Company Name: Dean Foods Co.
Public Availability Date: February 25, 2004Document Sections:INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
January 14, 2004 U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street
Washington, D.C. 20549
Re: Dean Foods CompanyNotice of Intent to Omit Shareholder Proposal from Proxy
Materials Pursuant to Rule 14a-8 Promulgated under the Securities Exchange Act
of 1934, as amended, and Request for No-Action Ruling Ladies and Gentlemen:
Dean Foods Company, a Delaware corporation ("Dean" or the "Company"), files this
letter under Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to notify the Securities and Exchange Commission (the
"Commission") of Dean's intention to exclude a shareholder proposal (the
"Proposal") from the proxy materials for Dean's 2004 Annual Meeting of
Shareholders (the "2004 Proxy Materials"). The Proposal was submitted by the
Comptroller of the City of New York, William C. Thompson, Jr., as the custodian
and a trustee of the New York City Employees' Retirement System, the New York
City Police Pension Fund, the New York City Fire Department Pension Fund, and
the New York City Teachers' Retirement System (collectively, the "Proponents").
Dean asks that the staff of the Division of Corporation Finance of the
Commission (the "Staff") not recommend to the Commission that any enforcement
action be taken if Dean excludes the Proposal from its 2004 Proxy Materials
under: 1. Rule 14a-8(i)(3), because the Proposal is so vague, indefinite and
misleading, the shareholders and the Company would be unable to determine what
further action should be taken if it is adopted; and 2. Rule 14a-8(i)(7), because the Proposal deals with matters relating to the
Company's ordinary business operations. A copy of the Proposal and related correspondence is attached to this letter as
Exhibit A. In accordance with Rule 14a-8(j), six copies of this letter and its
attachments are enclosed. Also, in accordance with Rule 14a-8(j), a copy of this
letter and its attachments is being mailed on this date to the Proponents,
informing them of the Company's intention to omit the Proposal from its 2004
Proxy Materials. The Company presently intends to file its definitive 2004 Proxy
Materials on or after April 9, 2004. Accordingly, pursuant to Rule 14a-8(1),
this letter is being submitted not less than 80 days before the Company files
its definitive 2004 Proxy Materials with the Commission. THE PROPOSAL
Dean received the Proposal on December 19, 2003. The resolution portion of the
Proposal reads as follows: "Resolved: That shareholders request that the company
prepare a sustainability report (at reasonable cost and omitting proprietary
information) based on the Global Reporting Initiative's sustainability reporting
guidelines by September 2004." BACKGROUND
The Proposal requests the Company prepare a sustainability report "based on" the
sustainability reporting guidelines of the Global Reporting Initiative ("GRI").
The Company assumes that the guidelines referred to in the Proposal are the 2002
Sustainability Reporting Guidelines (the "Guidelines") issued by GRI. (A copy of
the Guidelines is attached to this letter.) The Guidelines consist of a fivepart
document that is nearly 100 pages long and contains approximately 20 pages of
specific reporting content. In an attempt to provide "ample flexibility," there
are two ways to "use" the Guidelines: (i) reporting "in accordance" with the
Guidelines; and (ii) reporting using an "informal approach" by choosing not to
cover all of the content of the Guidelines, but basing the reports on the GRI
framework and incrementally improving report content coverage, transparency, and
structure over time. See Guidelines, pp. 13-14. Part C of the Guidelines, which
specifies the contents of a GRIbased report, provides for disclosure of four
categories of information regarding a company: (1) Sustainability vision and
strategy; (2) an overview of the reporting organization including information
regarding operations, products and services; (3) governance structure and
management systems; and (4) economic, environmental and social performance
indicators. See Guidelines, pp. 38-56. REASONS FOR EXCLUSION
1. The Company may exclude the Proposal under Rule 14a-8(i)(3) because it is
vague, indefinite and misleading. The Company believes the Proposal is properly excludable under Rule 14a-8(i)(3)
because it is contrary to the Commission's proxy rules, "including Rule 14a-9,
which prohibits materially false or misleading statements in proxy soliciting
materials." The Staff has consistently taken the position that a company may
exclude a proposal pursuant to Rule 14a-8(i)(3) if the proposal is vague,
indefinite and, therefore, potentially misleading. A proposal is sufficiently
vague, indefinite and misleading to justify exclusion where "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." Philadelphia Electric
Co. (July 30, 1992) (proposal relating to election of committee of small
shareholders that will present the board with a plan that will in some measure
equate gratuities bestowed upon management, directors or other employees was
excludable as vague and indefinite). See also Smithfield Foods, Inc. (July 18,
2003) (proposal requesting company to prepare a report based on the Guidelines
describing the environmental, social and economic impacts of its hog production
operations and alternative technologies excludable); Alcoa, Inc. (December 24,
2002) (proposal requesting company commit "to the full implementation of" a set
of human rights standards excludable); McDonald's Corp. (March 13, 2001) (same).
A. The Proposal does not inform shareholders of what the Company would be
required to do if the Proposal were approved. The Company believes that the Proposal does not inform shareholders of what the
Company would be required to do if the Proposal were approved as the Proposal
contains no description or summary of the Guidelines. The proposal in Smithfield
Foods, Inc. (July 18, 2003) is very instructive to the present case. The
proponents requested that Smithfield Foods prepare "a report based on the Global
Reporting Initiative guidelines describing the environmental, social and
economic impacts of its hog production operations and alternative technologies
and practices to reduce or eliminate adverse impacts of these operations." The
scope of the requested report in Smithfield Foods is substantively identical to
the report requested by the Proposal, though limited to only certain operations
of Smithfield Foods, and the Guidelines appear to be the same as the guidelines
at issue in Smithfield Foods. The Staff concluded that there appeared to be a
basis for Smithfield Foods' view that the proposal to prepare a report based on
the GRI guidelines may be excluded under rule 14a-8(i)(3) as vague and
indefinite. The Staff made a similar finding in Johnson & Johnson (February 7, 2003) and
Kohl's Corporation (March 13, 2001). In Johnson & Johnson, the proposal
requested a report regarding the Company's progress concerning "the Glass
Ceiling Commission's business recommendations" including a review of certain
specific items. Johnson & Johnson argued the proposal was vague and indefinite
under Rule 14a8(i)(3) due in part to the fact that the proposal was "completely
devoid of any description of the substantive provisions of the "Glass Ceiling
Report" ` and the proposal provided "no background information to shareholders."
