lone Star"), 148 F. Supp.
1141 (D. Kan. 2001), the court, in the context of a contested election of
directors, concluded that both (i) an overstatement of the percentage of
shareholder support and (ii) a claim of support from an unspecified number of
unidentified shareholders were materially misleading under Rule 14a-9; the court
viewed those statements as intended to "generate a bandwagon effect on other
shareholders" and that "if shareholders believe that a significant number of
other investors support defendant, that belief will likely impact the decision
of those investors with less time to research the claims of either existing
management or the proxy contestants." Here, the juxtapositioning of these
statements is intended to do nothing more than generate such a "bandwagon
effect" for the Proposal. We note that the Staff instructed the Proponent to delete similar statements
from a proposal he submitted to the Company last year. In The Boeing Co. (Feb.
26, 2003), the Company received from the Proponent a shareholder proposal
concerning annual election of directors. That proposal included the following:
Annual election of each director is a ["CII"] www.cii.org core policy. Another
CII policy is the adoption of shareholder proposals that win a majority of votes
cast as this proposal topic did in 1999 and 2000. Institutional investors own
62% of Boeing stock. There, for the reasons restated here, the Company argued that the statements
were properly excludable under Rules 14a-8(i)(3) and 14a-9. The Staff concurred
and directed the Proponent to delete the statements. Here too, we note that the
Proponent has demonstrated a willingness to simply ignore the Staff's prior
directives on this point and by so doing has forced the Company to needlessly
seek no-action relief again. Accordingly, we ask that the Staff instruct the
Proponent to delete these misleading statements entirely, without granting an
opportunity for revision. Fourth, the website addresses in paragraph 2 and paragraph 5, which include:
[paragraph 2] "www.cii.org"
[paragraph 5] "Moringstar.com" are properly excludable unless modified because they are false or misleading.
The Staff has indicated that website addresses are not excludable from
shareholder proposals per se, but excludable if a company can demonstrate that
"information on the website may be materially false or misleading, irrelevant to
the subject matter of the proposal or otherwise in contravention of the proxy
rules." Staff Legal Bulletin No. 14 (July 13, 2001). We believe the Staff's
prerequisites for exclusion of the websites referenced in the Proposal are
satisfied. We note that the Staff has required Mr. Chevedden to revise
references to websites to provide a citation to a specific source for the
discussion referenced in the proposals he submitted to the Company and to other
companies. See The Home Depot, Inc. (Mar. 31, 2003) (instructing Mr. Chevedden
to revise the reference to www.cii.org to provide a citation to a specific
source for the discussion referenced in the statement that "[t]he Council of
Institutional Investors www.cii.org ... called for shareholder approval of
poison pills"); Sabre Holdings Corp. (Mar. 20, 2003) (directing Mr. Chevedden to
revise the reference to www.cii.org to provide a citation to a specific source
for the discussion referenced in the statement that "[t]he Council of
Institutional Investors www.cii.org ... called for shareholder approval of
poison pills"); FirstEnergy Corp. (Mar. 10, 2003) (instructing Mr. Chevedden to
revise the reference to www.cii.org to provide a citation to a specific source
for the definition referenced in the statement that "[t]he Council of
Institutional Investors www.cii.org ... called for shareholder approval of
poison pills"); The Boeing Co. (Feb. 26, 2003) (directing Mr. Chevedden to
revise the reference to www.cii.org to provide a citation to a specific source
for the discussion referenced in the statement that "[a]nnual election of each
director is a Council of Institutional Investors www.cii.org core policy");
Weyerhaeuser Co. (Jan. 16, 2003) (directing Mr. Chevedden to revise the
reference to www.cii.org to provide a citation to a specific source for the
discussion referenced). Mr. Chevedden should be directed to do likewise in this
case. Fifth, none of the statements under the captions in paragraphs 5, 6, 7 and 8,
which are attributed to various sources, are accurate excerpts or quotations,
but rather the Proponent's own paraphrases of these sources. As described below,
the Proponent's paraphrases omit key words or phrases from each source. We
believe that at a minimum the Proponent should clarify that these statements are
his own paraphrases, rather than accurate excerpts. More particularly, these
paraphrases are materially false or misleading. For example, in paragraph 5, the Proponent includes the following, attributed to
Morningstar.com: "Poison Pill NegativeThe key negative of poison pills is that
pills can preserve management deadwood." Without more, neither the Company nor
its shareholders are in a position to verify the accuracy of this statement. We
ask that the Staff direct the Proponent to delete this statement from the
Proposal. We note that repeatedly the Staff has directed the Proponent to
include accurate citations to the sources of quotes included in his proposals.
See Monsanto Co. (Nov. 26, 2003); AMR Corp. (Apr. 4, 2003); The Home Depot, Inc.
(Mar. 31, 2003); The Boeing Co. (Feb. 26, 2003). In the alternative, we note
that the Staff has previously directed the Proponent to "revise the sentence
attributed to Morningstar.com to directly quote the sentence from the source."
Monsanto Co. (Nov. 26, 2003).
Next, in paragraph 6, the Proponent includes the following, attributed to The
Wall Street Journal (Feb. 24, 2003): "The Potential of a Tender Offer Can
Motivate Our DirectorsHectoring directors to act more independently is a poor
substitute for the bracing possibility that shareholders could sell the company
out from under its present management." The attribution for the quote should be
revised to indicate that it is taken from an "op-ed" opinion piece, and thus is
simply one person's opinion (namely, Holman W. Jenkins, Jr.) rather than a news
report. See Monsanto Co. (Nov. 26, 2003).
Next, in paragraph 7, the Proponent includes the following, attributed to The
Motley Fool: "Diluted StockAn anti-democratic management scheme to flood the
market with diluted stock is not a reason that a tender offer for our stock
should fail." As with the citation to Morningstar.com, this reference to The
Motley Fool, without more, renders it impossible for the Company or its
shareholders to verify the accuracy of this statement. The Proposal does not
indicate whether the statement comes from a book, pamphlet, radio program or
website. We ask that the Staff direct the Proponent to revise the Proposal to
provide an accurate citation to a specific source for the statement. Here too,
we note that repeatedly, the Staff has directed the Proponent to include
accurate citations to the sources of quotes included in his proposals. See
Monsanto Co. (Nov. 26, 2003); AMR Corp. (Apr. 4, 2003); The Home Depot, Inc.
(Mar. 31, 2003); The Boeing Co. (Feb. 26, 2003). Also, in paragraph 8, the Proponent includes the following, attributed to T.J.
Dermot Dunphy, CEO of Sealed Air: "Like a DictatorPoison pills are like a
dictator who says, `Give up more of your freedom and I'll take care of you.'"
This statement is properly excludable because it is an unsubstantiated
comparison. The Proposal is devoid of any foundation for such a statement; the
Proposal does not explain exactly why or how there is a connection between a
poison pill and a dictator. In our view, the statement is included solely to
cast shareholder rights plans in as negative a light as possible without any
grounds for the statement. This statement should also be deleted from the Proposal because the statement
indirectly impugns the integrity of the Company's directors and is inflammatory.
