Company Name: Dow Chemical Co.
Public Availability Date: February 11, 2004Document Sections:INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
December 30, 2003 Direct Dial (202) 955-8671
Client No. C 22013-00029
Fax No. (202) 530-9569
VIA HAND DELIVERY Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Securities Exchange Act of 1934 Rule 14a-8: Stockholder Proposal of the
Church of the Brethren Benefit Trust; the Sisters of the Holy Cross of Notre
Dame, Indiana; and the Sisters of Mercy of the Americas Dear Ladies and Gentlemen:
This letter is to inform you that it is the intention of our client, The Dow
Chemical Company (the "Company"), to omit from its proxy statement and form of
proxy for its 2004 Annual Meeting of Stockholders (collectively, the "2004 Proxy
Materials") a stockholder proposal (the "Proposal") co-filed by the Church of
the Brethren Benefit Trust, the Sisters of the Holy Cross of Notre Dame, Indiana
and the Sisters of Mercy of the Americas (collectively, the "Proponents"). The
Proposal requests the Company to prepare a report to stockholders describing new
initiatives instituted by the management to address the specific health,
environmental, and social concerns of survivors of the Bhopal tragedy. The
Proposal is attached hereto as Exhibit A. On behalf of our client, we hereby notify the Division of Corporation Finance of
the Company's intention to exclude the Proposal from its 2004 Proxy Materials,
and we respectfully request that the staff of the Division of Corporation
Finance (the "Staff") concur in our view that the Proposal is excludable on the
following bases: (i) pursuant to Rule 14a-8(i)(7), because the Proposal pertains to matters of
ordinary business operations; (ii) pursuant to Rule 14a-8(i)(10), because the Company has substantially
implemented the Proposal; and (iii) alternatively, under Rule 14a-8(i)(3), because the Proposal contains false
and misleading statements in violation of Rule 14a-9. Pursuant to Rule 14a-8(j), enclosed herewith are six copies of this letter and
its attachments. 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 March 19, 2004. Accordingly, pursuant to Rule 14a-8(j),
this letter is being submitted not less than 80 days before the Company files
its definitive 2004 Proxy Materials with the Securities and Exchange Commission.
In addition, while the Company does not agree with a number of the assertions
and conclusions set forth in the Proposal, the Company has informed us that it
intends to contact the Proponents and others to discuss these concerns directly.
BACKGROUND The Proposal is entitled "Dow Chemical Resolution Regarding Bhopal" and states:
Resolved, that shareholders request the management of Dow Chemical to prepare a
report to shareholders by October 2004, at reasonable cost and excluding
confidential information, describing new initiatives instituted by the
management to address the specific health, environmental and social concerns of
the survivors [of the Bhopal tragedy]. The Bhopal incident resulted from a gas leak in 1984 at a facility that was
owned and operated by Union Carbide India Limited ("UCIL"), a company that at
the time was a 50.9% affiliate of Union Carbide Corporation ("UCC"). The Company
acquired UCC in a stock transaction more than 16 years later, in February 2001.
In order to understand the bases for our view that the Company may exclude the
Proposal from its 2004 Proxy Materials, we have set forth below information
regarding the comprehensive civil settlement reached in 1989 among UCIL, UCC,
and the government of India on behalf of the victims regarding the Bhopal
tragedy, the separate lawsuit against several parties that is currently pending
in the Indian courts and that is referred to in the Proposal, the ongoing
litigation regarding the Bhopal site in the Second Circuit Court of Appeals and
the circumstances surrounding the Company's acquisition of UCC.
1. Indian Litigation Sixteen years prior to the time when the Company acquired all of the stock of
UCC, UCIL, formerly a 50.9% affiliate of UCC,1 owned and operated a
manufacturing facility in Bhopal, India (the "Bhopal Facility"). On December 3,
1984, toxic gas escaped from a storage tank at the Bhopal Facility. That gas
entered the environment and, according to the Indian government, killed or
injured several thousand people. Immediately following the incident, UCC publicly accepted moral responsibility
for the tragedy. UCC also worked closely with the Indian government, which
pursuant to a law passed by the Indian Parliament and interpreted by the Supreme
Court of Indiathe 1985 Bhopal Gas Leak Disaster Actholds the "exclusive right"
to represent and act on behalf of and in place of every Indian citizen with
respect to claims arising out of the incident. Through this process and
following hearings on the proposed settlement, the Supreme Court of India in
1989 directed UCC and UCIL to pay $470 million to the Indian government, which
the government accepted on behalf of the victims in full settlement of "all
claims, rights and liabilities related to and arising out of the Bhopal Gas
disaster." The Supreme Court of India also directed that "all civil proceedings
related to and arising out of the Bhopal gas disaster shall hereby stand
transferred to this Court and shall stand concluded in terms of the
settlement...." In 1991, that same court reaffirmed the validity of the civil
settlement calling it "just, equitable and reasonable." Thus, both the Supreme
Court of India and the Indian national government view the settlement as fully,
fairly and finally resolving all of UCC's civil liabilities arising out of the
incident. The Supreme Court of India further directed the Indian government to
pay any additional amounts necessary to compensate the victims in the unlikely
event the settlement funds were inadequate. In fact, the Company understands
from public reports that over 500,000 individual claims have been paid to date
from the fund (with less than 50 claims remaining to be reviewed), and it is
reported that approximately $270 million is still available in the fund as a
result of accrued interest over the years. Subsequently, in 1994, UCC sold its interest in UCIL (later renamed Everready
Industries India Ltd.) to MacLeod Russell (India) Ltd. of Calcutta, thereby
divesting itself of all legal interest in the Bhopal Facility. More than $90
million from UCC, including its share of proceeds from the sale of UCIL, funded
both the construction and operation of a new hospital in Bhopal for the express
purpose of treating victims of the tragedy. In 1998, the state of Madhya
Pradesh, which owns the Bhopal Facility site, terminated the lease and reclaimed
the property "as is." The state government further stated that it would take
responsibility for managing any further environmental cleanup or remediation of
the site. As a result of all these developments, UCC has no right of access to,
no control over and no responsibility for the Bhopal Facility site.