The proponents in Johnson & Johnson argued that it would add to its supporting
statement a reference to the Department of Labor website where the report can be
found to cure any ambiguity. However, the Staff stated there appeared to be a
basis for Johnson & Johnson to "exclude the proposal under Rule 14a-8(i)(3) as
vague and indefinite." In Kohl's Corporation, the proposal called for the
company to commit to the full implementation of "the SA8000 Social
Accountability Standards" from the Council of Economic Priorities. Kohl's argued
that the proposal was vague, false and misleading under Rule 14a-8(i)(3) due in
part because "the shareholders will not understand what they are being asked to
consider from the text of the proposal." Kohl's further argued the proposal
"fails to describe or summarize the many principles embodied in SA8000 in enough
depth to fully inform shareholders of what actions it would require the company
to take." The Proposal in the present case is substantively identical to that in
Smithfield Foods and very similar to those in Johnson & Johnson and Kohl's
Corporation. The Proposal is completely devoid of any description of the
substantive provisions of the Guidelines and provides no background information
on the Guidelines to the shareholders. The shareholders will not understand what
they are being asked to consider as there is no description or summary of the
Guidelines. The Proposal does not even attempt to capture the extent or
complexity of the information the Guidelines require. Nor does the Proposal
convey the burden on human resources or the considerable expense involved in
preparing a report "in accordance" with the Guidelines. Further, the Proposal
does not state that the Guidelines are in a state of fluidity as they are to be
revised in 2006. See "Goal 1: Reporting Framework Development and Revision;
Structured Feedback Process" at http://www.globalreporting.org/workgroup/index.asp.
The only piece of information the Proponents give the shareholders is the
website address of GRI. Merely providing a website for a complex and voluminous
reporting system is clearly not informative. See discussion of Johnson & Johnson
above. Because the shareholders will not understand what they are being asked to
consider based on the text of the Proposal, the Proposal is vague, indefinite
and misleading, and therefore may be excluded under Rule 14a-8(i)(3).
B. If the Shareholders were to approve the Proposal, the Company would not know
what action to take to fulfill the request. Scope of the Report
As stated in the discussion above in "Background," there are two ways to "use"
the Guidelines: (i) report in accordance with the Guidelines; and (ii) use an
incremental approach which is short of "full compliance." The Proposal requests
that the Company prepare a report "based on" the Guidelines. This language
leaves unclear the extent to which the Company would be required to address the
numerous and extensive disclosures called for by the Guidelines. According to
the GRI's website (http://www.globalreporting.org/guidelines/reporters_all.asp)
as of January 7, 2004, there were approximately 380 companies which had informed
the GRI Secretariat that they use the Guidelines in preparing their
sustainability, social or environmental report. However, as of January 7, 2004,
only eighteen companies claimed their reports were "in accordance with" the
Guidelines. If shareholders were to approve the Proposal, it would be unclear whether the
Company was being asked to report "in accordance with" the Guidelines (and
become the nineteenth company in the world and second headquartered in the
United States to do so), or instead adopt an incremental level of compliance as
at least 362 other companies have worldwide. Without more specific direction,
the Company will lack the information necessary to properly implement the will
of the shareholders if they were to approve the Proposal. Vagueness of the Guidelines
Although reference has been made herein to the complexity of the Guidelines, the
Guidelines are themselves so vague that they do not provide adequate guidance as
to what information a company should gather and disclose. This may serve as an
explanation why only eighteen companies worldwide report "in accordance with"
the Guidelines. The following are a few examples of certain items in the
Guidelines that would be difficult for the Company to determine exactly how to
respond:
Programs and procedures pertaining to economic, environmental, and social
performance (Section 3.19, Guidelines, p. 43);
Reporting the organization's approach to managing indirect economic,
environmental, and social impacts resulting from its activities (Section 3.17,
Guidelines, p. 43); and
Criteria/definitions used in any accounting for economic, environmental, and
social costs and benefits (Section 2.18, Guidelines, p. 40).
The Company cannot determine exactly what information it would provide in
response to these and many other vague requirements of the Guidelines.
Vagueness of Request Assuming the Proposal is approved by shareholders and the Company determines to
prepare the report, the Proposal gives no indication what the Company should do
with the report once it is prepared. There is no request that the Company
publish the report and send it to shareholders or even to post it on its
website. Given the vagueness of the Proposal regarding what the Company should
do with the report after it is prepared, it is very likely that the Company's
shareholders would have various expectations regarding what they are voting on
when reviewing this Proposal and the Company would have difficulty determining
what course to take if the Proposal was adopted and the Company determined to
implement the Proposal. In the absence of any guidance in the Proposal regarding this point, the Company
cannot determine with reasonable certainty what actions or measures the Proposal
requires. In Marriott International, Inc. (March 14, 2002), the Staff determined
a proposal was not vague and indefinite where the proposal specified the
requested information be disseminated "through appropriate means, whether it be
posted on the Company's website or sent via a written communication to
shareholders." See also Smithfield Foods, Inc. (July 18, 2003). The Proposal
does not give the Company any such guidance. For these reasons, the Company believes that the Proposal is vague and
indefinite, and therefore excludable under Rule 14a-8(i)(3).