By using a quote that states that a poison pill is like a dictator, the
Proponent is making an inflammatory statement that indirectly ties the directors
to being like a dictator if they implement a shareholder rights plan, thus
impugning the integrity of the directors, a tactic clearly prohibited by Rule
14a-9 and the Staff's interpretations thereunder. We note that in Monsanto Co.
(Nov. 26, 2003), the Staff was unable to concur with Monsanto Company's view
that the "akin to a dictator" language in a similar proposal submitted by Mr. Chevedden to Monsanto Company was inflammatory and misleading and impugned the
character and integrity of Monsanto Company's directors. However, if the Staff
does not exclude the statement on the grounds adduced above, we urge the Staff
to reconsider its decision in Monsanto based on the Staff's decisions with
regard to many other proposals submitted to companies by Mr. Chevedden and other
proponents that contained similarly inflammatory statements. See The Home Depot,
Inc. (Mar. 31, 2003) (instructing Mr. Chevedden to delete "Home Depot has been a
dog among large-caps" based, in part, on the company's argument that the
statement is misleading and inflammatory); Alaska Air Group, Inc. (Mar. 14,
2003) (instructing Mr. Chevedden to delete "[a]lthough Delaware law allows some
flexibility our company requires an 80%-yes vote from all shares in existence to
adopt this proposal topic" based, in part, on the company's argument that the
statement impugned the integrity of the company and its officers and directors);
The Boeing Co. (Feb. 26, 2003) (directing Mr. Chevedden to delete the statement
that "[t]here is no evidence that our management located any of the numerous
reports that support this shareholder proposal topic," among others, based, in
part, on the company's argument that the statement was misleading, irrelevant
and indirectly impugned the character of the board of directors); Weyerhaeuser
Co. (Jan. 21, 2003) (instructing the proponent to delete statements regarding
the derivation of the company's assets from "lands intended for homesteaders"
based, in part, on the company's argument that these statements indirectly
impugned the integrity of the board of directors and indirectly made charges
concerning immoral conduct without factual foundation). Accordingly, we ask that
the Staff direct the Proponent to delete this statement from the Proposal.
Alternatively, we note that the Proposal does not include an adequate citation
whereby the Company and its shareholders can determine the accuracy of this
statement. With respect to the quotes in paragraphs 5 through 8, we acknowledge that when
the Proponent submitted his Proposal he included a list of references outside
the text of the Proposal. See Exhibit A. These references are not only
incomplete, for example, The Motley Fool, June 13, 1997; Moringstar.com, August
15, 2003, IRRC Corporate Governance Bulletin, June-September 2003, hence this
request for no-action relief, but were not included in the text of the Proposal.
Thus, shareholders have no way of determining for themselves the accuracy and
veracity of the statements in the Proposal. In our view, the Proponent should
specifically identify or provide factual support in the form of a citation to a
specific source for each of the foregoing statements in the text of the
Proposal. The Proponent should provide full and accurate citations, including
the title and author of the article quoted, so that shareholders can more easily
access the information. Otherwise the statements should be deleted altogether.
This request is consistent with the Staff's response to similar statements in
proposals submitted to the Company and other companies. See AMR Corp. (Apr. 4,
2003) (instructing the Proponent to provide factual support in the form of a
citation to the specific study and publication date for discussion referring to
a "2001 Harvard study ... by both the Harvard Business School and the University
of Pennsylvania's Wharton School"); FirstEnergy Corp. (Mar. 10, 2003) (directing
the Proponent to provide a citation to a specific publication date for a
reference to "BUSINESS WEEK's inaugural ranking of the best and worst boards in
1996"); The Boeing Co. (Feb. 18, 2003) (directing the Proponent to provide
factual support in the form of a citation when the proposal merely cited to
"McKinsey & Co. corporate governance survey"); Weyerhaeuser Co. (Jan. 21, 2003)
(instructing the Proponent to provide a citation to a specific publication date
for the proposal's reference to a "major series by the Seattle Times").
Sixth, the statement in paragraph 9, that "the Council of Institutional
Investors was dissatisfied with the `huge loophole' in the type of policy that
our Directors issued" is properly excludable because it is misleading. The
Proponent does not identify or describe the "huge loophole" to which he refers.
Moreover, the statement appears to suggest that the CII has evaluated the
Board's policy and expressed dissatisfaction with the policy. The Proponent has
not provided any documentation that this is the case, nor is the Company aware
of any. Accordingly, we believe that the statement should be deleted from the
Proposal altogether. 4. The Proposal's supporting statement is excludable under Rules
14a-8(i)(3)/14a-9 because it will require detailed and extensive editing in
order to bring it into compliance with the proxy rules. We submit that the Proposal's entire supporting statement is properly excludable
under Rules 14a-8(i)(3)/14a-9 because extensive editing is required to bring it
into compliance with the proxy rules. As noted in the preceding section, virtually every paragraph and sentence of the
supporting statement contains false or misleading statements that will require
extensive editing to bring the supporting statement into compliance with the
proxy rules. The Company therefore requests that the Staff confirm that it will
not recommend enforcement action should the Company omit the supporting
statement in its entirety pursuant to Rules 14a-8(i)(3)/14a-9.
We understand that the Staff may permit a proponent to revise a proposal or
supporting statement under Rule 14a-8(i)(3) and to revise or delete specific
statements "that may be materially false or misleading or irrelevant to the
subject matter of the proposal." Staff Legal Bulletin No. 14 (July 13, 2001).
However, the Staff has also recently confirmed that in instances where a
proposal requires "detailed and extensive editing in order to bring [it] into
compliance with the proxy rules" it may be appropriate "to exclude the entire
proposal, supporting statement, or both, as materially false or misleading."
Staff Legal Bulletin No. 14 (July 13, 2001). We submit that the Proposal's
supporting statement would require extensive editing to bring it into compliance
with the proxy rules and is therefore properly excludable in its entirety on
this basis alone. In addition, we submit that there is an additional basis on which to grant the
Company's request to delete the Proposal's supporting statement in its entirety.
As noted throughout the preceding section, the Company has also successfully
challenged many of the statements noted in the preceding section (or similar
variations thereof) in prior years. The Staff has specifically directed the
Proponent to delete, revise or provide support for many of these statements. It
is apparent that the Proponent is simply ignoring the Staff's instructions from
year to year and doing so at the expense of the Company, its shareholders and
the Staff. The effort expended by the Company and the Staff in responding to
these same issues year after year represents an enormous financial and time
commitment. This continued disregard for the Staff's directions should not be
permitted. In our view, permitting the Company to omit the Proposal's supporting
statement in its entirety would be an appropriate measured response to the
Proponent's behavior. * * * * * For the foregoing reasons, we believe that the Proposal's supporting statement
or at least portions thereof may be omitted from the 2004 Proxy Statement and
respectfully request that the Staff confirm that it will not recommend any
enforcement action if the Proposal's supporting statement or portions thereof
are excluded. Boeing anticipates that its definitive 2004 Proxy Statement and form of proxy
will be finalized for filing and printing on or about March 22, 2004.
Accordingly, your prompt review of this matter would be greatly appreciated.
Should you have any questions regarding any aspect of this matter or require any
additional information, please call the undersigned at (206) 359-8447.
Please acknowledge receipt of this letter and its enclosures by stamping the
enclosed copy of this letter and returning it to me in the enclosed envelope.
Very truly yours, /s/
J. Sue Morgan JSM:reh
Enclosures cc: John Chevedden
Mark R. Pacioni, Assistant Corporate Secretary and Counsel, The Boeing Company [INQUIRY LETTER]
January 31, 2004 6 Copies
7th copy for date-stamp return Via Airbill
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Poison Pill Proposals and Not Substantially (Extensively) Implemented
Ladies and Gentlemen: Hewlett Packard (December 24, 2003) essentially said that half the baby was as
good as the whole baby on poison pills and shareholder votes. One possible
interpretation of Hewlett Packard is that it gives a company the power to repeal
a poison pill policy as soon as it receives a no action letter based on adopting
that very policy. The company has not claimed that the company would lack the power in this
instance to take the Office of Chief Council Response letter, issued on the
substantially implemented issue, on day-one and on day-two repeal the policy
which was the linchpin to obtaining the day-one Response letter.
The key point of this poison pill proposal is a shareholder vote. It does not
seem credible that a policy is substantially implemented when the company has
the power to take a December 24, 2003 Response letter and on December 26, 2003
repeal the policy that was the linchpin to the December 24, 2003 Response.
Furthermore there would be no shareholder vote before or after.
The company has not provided a precedent where a Staff Response of substantial
implementation allowed the repeal of the policy critical to the staff Response
the instant that the company received the staff Response. Thus the repeal could be timed to the very minute after the fax arrival of the
Staff Response letter. The company has provided no argument rebutting the
ability of the board to pass a resolution now that repeals the policy once the
Response letter comes through on the company fax machine. Pfizer Inc. (PFE) in 2003 had the transparency to adopt this same half-baby
policy with more detail to reveal the limitations (from a shareholder viewpoint)
of such a policy: "This policy may be revised or repealed without prior public notice and the
Board may thereafter determine to act on its own to adopt a poison pill"
The Dow Chemical Company Adoption of Stockholder Rights (Poison Pill) Policy,
adopted February 13, 2003, prior to the company policy, added two key provisions
beyond what one company called its "as far as it can go" company policy:
1) Any stockholder rights plan so adopted by the Board without prior stockholder
approval will be submitted to a non-binding vote of stockholders as a separate
ballot item at the next subsequent meeting of Dow stockholders.
2) The Board shall not repeal this Policy without first submitting it to a
non-binding vote of Dow shareholders. The company has not argued that the Dow Policy is contrary to state law.
The company has not submitted an argument stating that item 1) and 2) above are
inconsistent with a fiduciary out. The company has not made any analogous claim that a Board of Directors, which
permits ratification of auditors, has abdicated its responsibility for the
selection of auditors. Element - An Essential Component
The following is additional material which applies to a poison pill proposal for
a two-element single-concept policy calling for: 1) A shareholder vote policy regarding a poison pill Plus
2) A shareholder vote if the foundational policy is repealed after adoption.
The ability to have a vote on repealing the foundational policy is critical to
the underlying policy having any meaning. This letter addressees the substantially implemented issue.
The two-element policy calls for a vote at each of two points. There is no
substantial implementation if the company sets up a condition:
1) Where the company has complete control
2) And the company can avoid a vote at both element-one and element -two
In many proposals 6-elements are missing such as:
The following provisions are thus not implemented in the company policy:
1. A vote is not needed to adopt a pill ("unless the Board...").
2. Since no vote is required to adopt a pill then the first "shareholder vote as
a separate ballot item" is not implemented. 3. No vote whatsoever is needed for a pill with a 364-day term ("within one
year"). a. If the pill "expires" after 364-days a new pill can be adopted.
b. This expire-and-adopt-again cycle can be repeated year after year.
4. No shareholder vote ever applies to repealing the entire policy.
5. Since no vote is required to repeal the entire policy then the second "as a
separate ballot item" is not implemented. 6. Since no vote is required to repeal the entire policy then "earliest election
date" is not implemented. SEC Release No. 34-20091 said "The Commission proposed an interpretative change
to permit the omission of proposals that have been `substantially implemented by
the issuer.'" The key phrase is "substantially implemented by the issuer."
The proposal does not seem to be substantially implemented if the foundational
policy of the proposal can be repealed at will or at whim by the board without a
corresponding non-binding vote. The second element of the proposal is arguably of greater importance because
without it the first element of the proposal could be moot.
The company is in the inscrutable position of claiming that adopting the first
half of the two-element policy compares favorably with adopting the whole
policy. It is like half the baby is as good as the whole baby. Nordstrom Inc.,
claimed a favorable 12-for-12 match in Nordstrom Inc., 1995 SEC No-Act. LEXIS
226 (Feb. 8, 1995). Yet the company now claims that one-for-two is as favorable
12-for-12 when addressing the poison pill topic. In Nordstrom Inc., the staff allowed a company to exclude a proposal where the
company demonstrated that it already had adopted policies or taken actions to
address each of 12 points of the proposal. In Nordstrom a 12-for-12 match at a detail level of the company was apparently
established in order to obtain concurrence. At the highest level of the company the company claims a one-for-two match
compares favorably. A key principle of rule 14a-8 and corporate governance is
that shareholder voices are intended to be heard more at the macro level of the
company because the managers are responsible for the details. Thus if 12-for-12
is the standard for detailed items in Nordstrom, the standard should at least
approach 100% at a much higher level of a company - not 50%.
For shareholders the greater importance of macro issues is supported by text in
rule 14a-8: i. Question 9: If I have complied with the procedural requirements, on what
other bases may a company rely to exclude my proposal?... 7. Management functions: If the proposal deals with a matter relating to the
company's ordinary business operations. In Nordstrom Inc., the company argued:
A comparison of the Proponent's "code of conduct" and the Guidelines reveals
that the Guidelines include each form of prohibited supplier conduct listed in
the Proposal and include the means to verify compliance as requested in the
Proposal. The Proponent, for example, requests that under the code of conduct
the Company will not do business with suppliers which: (1) utilize forced or prison labor;
(2) employ children under compulsory school age or legal working age;
(3) fail to follow prevailing practice and local laws regarding wages and hours;
(4) fail to maintain a safe and healthy working environment; or
(5) contribute to local environmental degradation.