2. The Company may exclude the Proposal under Rule 14a-8(i)(7) because it deals
with matters relating to the Company's ordinary business operations.
The Company believes that the Proposal is properly excludable under Rule
14a-8(i)(7) as it deals with matters relating to the Company's "ordinary
business operations." In Exchange Act Release No. 40018 (May 21, 1998) (the
"1998 Release"), the Commission stated that the policy underlying the ordinary
business exclusion is to "confine the resolution of ordinary business problems
to management and the board of directors, since it is impracticable for
shareholders to decide how to solve such problems at an annual shareholders
meeting." In the 1998 Release, the Commission cited two central considerations
in applying the ordinary business exclusion:
Subject Matter of the Proposal - "Certain tasks are so fundamental to
management's ability to run a company on a day-to-day basis that they could not,
as a practical matter, be subject to direct shareholder oversight. Examples
include the management of the workforce, such as hiring, promotion, and
termination of employees, decisions on the production quality and quantity, and
the retention of suppliers. However, proposals relating to such matters but
focusing on sufficiently significant social policy issues (e.g., significant
discrimination matters) generally would not be considered to be excludable,
because the proposals would transcend the day-to-day business matters and raise
policy issues so significant that it would be appropriate for a shareholder
vote."
"Micro-Managing" the Company - The Commission indicated that shareholders, as
a group, will not be in a position to make an informed judgment if the "proposal
seeks to `micro-manage' the company by probing too deeply into matters of a
complex nature upon which shareholders, as a group, would not be in a position
to make an informed judgment." Such micro-management may occur where the
proposal "seeks intricate detail, or seeks specific time-frames or methods for
implementing complex policies." A. The subject matter of the Proposal partially relates to ordinary business and
therefore the Proposal is excludable. The Company believes that the Proposal is excludable because, by requesting a
report based on the Guidelines, part of the Proposal relates to ordinary
business. In Exchange Act Release No. 34-20091 (August 16, 1983), the Commission
stated that where proposals request that companies prepare reports on specific
aspects of their business, "the staff will consider whether the subject matter
of the special report ... involves a matter of ordinary business" and "where it
does, the proposal will be excludable." In accordance with this directive, the
Staff has consistently permitted the exclusion of proposals seeking the
preparation of reports on matters of ordinary business. See, e.g., AT&T Corp.
(February 21, 2001); The Mead Corporation (January 31, 2001); Wal-Mart Stores,
Inc. (March 15, 1999); Nike, Inc. (July 10, 1997). In addition, the Staff has
historically taken the position that, where part of a proposal relates to
ordinary business, the proposal may be excluded in its entirety even though "the
proposal appears to address matters outside the scope of ordinary business." See
E*Trade Group, Inc. (October 31, 2000). The Staff did not concur in the view
that a report on the social and environmental issues related to sustainability
could be excluded under Rule 14a-8(i)(7) in Johnson Controls, Inc. (November 14,
2002). However, the report requested in the proposal in Johnson Controls was not
based on the Guidelines as the company was allowed to determine how it wanted to
report on sustainability issues. The Staff has reached the same conclusion in response to proposals requesting
that companies prepare reports on specific subjects. Where one or more of the
matters to be covered in a report relates to a company's ordinary business
operations, the Staff has taken the position that the proposal requesting the
report can be excluded in its entirety. Three companies sought to omit from
their proxy materials a proposal requesting that their respective boards of
directors report on the companies' actions to ensure that they did not purchase
from suppliers that use forced, convict or child labor or failed to comply with
laws protecting employees' rights. The Staff permitted all three of these
companies to exclude the proposal despite the fact that significant social
issues were raised in the proposals. In each instance, the Staff "noted in
particular that, although the proposal appears to address matters outside the
scope of ordinary business, paragraph 3 of the description of matters to be
included in the report relates to ordinary business operations." See Wal-Mart
Stores, Inc. (March 15, 1999); Kmart Corporation (March 12, 1999); The Warnaco
Group, Inc. (March 12, 1999). The Staff has a long-standing policy of not permitting proponents to revise
overly broad shareholder proposals once it becomes apparent that the proposals
would be excludable under Rule 14a-8(i)(7) because they address ordinary
business operations. See id. The no-action letters discussed above clearly
illustrate that, where a portion or part of a proposal relates to a company's
ordinary business operations, the company may properly exclude the entire
proposal. The Guidelines call for disclosure regarding a number of items
relating to the Company's ordinary business. Although any one of these items
would be sufficient to render the Proposal excludable in its entirety and the
list that follows is not exhaustive, the Company wishes particularly to note the
following ordinary business matters that are covered by the Guidelines, and with
respect to which the Proposal seeks disclosure. Employee Matters
In seeking disclosure that is "based on" the Guidelines, the Proposal calls for
various disclosures about the Company's labor and employment practices.
Specifically, a significant portion of Part C (Report Content) of the Guidelines
is devoted to disclosures about labor and employment practice. The Guidelines
specify reporting on total payroll and benefits, including wages, pension, other
benefits, and redundancy payments, in each case specified for each country or
region. See Economic Performance Indicator EC5, Guidelines, p. 47. The section
of Part C entitled "Social Performance Indicators" calls for disclosure of
numerous items relating to employment practices, including information on the
composition of a company's work force, employee benefits, labor organization and
collective bargaining, safety of working conditions, training, equal opportunity
policies, human rights, non-discrimination, freedom of association, child and
forced labor, and discipline. See Labour Practices and Decent Work Indicator LA1
- LA17, Human Rights Indicator HR1 - HR14, and Society Indicator SO1 - S07,
Guidelines, pp. 52-55. In addition, other various items throughout Part C call
for disclosure about employment-related matters.1 The Proposal, as noted above,
specifically calls for information on the use of sweatshop labor, the same
subject that the Staff concurred involved ordinary business matters in the
Wal-Mart Stores, Inc., Kmart Corporation, and The Warnaco Group, Inc. letters
cited above. The Commission has stated that proposals involving "the management of the
workforce, such as the hiring, promotion, and termination of employees" relate
to ordinary business matters. 1998 Release; see also Staff Legal Bulletin No.