In addition, the Proponent requests that the Company verify its suppliers'
compliance through certification, regular inspections and/or other monitoring
processes. Under the Guidelines, the Company's vendors are expected to refrain from:
(1) utilizing prison or forced labor;
(2) utilizing child labor; (3) failing to offer wages, hours and overtime consistent with prevailing local
industry standards; (4) failing to provide safe and healthy work environments for their workers;
(5) failing to demonstrate a commitment to the environment;
(6) failing to comply with all applicable legal requirements; or
(7) discriminating. Cll Alerts, Council Research Service, November 13, 2003 establishes concern
regarding meaningless poison pill policies. It stated: SO FAR, WE'VE TRACKED 62 majority votes on poison pill proposals submitted in
2003. Only seven have adopted policies terminating their pills or amending their
policies. 3M, Hewlett-Packard and JP Morgan Chase, which also don't have poison pills,
responded to the majority votes by approving policies to get shareholder
approval before adopting any poison pills. But their policies include a huge
loophole giving their boards the right to adopt pills without prior shareholder
approval if, as fiduciaries, they decide a pill would be in the best interests
of shareholders. These clauses effectively render the policies meaningless.
The following is a recent precedent where substantially implement was not
concurred with. Continental Airlines, Inc. (January 28, 2004)
"The Proposal requests that the board submit any adoption, maintenance or
extension of a poison pill to a shareholder vote and further requests that once
adopted, any material change or discontinuing of this proposal be submitted to a
shareholder vote at the earliest possible shareholder ballot.
"We are unable to concur in your view that Continental may exclude the proposal
under rule 14a-8(i)(10). Accordingly, we do not believe that Continental may
omit the proposal from its proxy material in reliance on rule 14a-8(i)(10)."
I do not believe that the company has met its burden of proof obligation
according to rule 14a-8 on substantially implement in regard to a half-baby
poison pill policy. For the above reasons this is to respectfully request non-concurrence with the
company no action requests on this issue in particular. Sincerely,
/s/ [APPENDIX 1]
3 - Shareholder Input on a Poison Pill RESOLVED: Shareholders request that our Directors increase shareholder voting
rights and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item as soon as may be practical. Also
once this proposal is adopted, any material change or removal of this proposal
is requested to be submitted to a shareholder vote as a separate ballot item at
the earliest possible shareholder ballot. We as shareholders voted in support of this topic:
Year......Rate of Support 2002......50.6%
2003......50.7% These percentages are based on yes and no votes cast. I believe this repeated
level of shareholder support is more impressive than the raw percentages because
this support followed our Directors' objections. The 49%-vote favoring
management's objections equals only 31% of Boeing shares outstanding and
insiders own 20% of our stock. The Council of Institutional Investors
www.cii.org formally recommends shareholder approval of poison pills and
adoption of proposals which achieve a majority of votes cast. Institutional
investors in general own 65% of our stock. I do not see how our Directors could object to this proposal because it gives
our Directors the flexibility to ignore our shareholder votes if our Directors
seriously believe they have a good reason. James Janopaul, 1255 Buchanan Street, Arlington, Virginia 22205 submitted this
proposal. Poison Pill Negative The key negative of poison pills is that pills can preserve management deadwood.
Source: Moringstar.com The Potential of a Tender Offer Can Motivate Our Directors
Hectoring directors to act more independently is a poor substitute for the
bracing possibility that shareholders could sell the company out from under its
present management. Source: Wall Street Journal, Feb. 24, 2003
Diluted Stock An anti-democratic management scheme [poison pill] to flood the market with
diluted stock is not a reason that a tender offer for our stock should fail.
Source: The Motley Fool Like a Dictator
Poison pills are like a dictator who says, "Give up more of your freedom and
I'll take care of you. T.J. Dermot Dunphy, CEO of Sealed Air (NYSE) for 25 years
I believe our Directors took a step in the right direction their Oct. 2003
statement that the Board intends to submit any poison pill to a vote of
shareholders. However the Council of Institutional Investors was dissatisfied
with the "huge loophole" in the type of policy that our Directors issued. This
proposal is intended to enhance shareholder rights beyond our Directors'
statement by providing for a shareholder vote any time a poison pill is adopted
and a shareholder vote if this policy is materially changed or discontinued.
Director Confidence in Our Management
I believe that, by our Directors taking the steps to adopt this proposal, our
Directors will signal their confidence that our management - subject to their
oversight - will be the best management to enhance shareholder value.
Shareholder Input on a Poison Phill Yes on 3
Notes: The above format is the format submitted and intended for publication.
Please advise if there is any typographical question.
The company is requested to assign a proposal number (represented by "3" above)
based on the chronological order in which proposals are submitted. The requested
designation of "3" or higher number allows for ratification of auditors to be
item 2. References: The Motley Fool, June 13, 1997
Moringstar.com, Aug. 15, 2003 Mr. Dunphy's statements are from The Wall Street Journal, April 28, 1999.
IRRC Corporate Governance Bulletin, June - Sept. 2003
Council of Institutional Investors, Corporate Governance Policies, March 25,
2002 [APPENDIX 2]
3 - Shareholder Input on a Poison Pill RESOLVED: Shareholders request that our Directors not adopt, maintain or extend
any poison pill unless such adoption, maintenance or extension is submitted to a
shareholder vote. Also once adopted, removal or dilution of such rule to be
submitted to shareholder vote at the earliest next election. This is not a
request for a token response with ill-defined loopholes. We as shareholders voted in support of this topic:
Year......Rate of Support 2002......50.6%
2003......50.7% These percentages are based on yes and no votes cast. I believe this repeated
level of shareholder support is more impressive than the raw percentages because
this support followed our Directors' objections. Only 31% of Boeing shares
outstanding supported our Directors' position on this topic in 2003 and insiders
own 20% of our stock. The Council of Institutional Investors www.cii.org
formally recommends shareholder approval of poison pills and adoption of
proposals which achieve a majority of votes cast. Institutional investors in
general own 65% of our stock. I do not see how our Directors could object to this proposal because it gives
our Directors the flexibly to overrule our shareholder vote if our Directors
seriously believe they have a good reason. James Janopaul, 1255 Buchanan Street, Arlington, Virginia 22205 submitted this
proposal. Poison Pill Negative The key negative of poison pills is that pills can preserve management deadwood.
Source: Moringstar.com The Potential of a Tender Offer Can Motivate Our Directors
Hectoring directors to act more independently is a poor substitute for the
bracing possibility that shareholders could sell the company out from under its
present management. Source: Wall Street Journal, Feb. 24, 2003
Diluted Stock An anti-democratic management scheme to flood the market with diluted stock is
not a reason that a tender offer for our stock should fail.
Source: The Motley Fool Like a Dictator
Poison pills are like a dictator who says, "Give up more of your freedom and
I'll take care of you. T.J. Dermot Dunphy, CEO of Sealed Air (NYSE) for 25 years
I believe our Directors made a token response to this proposal in a "statement"
set apart from the governing documents of our company and with ill-defined
loopholes. Perhaps our Directors were hoping to gain points in the new corporate
governance rating systems. A token, reversible response, which could still allow
our directors to give a poison pill, with not even a prior or subsequent vote,
would not substitute for this proposal. Additionally I believe our directors'
"statement" on poison pills could be pulled at any time without shareholder
voting input. Director Confidence in Our Management
I believe that, by our Directors taking the steps to adopt this proposal, our
Directors will signal their confidence that our management will be the best
management to maintain shareholder value. I believe adoption would be evidence
of our Directors' confidence that our stock will not become an undervalued
takeover target. Shareholder Input on a Poison Pill Yes on 3
Notes: The above format is the format submitted and intended for publication.
Please advise if there is any typographical question.
The company is requested to assign a proposal number (represented by "3" above)
based on the chronological order in which proposals are submitted. The requested
designation of "3" or higher number allows for ratification of auditors to be
item 2. References: The Motley Fool, June 13, 1997
Moringstar.com, Aug. 15, 2003 Mr. Dunphy's statements are from The Wall Street Journal, April 28, 1999.
IRRC Corporate Governance Bulletin, June - Sept. 2003
Council of Institutional Investors, Corporate Governance Policies, March 25,
2002 Please advise within 14 days if the company is unable to locate these or other
references and specify the particular item(s).
[STAFF REPLY LETTER]
January 31, 2004 6 Copies
7th copy for date-stamp return Via Airbill
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Response to Perkins Coie LLP No Action Request
The Boeing Company (BA)
James Janopaul
Poison Pill Topic Ladies and Gentlemen:
This is in further support of the January 10, 2004 and January 10, 2004 letters.
The text of the submitted proposal states:
RESOLVED: Shareholders request that our Directors increase shareholder voting
rights and submit the adoption, maintenance or extension of any poison pill to a
shareholder vote as a separate ballot item as soon as may be practical. Also
once this proposal is adopted, any material change or removal of this proposal
is requested to be submitted to a shareholder vote as a separate ballot item at
the earliest possible shareholder ballot. The company policy states:
Boeing does not have a shareholder rights plan and has no present intention to
adopt one. Subject to its continuing fiduciary duties, which may dictate
otherwise depending upon the circumstances, the Board intends to submit any
future rights plan to a vote of the shareholders. The following provisions are thus not implemented by the company policy:
1. The first "as a separate ballot item" is not implemented.
2. No vote is required to repeal the entire policy.
3. Since no vote is required to repeal the entire policy then the second "as a
separate ballot item" is not implemented. 4. Since no vote is required to repeal the entire policy then "earliest election
date" is not implemented. An annotated version of the Boeing policy would expose this policy as having
little or no substance: Boeing does not have a shareholder rights plan and has no intention, restricted
only to the present time of August 26, 2003, to adopt one. Subject to its
continuing fiduciary duties, which may dictate or compel otherwise depending
upon the circumstances and which would thus dictate or compel that we override
our vague intention or goal which follows: The Board intends, or in other words
has in mind as a purpose or goal, to submit any future rights plan to a vote of
the shareholders. I do not believe the company has met its burden of proof obligation according to
rule 14a-8. For the above reasons this is to respectfully request non-concurrence with the
company no action request. Sincerely,
/s/ John Chevedden
Boeing Company shareholder cc:
James Janopaul
Lewis Platt
[STAFF REPLY LETTER]
6 Copies
7th copy for date-stamp return January 10, 2004
Via Airbill Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Response to Perkins Coie LLP No Action Request
The Boeing Company (BA)
James Janopaul
Ladies and Gentlemen: This attachment to the above letterhead is forwarded on January 23, 2004.
Sincerely, /s/
John Chevedden
Boeing Company shareholder cc:
James Janopaul
Lewis Platt [INQUIRY LETTER]
6 Copies
7th copy for date-stamp return January 23, 2004
Via Airbill Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Poison Pill Proposals and Not Substantially (Extensively) Implemented Separate
Ballot Item Issue Ladies and Gentlemen:
Separate Ballot Item The company has made no claim that its policy calls for a vote as a separate
ballot item. The company has cited no precedent where a called-for vote was
determined substantially implemented by a policy allowing a vote as only a small
part of a larger bundle of provisions. The 2003 company policy can also make a vote nearly meaningless by bundling the
vote on the poison pill with 5 other items as an all-or-nothing vote
proposition. And one of the 5 other items could be a big-ticket item.
There is no point-by-point company analysis particularly focused on the separate
ballot item provision. Sincerely, /s/
John Chevedden [INQUIRY LETTER]
6 Copies
7th copy for date-stamp return January 23, 2004
Via Airbill Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Poison Pill Proposals and Not Substantially (Extensively) Implemented
Ladies and Gentlemen: The company has not made any analogous claim that a Board of Directors, which
permits ratification of auditors, has abdicated its responsibility for the
selection of auditors. Element - An Essential Component
The following is additional material which applies to a poison pill proposal for
a two-element single-concept policy calling for: 1) A shareholder vote policy regarding a poison pill
Plus 2) A shareholder vote if the foundational policy is repealed after adoption.
This letter addressees the substantially implemented issue.
The two-element policy calls for a vote at each of two points. There is no
substantial implementation if the company sets up a condition:
1) Where the company has complete control
2) And the company can avoid a vote at both element-one and element -two
SEC Release No. 34-20091 (attached) said "The Commission proposed an
interpretative change to permit the omission of proposals that have been
`substantially implemented by the issuer.'" The key phrase is "substantially
implemented by the issuer." The proposal does not seem to be substantially implemented if the foundational
policy of the proposal can be repealed at will or at whim by the board without a
corresponding non-binding vote. The second element of the proposal is arguably of greater importance because
without it the first element of the proposal could be moot.
The company is in the inscrutable position of claiming that adopting the first
half of the two-element policy compares favorably with adopting the whole
policy. It is like half the baby is as good as the whole baby. Nordstrom Inc.,
claimed a favorable 12-for-12 match in Nordstrom Inc., 1995 SEC No-Act. LEXIS
226 (Feb. 8, 1995). Yet the company now claims that one-for-two is as favorable
12-for-12 when addressing the poison pill topic. In Nordstrom Inc., the staff allowed a company to exclude a proposal where the
company demonstrated that it already had adopted policies or taken actions to
address each of 12 points of the proposal. In Nordstrom a 12-for-12 match at a detail level of the company was apparently
established in order to obtain concurrence. At the highest level of the company the company claims a one-for-two match
compares favorably. A key principle of rule 14a-8 and corporate governance is
that shareholder voices are intended to be heard more at the macro level of the
company because the managers are responsible for the details. Thus if 12-for-12
is the standard for detailed items in Nordstrom, the standard should at least
approach 100% at a much higher level of a company - not 50%.
For shareholders the greater importance of macro issues is supported by text in
rule 14a-8: i. Question 9: If I have complied with the procedural requirements, on what
other bases may a company rely to exclude my proposal?... 7. Management functions: If the proposal deals with a matter relating to the
company's ordinary business operations. In Nordstrom Inc., the company argued:
A comparison of the Proponent's "code of conduct" and the Guidelines reveals
that the Guidelines include each form of prohibited supplier conduct listed in
the Proposal and include the means to verify compliance as requested in the
Proposal. The Proponent, for example, requests that under the code of conduct
the Company will not do business with suppliers which: (1) utilize forced or prison labor;
(2) employ children under compulsory school age or legal working age;
(3) fail to follow prevailing practice and local laws regarding wages and hours;
(4) fail to maintain a safe and healthy working environment; or
(5) contribute to local environmental degradation.