14A (July 12, 2002) (citing same). Consistent with this position, the Staff has
concluded that companies may exclude proposals relating to general employee
compensation matters in reliance on Rule 14a-8(i)(7). See Staff Legal Bulletin
No. 14A (July 12, 2002); see also, e.g., Xerox Corporation (March 31, 2000)
(proposal requesting that company provide its employees competitive compensation
and benefits excludable because proposal related to "general employee
compensation matters"). The Staff has reached the same conclusion with respect
to proposals addressing employee benefits. See, e.g., Wal-Mart Stores, Inc.
(April 2, 2002) (proposal requesting that board implement specified changes
involving employee discounts, company contributions to employee stock purchases,
hourly pay, use of company gift cards, stock option grants, and employee control
of displaying merchandise excludable because proposal related to "employee
benefits, general compensation matters ... and employee relations"); AT&T Corp.
(March 1, 2002) (proposal requesting that board revise company's health coverage
policy to provide free lifetime health insurance to retirees excludable because
proposal related to "employee benefits"); Hilton Hotels Corporation (March 14,
2003) (proposal urging the board to provide an accounting of all executive
retirement benefits, including but not limited to all forms of deferred
compensation and supplemental retirement and retention plan excludable because
it related to "general employee benefits"). A substantial portion of the disclosures covered under the Guidelines focuses on
the Company's policies and practices relating to overall working conditions,
salaries and benefits, training, health and safety, and other employment issues.
These disclosures relate to the management of the Company's workforce and do not
raise significant social policy issues. Accordingly, the Proposal, which
requests a report "based on" the Guidelines, constitutes the type of proposal
that continues to be regarded as addressing ordinary business, as contemplated
by the Commission in the 1998 Release. Selection of Suppliers/Contractors
In seeking disclosure "based on" the Guidelines, the Proposal also calls for
various disclosures about the Company's relationships with, and the conduct of,
the Company's suppliers and vendors. Specifically, the Guidelines seek
disclosure about the key attributes of a company's suppliers, including
information about the products and services provided by suppliers and the
suppliers' local, national and international operations. See Section 2.9,
Guidelines, p. 40.2 Both the Commission and the Staff have taken the position
that proposals relating to a company's relationships with suppliers and vendors
are excludable because they address matters of ordinary business.
In the 1998 Release, the Commission cited "retention of suppliers" as an example
of a task that is "so fundamental to management's ability to run a company on a
day-to-day basis" that it cannot, "as a practical matter, be subject to direct
shareholder oversight." 1998 Release. Consistent with the considerations
underlying Rule 14a-8(i)(7), the Staff has permitted the exclusion of proposals
addressing the practices of a company's suppliers. See, e.g., Seaboard
Corporation (March 3, 2003) (permitting exclusion of proposal requesting report
on use of antibiotics by company's hog suppliers); Hormel Foods Corporation
(November 19, 2002) (permitting exclusion of proposal requesting report on use
of antibiotics by company's meat suppliers). Similarly, the Staff has permitted
the exclusion of proposals requesting information on a company's practices
relating to the selection of vendors and suppliers. In Wal-Mart Stores, Inc.
(April 10, 1991), for example, the Staff took a no-action position with respect
to a proposal requesting a report on the company's efforts to purchase goods and
services from minority and female-owned business. In doing so, the Staff
"particularly noted that the proposal involves a request for detailed
information on ... the Company's practices and policies for selecting suppliers
of goods and services." See also Wal-Mart Stores, Inc. (April 10, 1992)
(permitting exclusion of proposal involving request for detailed information on,
among other things, "relationships with suppliers and other businesses").
Evaluating suppliers is an integral part of the Company's daily business
operations and cannot, from a practical standpoint, be subject to direct
shareholder oversight. Because the report sought by the Proponents calls for
disclosure "based on" items in the Guidelines that involve the Company's
selection of, and relationships with, its vendors and suppliers, the Proposal
addresses matters that relate to the Company's ordinary business operations.
Products and services offered by the Company.
In seeking disclosure "based on" the Guidelines, the Proposal calls for a
variety of disclosures about the Company's decisions regarding the selection of
products and the manner of production. The Staff has consistently taken the
position that decisions regarding the products and services that a company
provides, and the manner in which a company furnishes such products and
services, are matters of ordinary business. Section 2.2 of the Guidelines, entitled "Major products and/or services,
including brands if appropriate," states that the reporting organization should
"indicate the nature of its role in providing these products and services, and
the degree to which the organization relies on outsourcing." See Guidelines, p.