In addition, the Proponent requests that the Company verify its suppliers'
compliance through certification, regular inspections and/or other monitoring
processes. Under the Guidelines, the Company's vendors are expected to refrain from:
(1) utilizing prison or forced labor;
(2) utilizing child labor; (3) failing to offer wages, hours and overtime consistent with prevailing local
industry standards; (4) failing to provide safe and healthy work environments for their workers;
(5) failing to demonstrate a commitment to the environment;
(6) failing to comply with all applicable legal requirements; or
(7) discriminating. In Texaco Inc., 2001 SEC No-Act. LEXIS 136 (Jan. 30, 2001) a shareholder
proposal, which urged this company's board of directors to adopt, implement and
enforce a workplace code of conduct based upon the International Labor
Organization's conventions on workplace human rights, including the five
principles set forth in the proposal, may not be omitted from the company's
proxy material under rule 14a-8(i)(10). The company argued that the proposal had been substantially implemented because
the company already had endorsed the Sullivan Principles. The proponent noted
that the Sullivan Principles did not cover all of the subjects addressed by the
International Labor Organization's Principles nor were the Sullivan Principles
co-extensive with them. In PPG Industries, Inc., 2001 SEC No-Act. LEXIS 124 (Jan. 22, 2001) the company
was required to include a proposal asking the board to adopt the International
Labor Organization's conventions on workplace human rights, including the five
principles set forth in the proposal. The company argued that it had
substantially implemented the proposal because it had adopted various policies,
such as its EEO and Global Code of Ethics policies, or was subject to certain
laws, including the National Labor Relations Act and the ILO's Convention 105
regarding forced labor which had been ratified by the U.S., relating to concerns
raised in the proposal. The proponent countered by pointing out precisely how
the measures cited by the company fell short of substantial implementation. The
proponent also argued that the heart of the proposal was to create a single
document that explicitly and in one place committed the company to the
enumerated principles. A vote is consistent with fiduciary duty
A vote gives the board greater incentive to meet its fiduciary duty
The second part of this poison pill proposal emphasizes the importance of
shareholder opportunity to vote. This is reinforced by company response
statements to shareholder proposals which repeatedly state that companies
carefully evaluate precatory shareholder votes. For instance The Boeing Company 2003 response statement to the poison pill
shareholder proposal specifically noted the 50% vote the proposal topic received
at the company 2003 annual meeting and added, "... the Board of Directors and
its Governance and Nominating Committee have carefully considered and evaluated
the proposal, after being briefed on the proposals' historical, policy, economic
and legal implications." The Boeing Company seems to have arranged a special
briefing for the Board as a result of the shareholder vote.
It appears from The Boeing Company 2003 response statement that the non-binding
shareholder vote gave the board added incentive to consider its position on the
proposal topic. Giving the board added incentive to consider the merits of a key
governance topic gives the board greater incentive to meet its fiduciary duty to
shareholders under state law. The two-element policy calls for a vote at each of the two points. If the
company sets up a condition where it can avoid a vote at, particularly at the
foundational element then there is no substantial (extensive) implementation.
The board can take a false sense of security in knowing it can remove the policy
at any time without any shareholder vote at any time. This false sense of
security can impact shareholder value. It can also lead to management
complacency and to the board marginally meeting fiduciary duty or less.
The company has not provided a precedent where a proposal which called for a
shareholder vote under two circumstances was substantially implemented by a
policy that enabled the company to avoid both such votes. Hewlett Packard (December 24, 2003) essentially said that half the baby was as
good as the whole baby on poison pills and shareholder votes. One possible
interpretation of Hewlett Packard is that it gives a company the power to repeal
a poison pill policy as soon as it receives a no action letter based on adopting
that very policy. The company has not claimed that the company would lack the power in this
instance to take the Office of Chief Council Response letter, issued on the
substantially implemented issue, on day-one and on day-two repeal the policy
which was the linchpin to obtaining the day-one Response letter.
The key point of this poison pill proposal is a shareholder vote. It does not
seem credible that a policy is substantially implemented when the company has
the power to take a December 24, 2003 Response letter and on December 26, 2003
repeal the policy that was the linchpin to the December 24, 2003 Response.
Furthermore there would be no shareholder vote before or after.
The company has not provided a precedent where a Staff Response of substantial
implementation allowed the repeal of the policy critical to the staff Response.
Thus the repeal could be timed to the very minute after the fax arrival of the
Staff Response letter. The company has provided no argument rebutting the
ability of the board to pass a resolution now that repeals the policy once the
Response letter comes through on the company fax machine. Pfizer Inc. (PFE) in 2003 had the transparency to adopt this same half-baby
policy with more detail to reveal the limitations (from a shareholder viewpoint)
of such a policy: "This policy may be revised or repealed without prior public notice and the
Board may thereafter determine to act on its own to adopt a poison pill"
The enclosed Dow Chemical Company Adoption of Stockholder Rights (Poison Pill)
Policy, adopted February 13, 2003, prior to the company policy, added two key
provisions beyond what one company called its "as far as it can go" company
policy: 1) Any stockholder rights plan so adopted by the Board without prior stockholder
approval will be submitted to a non-binding vote of stockholders as a separate
ballot item at the next subsequent meeting of Dow stockholders.
2) The Board shall not repeal this Policy without first submitting it to a
non-binding vote of Dow shareholders. The company has not argued that the Dow Policy is contrary to state law.
The company has not submitted an argument stating that item 1) and 2) above are
inconsistent with a fiduciary out. CII Alerts, Council Research Service, November 13, 2003 establishes concern
regarding meaningless poison pill policies. It stated: SO FAR, WE'VE TRACKED 62 majority votes on poison pill proposals submitted in
2003. Only seven have adopted policies terminating their pills or amending their
policies. 3M, Hewlett-Packard and JP Morgan Chase, which also don't have poison pills,
responded to the majority votes by approving policies to get shareholder
approval before adopting any poison pills. But their policies include a huge
loophole giving their boards the right to adopt pills without prior shareholder
approval if, as fiduciaries, they decide a pill would be in the best interests
of shareholders. These clauses effectively render the policies meaningless.
The following are precedents where substantially implement was not concurred
with. Alaska Air Group, Inc. (March 31, 2003)
A shareholder proposal, which recommends that this company's board of directors
redeem any poison pill previously issued and not adopt or extend any poison pill
unless such adoption or extension has been submitted to a shareholder vote, may
not be omitted under rule 14a-8(i)(10). AMR Corp. (April 4, 2003)
A shareholder proposal, which requests that this company annually submit to a
shareholder vote any poison pill adopted since the company's previous annual
meeting and/or currently in place, may not be omitted from the company's proxy
material under rule 14a-8(i)(10). 3M Co. (Jan. 28, 2003)
A shareholder proposal, which requests that this company's board of directors
"redeem any poison pill previously issued (if applicable) and not adopt or
extend any poison pill unless such adoption or extension has been submitted to a
shareholder vote," may not be omitted from the company's proxy material under
rule 14a-8(i)(10). Sabre Holdings Corp. (March 20, 2003)
A shareholder proposal, which requests that this company's board of directors
redeem any poison pill previously issued and not adopt or extend any poison pill
unless such adoption or extension has been submitted to a shareholder vote, may
not be omitted from the company's proxy material under rule 14a-8(i)(10).