39. Various other items throughout Part C (Report Content) of the Guidelines
would call for other disclosures relating to the Company's products and
services.3 On numerous occasions, the Staff has concluded that decisions regarding the
sales and/or development of particular products relate to a company's ordinary
business operations when those products do not raise significant social or
policy issues directly tied to the company's operations. The fact that a
proposal addresses a product that is controversial, sparks public interest or
debate, or otherwise touches upon prominent social issues does not remove a
proposal addressing product selection and/or development from the realm of
ordinary business. See, e.g., Alliant Techsystems Inc. (May 7, 1996) (permitting
exclusion of proposal to adopt "policy to end all research, development,
production, and sales" of landmines because production of landmines was
consistent in nature and purpose with other products of munitions manufacturer
and thus this proposal posed no extraordinary social issues); Kmart Corporation
(February 23, 1993) (permitting exclusion of proposal that subsidiary stop sales
of violent and/or sexually explicit literature and media); McDonald's
Corporation (March 9, 1990) (permitting exclusion of proposal to introduce "a
vegetarian entree whose means of production neither degrades the environment nor
exploits other species"). The Company produces milk and a wide variety of dairy and other food products
and markets them nationwide and internationally. On a daily basis, the Company's
management makes a myriad of decisions, both large and small, about how best to
conduct the Company's business, including the products offered by the Company.
The ability to make these types of decisions autonomously is fundamental to
management's ability to run the Company. Because the report sought by the
Proponents calls for disclosure "based on" items in the Guidelines that involve
the Company's products and services, the Proposal addresses matters that relate
to the Company's ordinary business operations. Decisions regarding the location of, or changes in, the Company's operations.
In seeking disclosure "based on" the Guidelines, the Proposal also calls for
disclosure about decisions regarding the location of, and changes in, the
Company's operations. Section 3.18 of the Guidelines provides that reporting
organizations should "explain major decisions" during the reporting period
regarding the location of, or changes in, operations, including decisions such
as "facility or plant openings, closings, expansion, and contractions."
The Staff has consistently taken the position that proposals relating to
decisions about the location of office or operating facilities, including
decisions about whether to build new facilities or cease operations in a
particular location, are matters of ordinary business. See e.g., MCI WORLDCOM,
Inc. (April 20, 2000) (proposal requesting analysis of economic impact of
relocating company facilities); Minnesota Corn Processors, LLC (April 3, 2002)
(decisions relating to location of corn processing plants); The Allstate
Corporation (February 19, 2002) (proposal requesting that company cease
operations in Mississippi); Tenneco Inc. (December 28, 1995) (determination of
location of corporate headquarters). The Company routinely makes decisions about where to locate offices and plants,
and where to expand or contract various segments of its business. The Company
continuously researches sites for potential future expansion nationally and
internationally. These types of decisions involve complex considerations and are
best left to the expertise of the Company's management. Because the report
sought by the Proponents calls for disclosure about the location of the
Company's operations and changes in the Company's operations, the Proposal
addresses matters that relate to the Company's ordinary business operations.
Financial Disclosure In seeking disclosure "based on" the Guidelines, the Proposal also calls for
various financial disclosures. Part C: Report Content in the Guidelines calls
for "Economic Performance Indicators" that "have a scope and purpose that
extends beyond that of traditional financial indicators." Guideline, p. 45. In
particular, the Guidelines call for detailed financial information about
customers, suppliers, employees, providers of capital and the public sector not
traditionally required by generally accepted accounting principles ("GAAP") or
by disclosure standards under applicable law.4 The Staff has consistently concurred that proposals addressing financial
reporting and accounting policies not required by GAAP or by disclosure
standards under applicable law may be excluded as relating to a company's
ordinary business operations. Certain of the additional financial disclosures
that the Proponents are requesting are required neither by GAAP nor by any other
law to which the Company is subject. In Santa Fe Southern Pacific Corp. (January
30, 1986), the Staff stated, in connection with a proposal requiring the
registrant to prepare current cost basis financial statements for the registrant
and its subsidiaries, that "the determination to make financial disclosure not
required by law" is considered to be a matter relating to a company's ordinary
business operations. See also American Stores Company (April 7, 1992) (excluded
proposal to include earnings, profits and losses for each subsidiary, and for
each of its major retail operations, in annual report because proposal sought
reporting information that was not required by GAAP or disclosure standards
under applicable law); Minnesota Mining & Manufacturing Company (March 23, 1988)
(permitting exclusion of a proposal that requested that the board of directors
install system of accounting on a gold standard basis and include a summary of
the alternate accounting system in the annual report); The Chase Manhattan
Corporation (March 4, 1999) (permitting exclusion of certain tax information in
annual reports); NiSource Inc. (March 10, 2003) (disclosure of gross revenue and
net income statements of unregulated subsidiaries in the annual report); General Electric Company (January 21, 2003) (proposal requiring disclosure in annual
report of (i) a directory listing all of the company's businesses; (ii) the
gross earnings, profits and losses, assets and liabilities of these businesses;
and (iii) the major investments, activities and risks of these businesses
excludable because it relates to "presentation of financial information").
The detailed financial information required by the Guidelines regarding
customers, suppliers, employees, providers of capital and the public sector do
not raise significant social policy issues. Because the report sought by the
Proponents calls for financial disclosures, the Proposal addresses matters that
relate to the Company's ordinary business operations. B. The Proposal seeks to micro-manage the Company's business and therefore the
Proposal is excludable. The Proposal clearly seeks to micro-manage the Company. The 1998 Release
specifically mentioned that proposals that seek to impose "methods for
implementing complex policies" are excludable. The Proposal seeks just that -
the imposition of a requirement to review complex management policies regarding
the Company's performance in different areas of the Company's ordinary business
operations. Establishing a program that tests the performance of various
business units, and the Company as a whole, is a task of tremendous scope. It is
a task that necessarily involves extensive detail for a business the size of the
Company. By seeking to insert the shareholders into the Company's review of its
operations, the Proposal probes too deeply into matters of a complex nature upon
which shareholders as a group are not in a position to make an informed
judgment. In the 1998 Release, the Commission addressed a no-action letter issued to
Capital Cities/ABC, Inc. (April 4, 1991), in which the Staff permitted exclusion
of a proposal seeking detailed information on the company's affirmative action
policies and procedures. While noting that proposals similar to the one in
Capital Cities/ABC, Inc. would not automatically be excludable on ordinary
business grounds, the Commission stated that "some proposals may intrude unduly
on a company's ordinary business' operations by virtue of the level of detail
that they seek." 1998 Release. This was the case in both Capital Cities/ABC,
Inc. and Wal-Mart Stores, Inc. (April 10, 1991). In Wal-Mart, the proposal
requested that the company report on its activities and progress in purchasing
goods and services from minority-and female-owned businesses, on equal
employment opportunities, and on affirmative action. In permitting exclusion of
both proposals, the Staff noted in particular that "the proposal[s] involve[d] a
request for detailed information on the composition of the Company's work force
and employment practices and policies." The Proposal far exceeds the proposal in Capital Cities/ABC, Inc. in the level
of detail that it seeks about the Company's policies and practices. Accordingly,
it would be consistent with the rationale underlying the ordinary business
exclusion in Rule 14a-8(i)(7) - to prevent the micro-management of the Company's
business operations - to exclude the Proposal because of the highly detailed
nature of the information it would have the Company compile and include in its
GRI-based report. CONCLUSION For the reasons set forth above, the Company hereby respectfully requests that
the Staff confirm that it will not recommend enforcement action if the Proposal
is excluded from the Company's 2004 Proxy Materials. Should you disagree with
the conclusions set forth in this letter, I would appreciate the opportunity to
confer with you prior to the issuance of the Staffs Rule 14a-8(d) response.
Please do not hesitate to call me at (214) 303-3412 if you require additional
information or wish to discuss this submission further. Please acknowledge
receipt of this letter by stamping the enclosed additional copy of this letter
and returning it to me in the enclosed stamped, self-addressed envelope.
Thank you for your attention to this matter.
Sincerely, /s/
Lisa N. Tyson
Senior Vice President and Deputy General Counsel
Attachments: Exhibit A
2002 Sustainability Reporting Guidelines
cc: Michelle P. Goolsby - Dean Foods Company
Kenneth B. Sylvester - New York City Office of the Comptroller
-----FOOTNOTES----- 1 See, e.g., Section 2.8, Guidelines, p. 39 (number of employees: breakdown of
employees by country/region); Section 2.9, Guidelines, p. 40 (key attributes of
stakeholders, including trade unions (relation to workforce and reporting
organization), and direct and indirect workforce (size, diversity, relationship
to reporting organization)). 2 See also, e.g., Section 3.16, Guidelines, p. 43 (policies and systems for
managing upstream and downstream impacts, including supply chain management as
it pertains to outsourcing and supplier environmental and social performance);
Economic Performance Indicator EC11, Guidelines, p. 47 (supplier breakdown by
organization and country, including a list of all suppliers from which purchases
in the reporting period represent 10% or more of total purchases in that period
and all countries where total purchasing represent 5% or more of gross domestic
product); Environmental Performance Indicator EN33, Guidelines, p. 50 (supplier
performance relative to environmental components of programs and procedures for
managing upstream and downstream impacts described in Section 3.16).
3 See, e.g., Section 2.8, Guidelines, p. 39 (quantity or volume of products
produced/services offered; breakdowns of major products and/or identified
services); Section 3.16, Guidelines, p. 43 (policies and/or systems for managing
upstream and downstream impacts, including product and service stewardship
initiatives (including efforts to improve product design to minimize negative
impacts associated with manufacturing, use and final disposal)); Economic
Performance Indicator (EC)13, Guidelines, p. 48 (major externalities associated
with the reporting organization's products and services); Environmental
Performance Indicator EN14, Guidelines, p. 50 (significant environmental impact
of principal products and services); Environmental Performance Indicator EN15,
Guidelines, p. 50 (percentage of weight of products sold that is reclaimable at
the end of the products' useful life and percentage that is actually
reclaimable); Environmental Performance Indicator EN18, Guidelines, p. 49
(energy consumption footprint - i.e., annualized lifetime energy requirements of
major products); Social Responsibility Indicator PR2, Guidelines, p. 55
(description of policy, procedures/management systems, and compliance mechanisms
related to product information and labeling); Social Responsibility Indicator
PR7, Guidelines, p. 55 (number and types of instances of non-compliance with
regulations concerning product information and labeling, including any penalties
or fines assessed for non-compliance). 4 See, e.g., Economic Performance Indicator EC2, Guidelines, p. 47 (geographic
breakdown of markets); Economic Performance Indicator EC4, Guidelines, p. 47
(percentage of contracts that were paid in accordance with agreed terms,
excluding agreed penalty arrangements); Economic Performance Indicator EC8,
Guidelines, p. 48 (sum of taxes of all types paid, separately stated for each
country). [INQUIRY LETTER]
February 20, 2004 BY EXPRESS MAIL Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Dean Foods Company; Shareholder Proposal submitted by the New York City
Pension Funds To Whom It May Concern:
I write on behalf of the New York City Pension Funds (the "Funds") in response
to the January 14, 2004, letter submitted to the Securities and Exchange
Commission (the "Commission") by Lisa N. Tyson, inside counsel for Dean Foods
Company ("Dean Foods" or the "Company"), which seeks assurance that the Staff of
the Division of Corporation Finance of the Commission (the "Staff") will not
recommend any enforcement action if the Company excludes from its proxy
statement for the 2004 annual meeting the Funds' shareholder proposal (the
"Proposal"). I have reviewed the Proposal, as well as January 14, 2004 letter.
Based upon that review, as well as a review of Rule 14a-8, it is my opinion that
the Proposal may not be omitted from the Company's 2004 Proxy Materials.