UST Inc. (Dec. 26, 2003) A shareholder proposal, which requests that this company's board of directors
"redeem any poison pill previously issued (if applicable) and not adopt or
extend any poison pill unless such adoption or extension has been submitted to a
shareholder vote," may not be omitted from the company's proxy material under
rule 14a-8(i)(10). The proposal here goes beyond each of the above proposals in calling for a
precatory vote if the board repeals the foundational pill policy itself.
Fiduciary Out A non-binding vote on the second part of this two-element proposal regarding the
removal of the proposal once adopted is consistent with a fiduciary out.
Not all proposals with a fiduciary out are substantially identical A non-binding
vote on repealing a policy is consistent with a fiduciary out
Not all poison pill proposals with a fiduciary out are substantially identical.
Both a two-point policy and a one-point policy can have a fiduciary out. The
fiduciary out of the two-point policy does not force it to be substantially
implemented by a one-point policy. Oxymoron Opinion
Legal opinions of Richard, Layton & Finger are an oxymoron and paradox: They
state that submitting a poison pill plan to a stockholder vote after the plan is
adopted would impose "substantial delay" or similar text. Thus these opinions
are in the position of touting an illogical claim: That a vote after a pill
adoption delays the pill adoption itself. This may be a key defect in a number
of Richard, Layton & Finger opinions in the no action process and may subject
such opinion to credibility questions. There is no point-by-point analysis in these opinions to explain this reversal
of logic. I do not believe that the company has met its burden of proof obligation
according to rule 14a-8 on substantially implement in regard to a half-baby
poison pill policy. For the above reasons this is to respectfully request non-concurrence with the
company no action requests on this issue in particular. Sincerely,
/s/ John Chevedden [INQUIRY LETTER]
January 15, 2004 VIA OVERNIGHT COURIER
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Shareholder Proposal Concerning Shareholder Rights Plans Submitted by James
Janopaul, With John Chevedden as Proxy, for Inclusion in The Boeing Company 2004
Proxy Statement Dear Sir or Madam: This letter supplements our letter to you of December 24, 2003 setting forth
grounds for omission from The Boeing Company (the "Company") 2004 Proxy
Statement of a proposal (the "Proposal") submitted by James Janopaul, with John
Chevedden as proxy. The Proposal relates to shareholder rights plans. One of the
bases for exclusion set forth in our December 24, 2003 letter is that the
Proposal may be excluded pursuant to Rule 14a-8(i)(10) under the Securities
Exchange Act of 1934, as amended, because the Company has already substantially
implemented the Proposal. As support for this basis for omission, in addition to the letters cited in our
December 24, 2003 letter, we would like to call to your attention the letter
from your office to Hewlett-Packard Company ("HP") dated December 24, 2003 (the
"HP Letter"). In that letter, the staff of the Division of Corporation Finance
(the "Staff") took a no-action position with respect to the omission of a
substantially similar proposal submitted by Nick Rossi, with John Chevedden as
proxy (the "HP Proposal"), on the basis of substantial implementation under Rule
14a-8(i)(10). The HP board has adopted a policy that requires a shareholder vote to adopt or
extend any shareholder rights plan, subject to the board's ability in exercising
its fiduciary responsibilities to act without shareholder approval if it deems
it to be in the best interest of HP and its shareholders. The Staff found that
the HP Proposal had already been substantially implemented by HP, even though
the policy adopted by HP included a "fiduciary-out." The Staff notes that the HP
Proposal itself "clarifies that directors have discretion in responding to
shareholder votes." As indicated in our December 24, 2003 letter, the Proposal
submitted to the Company by Mr. Janopaul with Mr. Chevedden as proxy also
clarifies in its supporting statement that the Company's directors have "the
flexibility to ignore [the] shareholder vote if [the Company's] [d]irectors
seriously believe they have a good reason." Accordingly, the HP Letter
reinforces the Company's position that, even though the policy adopted by the
Company's board includes a "fiduciary-out," the Proposal has been substantially
implemented because the Proposal itself includes a "fiduciary-out."
In addition, as our December 24, 2003 letter indicates, the Staff's denials of
relief under Rule 14a-8(i)(10) in Sabre Holdings Corp. (Mar. 20, 2003) ("Sabre")
and 3M Co. (Jan. 28, 2003) ("3M") are distinguishable because in those instances
the shareholder proposal did not include a "fiduciary out," whereas the HP
Proposal and the Proposal submitted to the Company both do. Also, as the HP
Letter points out, neither Sabre nor 3M relied on a separate opinion of counsel
for the position that adopting a policy that does not contain a "fiduciary-out"
would be inconsistent with state law, while our December 23, 2004 letter, like
the HP Letter, was accompanied by an opinion from Delaware counsel which
supports this position. Accordingly, based on the precedent cited in our December 24, 2003 letter and
the accompanying opinion of Delaware counsel, as well as the HP Letter, we
believe the Company may exclude the Proposal in its entirety because the
Proposal has been substantially implemented. In accordance with Rule 14a-8(j), on behalf of the Company, the undersigned
hereby files six copies of this letter. One copy of this letter is being
simultaneously sent to the Proponent. Please acknowledge receipt of this letter by stamping the enclosed copy and
returning it to me in the enclosed envelope. Should you have any questions regarding any aspect of this matter or require any
additional information, please contact me directly at (206) 359-8447.
Very truly yours, /s/
J. Sue Morgan JSM:reh
Enclosures cc: John Chevedden
Mark R. Pacioni, Assistant Corporate Secretary and Counsel, The Boeing Company
[STAFF REPLY LETTER]
6 Copies
7th copy for date-stamp return January 10, 2004
Via Airbill Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 0402
450 Fifth Street, NW
Washington, DC 20549 Response to Perkins Coie LLP No Action Request
The Boeing Company (BA)
James Janopaul Ladies and Gentlemen:
In response to the company no action request, the numbers preceding the brackets
below correspond to the pages of the company letter. 1] The second shareholder proposal on the poison pill, and the sole subject of
the company no action request, was submitted on November 19, 2003. According to
rule 14a-8 the company is required to notify the proponent within 14-days if the
company believes that there is any procedural issues such as "more than one
proposal." The company "must notify you in writing of any procedural or
eligibility deficiencies, as well as of the time frame for your response." The
November 21, 2003 company notice did not have the specificity to meet the
required notice of deficiency and furthermore the company provided no "time
frame for your response." Thus the company gave no valid notice within 14-days and the original proposal
was not withdrawn. Additionally the company no action request is directed to
solely the second proposal. The November 21, 2003 company letter was not in accordance with these sections
of rule 14a-8: c. Question 3: How many proposals may I submit: Each shareholder may submit no
more than one proposal to a company for a particular shareholders' meeting.
f. Question 6: What if I fail to follow one of the eligibility or procedural
requirements explained in answers to Questions 1 through 4 of this section?