Accordingly, the Funds respectfully request that the Commission deny the relief
that the Company seeks. I. The Proposal
The Proposal, after several clauses explaining the desirability of sustainable
economic development, discusses the Global Reporting Initiative ("GRI") and the
GRI Guidelines for reporting on sustainability. The supporting statement then
emphasizes the substantial flexibility that the GRI Guidelines give to
companies: The Guidelines provide a flexible system for sustainability reporting that
permits a company to use an "incremental approach" where a company may omit some
content requested by the Guidelines but "base their reports on the GRI framework
and incrementally improve report content coverage, transparency and structure
over time." The supporting statement concludes by noting that "More than 300 companies
worldwide ... use the [GRI] Guidelines for sustainability reporting." The
Proposal's "Resolved" clause then asks for no more than that the Company prepare
a report "based on" the already-flexible GRI Guidelines:
The shareholders request that the company prepare a sustainability report (at
reasonable cost and omitting proprietary information) based on the Global
Reporting Initiative's sustainability reporting guidelines by September 2004.
DISCUSSION The Company has challenged the Proposal on the following grounds: (1) Rule
14a-8(i)(3). The Company claims the Proposal is indefinite, and the Company
would be unable to determine what further action should be taken; and (2) Rule
14a-8(i)(7). The Company claims the Proposal deals with matters relating to the
Company's ordinary business operations. For the reasons set forth below, the
Funds respectfully request that the Staff deny the Company's request for
"no-action" relief. 1. 14a-8(i)(3)Exclusion Because Proposal is Indefinite and Misleading
The Company argues that the Proposal may be excluded pursuant to Rule
14a-8(i)(3) because it is indefinite, vague and misleading, and that the Company
would be unable to determine what further action should be taken. Dean Foods
Letter at p. 2. The Company seeks to distort the flexibility built into the GRI
Guidelines for the benefit of companies - such as the options for preparing a
reportinto vagueness and indefiniteness. Similarly, the additional flexibility
for the Company afforded by the Proposal's request for a report merely "based
on" the GRI Guidelines, rather than one formally in accordance with them, should
not serve as a basis for finding the Proposal to be vague or indefinite.
In Johnson Controls (November 14, 2002), that company also claimed that the
proposal was vague and misleading, arguing that the lack of definition of
"sustainability" and the lack of guidance provided regarding the preparation of
the report made it impossible to understand what to report on, but the Staff
specifically did not concur that the proposal could be excluded on these
grounds. The Staff should reject the Company's similar argument, which also is
based on flexibility accorded the Company regarding preparation of the report.
The Funds' supporting statement identifies the report as a sustainability report
with the purpose of describing social, environmental and economic impacts; it
also describes the flexibility of GRI's "incremental approach," which is
designed to allow companies to increase disclosure over a period of time. As in
Johnson Controls, the Company has flexibility in determining how it wants to
report on sustainability. In short, shareholders are provided with enough
information to understand the Proposal, and the Company has ample flexibility
for implementing it. In addition, the Funds' supporting statement also refers to
the GRI website, where a shareholder may obtain even more detailed information
about GRI. The Company also claims that the GRI Guidelines are complex, in part because
they are over 100 pages long. Although the complete GRI document is close to 100
pages (94 to be exact), the core component of the GRI Guidelinesthe reporting
criteriaare comprised of only 24 pages. The remainder of the document covers
issues such as GRI principles, glossaries, and annexes. The reporting criteria
are presented in a straightforward manner (with the use of bullet points), which
provide clear and unambiguous direction for reporting companies. There is no
undue burden on the Company, as the GRI Guidelines afford flexibility in what is
disclosed; no specific piece of information must be disclosed. Moreover, the
Funds' Proposal specifically states that the report should be prepared at a
reasonable cost, further allowing the Company discretion in preparing the
report. Preparing a report based on the GRI guidelines is a manageable,
incremental process that the Company can readily understand; the process is not
vague or indefinite. The Company's claims are not at all helped by its
concluding argument (Company letter at pp. 5-6) that it is not sure how to
disseminate the report, once prepared. The Company has flexibility, there, too.
No different result is warranted by reason of the no-action letter issued in
Smithfield Foods (July 18, 2003), upon which the Company places its primary
reliance. In Smithfield Foods, the unsuccessful resolution would have directed
Smithfield to prepare a type of "GRI report" very different from that sought
here or in Johnson Controls. In Smithfield Foods, the proponents sought a GRI
report that simultaneously followed the broad GRI guidelines, but yet was
narrowly restricted to the "environmental, social and economic impacts of its
hog production operations." That company argued in response that "Based on the
Company's review of the Guidelines, there is a lot of information that goes
beyond the Company's hog production operations and alternative technologies.
There does not appear to be a clear way to discuss only a part of the Company's
operations." Smithfield Foods, Company letter at p.4. That significant concern
is wholly absent here. Only a standard GRI-based report is requested of Dean
Foods, a report that, as noted, over 300 companies worldwide already prepare.
The supporting statement in the Smithfield Foods Proposal also focused
exclusively on the impacts of hog operations, and so omitted all explanations
for shareholders about GRI and the Guidelines. In contrast to Smithfield Foods,
detailed information about GRI is at the core of the Funds' Proposal, and
clearly explains GRI and the Guidelines to Dean Foods and its shareholders. That
is a further reason why the Funds' Proposal for Dean Foods is neither vague nor
indefinite. Finally, the Smithfield proposal grafted a further requirement onto the GRI
Guidelines, that the report also discuss "alternative technologies and practices
to reduce or eliminate adverse impacts of these [hog] operations." The Staff may
well have viewed that further demand as imposing too indefinite a burden, in
light of the fact that even the proponents themselves did not identify a single
alternative technology or practice then in existence. In short, Smithfield Foods
provides no relevant precedent here. As in Johnson Controls, the GRI report sought here is a reasonably clear and
achievable goal, without any vague or indefinite complications that could
support the invocation of Rule 14a-8(i)(3). It does not suffer from the lack of
understandable standards affecting the resolutions in two other no-action
letters upon which the Company relies, Johnson & Johnson (February 7, 2003) and
Kohl's Corp. (March 13, 2001). In that regard, the Proposal is more akin to that
in General Electric Co. (January 25, 2004), where the Division denied a request
for a no-action letter under the analogous Rule 14a-8(i)(6), as to a proposal
calling for increased independence of General Electric's Board of Directors.