1. The company may exclude your proposal, but only after it has notified you of
the problem, and you have failed adequately to correct it. Within 14 calendar
days of receiving your proposal, the company must notify you in writing of any
procedural or eligibility deficiencies, as well as of the time frame for your
response. The untimely company December 15, 2003 email seems to admit that the company
November 21, 2003 letter was defective: "We have reconsidered our position taken
in a letter dated November 21, 2003...." 2] The inscrutable company position is that the Board has implemented a proposal
which is incomprehensible to the board. This would seem to be a violation of the
Board's fiduciary duty. Since the author of this letter is writing on behalf of
the Board the Board appears to be involved in an admission to adopting an
incomprehensible proposal. Additionally the board cannot brush this off by
claiming that it was forced to do an incomprehensible act by an outside
authority. It seems that if one substantially implements a proposal then one substantially
understands the proposal. It also seems that if one does not substantially
implement a proposal that one could claim that the proposal is incomprehensible.
To argue both claims at the same time is to destroy credibility on both points -
substantially implemented and a purported vague proposal. Hence the company appears to have no credibility on either point.
3] The company cites a TRW case that is not similar to this case in the key
determining facts. The company fails to provide any scrap of evidence to
hypothesize any similarity in the key TRW determining facts compared to any
proposals to Boeing. 5] The following applies regarding the substantially implemented issue.
This resolved statement is a proposal for a single-concept two-point policy
calling for a shareholder vote regarding a particular issue plus a shareholder
vote if the policy is later repealed once it is adopted. SEC Release No. 34-20091 states the standard of substantially implemented "is
whether a company's particular policies, practices and procedures compare
favorably with the guideline of the proposal." In many cases companies are in the inscrutable position of claiming that the
first half of the two-point policy compares favorably with the whole policy. It
is like half the baby is as good as the whole baby. In Nordstrom Inc., 1995 SEC
No-Act. LEXIS 226 (Feb. 8, 1995) the company claimed a favorable 12-for-12
match. Yet companies often claim that one-for-two is as favorable 12-for-12 when
addressing the poison pill topic. In Nordstrom Inc., 1995 SEC No-Act. LEXIS 226 (Feb. 8, 1995) the staff allowed a
company to exclude a proposal where the company demonstrated that it already had
adopted policies or taken actions to address each element of the proposal.
In Nordstrom a 12-for-12 match at a detail level of the company was apparently
established in order to obtain concurrence. Yet in many cases, at the highest level of the company a one-for-two match is
claimed to "compare favorably." A key principle of rule 14a-8 and corporate
governance is that shareholder voices are intended to be heard more at the macro
level of the company because the managers are responsible for the details. Thus
if 12-for-12 is the standard for detailed items in Nordstrom the standard should
at least approach 100% at a much higher level of a company.
For shareholders the greater importance of macro issues is supported by text in
rule 14a-8: i. Question 9: If I have complied with the procedural requirements, on what
other bases may a company rely to exclude my proposal?... 7. Management functions: If the proposal deals with a matter relating to the
company's ordinary business operations. From: Nordstrom Inc., 1995 SEC No-Act. LEXIS 226 (Feb. 8, 1995). The company
argued: A comparison of the Proponent's "code of conduct" and the Guidelines reveals
that the Guidelines include each form of prohibited supplier conduct listed in
the Proposal and include the means to verify compliance as requested in the
Proposal. The Proponent, for example, requests that under the code of conduct
the Company will not do business with suppliers which: (1) utilize forced or prison labor;
(2) employ children under compulsory school age or legal working age;
(3) fail to follow prevailing practice and local laws regarding wages and hours;
(4) fail to maintain a safe and healthy working environment; or
(5) contribute to local environmental degradation.
In addition, the Proponent requests that the Company verify its suppliers'
compliance through certification, regular inspections and/or other monitoring
processes. Under the Guidelines, the Company's vendors are expected to refrain from:
(1) utilizing prison or forced labor;
(2) utilizing child labor; (3) failing to offer wages, hours and overtime consistent with prevailing local
industry standards; (4) failing to provide safe and healthy work environments for their workers;
(5) failing to demonstrate a commitment to the environment;
(6) failing to comply with all applicable legal requirements; or
(7) discriminating. Furthermore, the Company continues to monitor compliance with the Guidelines and
to undertake random on-site inspections of vendor facilities. We understand that
contemporaneously with the adoption of the Guidelines, for example, senior
representatives of the Company visited foreign manufacturers to conduct on-site
inspections of their facilities. In Texaco Inc., 2001 SEC No-Act. LEXIS 136 (Jan. 30, 2001) a shareholder
proposal, which urged this company's board of directors to adopt, implement and
enforce a workplace code of conduct based upon the International Labor
Organization's conventions on workplace human rights, including the five
principles set forth in the proposal, may not be omitted from the company's
proxy material under rule 14a-8(i)(10). In Texaco the proponent successfully defended against a no-action challenge to a
proposal that urged the board to adopt a workplace code of conduct based upon
the International Labor Organization's conventions, including five principles
set forth in the proposal. The company argued that the proposal had been
substantially implemented because the company already had endorsed the Sullivan
Principles. The proponent noted that the Sullivan Principles did not cover all
of the subjects addressed by the International Labor Organization's Principles
nor were the Sullivan Principles co-extensive with them. In PPG Industries, Inc., 2001 SEC No-Act. LEXIS 124 (Jan. 22, 2001) the company
was required to include a proposal asking the board to adopt the International
Labor Organization's conventions on workplace human rights, including the five
principles set forth in the proposal. The company argued that it had
substantially implemented the proposal because it had adopted various policies,
such as its EEO and Global Code of Ethics policies, or was subject to certain
laws, including the National Labor Relations Act and the ILO's Convention 105
regarding forced labor (which had been ratified by the U.S., relating to
concerns raised in the proposal. The proponent countered by pointing out
precisely how the measures cited by the company fell short of substantial
implementation. The proponent also argued that the heart of the proposal was to
create a single document that explicitly and in one place committed the company
to the enumerated principles. The second part of this poison pill proposal emphasizes the importance of
shareholder opportunity to vote. This is reinforced by company response
statements to shareholder proposals which repeatedly state companies carefully
evaluate precatory shareholder votes. For instance the Boeing Company 2003 response statement to the shareholder
poison pill proposal specifically noted the 50% vote the proposal topic received
at the company 2003 annual meeting and added, "... the Board of Directors and
its Governance and Nominating Committee have carefully considered and evaluated
the proposal, after being briefed on the proposals' historical, policy, economic
and legal implications." The key point of this poison pill proposal is a shareholder vot | 