The Proposal's request for a report based on the GRI Guidelines is neither vague
nor indefinite, and the Company's argument should be rejected.
2. 14a-8(i)(7)Ordinary Business Exclusion
The Company argues that it may properly exclude the Funds' proposal calling for
a GRI-based sustainability report because it deals with matters relating to the
Company's ordinary business operations. The Company cites a number of Commission
no-action letters that reflect the exclusion of proposals pursuant to Rule
14a-8(i)(7) for matters relating to the ordinary business operations of a
company, but the examples have little relevance to this matter. Indeed, as
indicated below, the GRI Guidelines do not require the disclosure (and certainly
not the "micro-management") of ordinary business matters, including the
operational issues that are the subjects of the no-action letters the Company
cites. Once again, the most relevant no-action letter in the one in which the Staff
denied no-action relief to a company seeking to exclude from a proxy statement a
proposal requesting a sustainability report on social and environmental issues.
Johnson Controls, Inc., (November 14, 2002). In Johnson Controls, that company
argued that the proposal required the company to review company policies as they
relate to social, environmental and economic matters, and that the underlying
subject matter of the proposal dealt with the fundamental task of the company's
board to review the management of the company's business. The company further
stated that the review was an integral part of the ordinary course of the
company's business, and that the matters should not be subject to direct
shareholder oversight. In declining to concur with the company's view, the Staff
necessarily rejected the argument that the report impinged on matters relating
to ordinary business. The Company makes similar arguments regarding the Funds' proposal for a
GRI-based sustainability report. The Company claims the preparation of such a
report would involve numerous items which relate to the Company's ordinary
business matters, and that the very detailed nature of the GRI Guidelines would
cause the Company to undergo the type of micro-management the Commission sought
to shield companies from by enacting Rule 14a-8(i)(7). Company letter at pp.
6-7. The Company further claims that the Guidelines request disclosure in a
number of specified areas that are not appropriate matters for direct
shareholder oversight. The Company attempts to distinguish the sustainability
report in Johnson Controls by arguing that the proposal in there "was not based
on the Guidelines as the company was allowed to determine how it wanted to
report on the sustainability issues." Id. at p. 7. Johnson Controls, however, provides strong support for the Staff's rejection of
Company's arguments that the Funds' proposal for a sustainability report deals
with the Company's "ordinary business". The GRI Guidelines allow discretion
equivalent to that provided by the proposal in Johnson Controls, while offering
the additional benefit of very useful guidance as to elements that a
sustainability report could include. The Guidelines provide a general
description of what sustainability reporting entailseconomic, social, and
environmental performance reporting. The Guidelines allow companies to choose
which indicators they will report on, thus allowing the Company discretion about
choosing which indicators to report. In this regard, a company may report on
each criterion as it sees fit; as long as the company explains why it chooses to
exclude a criterion, a company will still be in conformity with the Guidelines.
The GRI Guidelines simply do not require specific pieces of information to be
reported. Furthermore, as the Funds' supporting statement explains, GRI allows
"incremental reporting," which allows companies to gradually increase
disclosure. In cases where a company chooses to incrementally report, simply
addressing the relevant economic, social, and environmental issues (as defined
by the Company) fulfills the intent of GRI. The argument that the Guidelines
involve complex, detailed reporting is groundless. The GRI Guidelines are
exactly thatguidelines. They do not restrict and micro-manage, as the Company
claims. In arguing that the disclosures covered under the Guidelines relate to ordinary
business operations, the Company further argues that such disclosures are not of
a type that raise significant policy issues. It should be noted that, in Johnson
Controls, Johnson Controls argued that the proposal did not raise a
"sufficiently significant social policy issue," claiming that the proposal did
not identify a single social policy issue that the company's board was requested
to review or address. Johnson Controls at p. 6. The Staff was unpersuaded by
this argument as well and similarly should reject this argument by Dean Foods.
Like the proposal in Johnson Controls, the Funds' proposal calls for the
preparation of a report that addresses critical issues such as social and
environmental sustainability, a report on matters of substantial public policy
interest that the Company does not currently prepare. As the Funds' Proposal does not involve the Company's "ordinary business," the
Staff should reject the Company's request for relief on that ground.
III. Conclusion For the reasons set forth herein, the Funds respectfully submit that the
Company's request for "no-action" relief should be denied.
Thank you for your consideration.
Sincerely, /s/
Richard S. Simon
Deputy General Counsel
Cc: Lisa N. Tyson, Esq.
Dean Foods Company
[STAFF REPLY LETTER]
February 25, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Dean Foods Company Incoming letter dated January 14, 2004
The proposal requests that the company prepare a sustainability report based on
the Global Reporting Initiative's sustainability reporting guidelines.
There appears to be some basis for your view that Dean Foods may exclude the
proposal under rule 14a-8(i)(3), as vague and indefinite. Accordingly, the
Division will not recommend enforcement action to the Commission if Dean Foods
omits the proposal from its proxy materials in reliance on rule 14a-8(i)(3). In
reaching this position, we have not found it necessary to address the
alternative basis for omission upon which Dean Foods relies.
Sincerely, /s/
Keir D. Gumbs
Special Counsel
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