2. Indian Criminal Litigation In 1987, criminal charges stemming from the Bhopal incident were filed in the
Indian court against UCC, UCIL, UCC's former chief executive officer, and
certain officers and employees of UCIL. UCC and its former chief executive
officer have not submitted to the jurisdiction of the criminal proceedings and,
accordingly, are not proper parties to the proceeding. However, with respect to
parties that are properly before the court, the Supreme Court of India ruled in
1996 that the charges should be reduced from culpable homicide to a lesser
allegation. Specifically, those defendants are now charged with the violation of
§304A of the Indian Penal Code. That section states that "[w]hoever causes the
death of any person by doing any rash or negligent act not amounting to culpable
homicide, shall be punished with imprisonment of either description for a term
which may extend to two years, or with fine, or with both." This case remains
on-going. 3. New York Litigation On November 15, 1999, plaintiffs filed a class action complaint in the United
States District Court for the Southern District of New York against defendants
UCC and its former chief executive officer, asserting claims under the Alien
Tort Claims Act, 28 U.S.C. §1350, for alleged human rights violations arising
out of the Bhopal incident. See Bano v. Union Carbide Corp., 2000 U.S. Dist.
LEXIS 12326, 2000 WL 1225789 (S.D.N.Y. Aug. 28, 2000). Plaintiffs essentially
argued that the settlement with the Indian government was inadequate. On January
4, 2000, plaintiffs amended their complaint to add claims under New York State
common law for alleged environmental pollution in and around the Bhopal
Facility, including negligence, public nuisance, private nuisance, strict
liability, medical monitoring, trespass and equitable relief. Plaintiffs are
requesting remediation for what they allege to be "[d]efendants' severe
pollution of [the] land and drinking water, which has caused ... serious health
problems." Bano v. Union Carbide Corp., 2003 U.S. Dist. LEXIS 4097, 2003 WL
1344884, at *7 (S.D.N.Y. March 18, 2003). In August 2000, the United States District Court for the Southern District of
New York dismissed plaintiffs' claims in their entirety. Specifically, the court
found that plaintiffs were barred by the 1989 settlement with the Indian
government. Plaintiffs appealed the district court's ruling to the Second
Circuit Court of Appeals. See Bano v. Union Carbide, 273 F.3d 120 (2d Cir.
2001). The Second Circuit found that the district court had properly dismissed
the plaintiffs' claims under the Alien Tort Claims Act. However, the Second
Circuit held that the district court had not adequately explained its basis for
dismissing plaintiffs' common law claims relating to the alleged environmental
pollution in and around the Bhopal Facility and remanded those claims back to
the district court for further proceedings. On remand the district court again heard arguments regarding plaintiffs' common
law claims of pollution in and around the Bhopal Facility. See Bano v. Union
Carbide, 2003 U.S. Dist. LEXIS 4097, 2003 WL 1344884 (S.D.N.Y. March 18, 2003).
On March 18, 2003, the district court issued an opinion dismissing plaintiffs'
environmental claims. The court explained that the claims should be dismissed as
"untimely and directed at improper parties." The court further stated:
Union Carbide has met its obligations to clean up the contamination in and near
the Bhopal plant. Having sold their shares long ago and having no connection to
or authority over the plant, they cannot be held responsible....
Id. at *27-28. Plaintiffs have again appealed the lower court's decision to the Second Circuit.
Oral argument on these claims was heard by that court in October 2003, and its
decision is currently pending. 4. The Company's Acquisition of UCC
On February 6, 2001more than 16 years after the Bhopal gas release, 12 years
after UCC's settlement and 6 years after UCC sold its interest in UCILthe
Company acquired the stock of UCC. As of that date, UCC became a wholly owned
subsidiary of the Company. Pursuant to applicable corporate law in both the
United States and in India, a company that purchases the stock of a corporation
does not acquire the assets or liabilities of the target company. Thus, the
Company did not acquire the assets or the liabilities of UCC; no Indian assets
or liabilities, civil or criminal, were transferred to the Company as a result
of the transaction. Indeed, UCC continues in existence today as a separate legal
entity with its own headquarters, own assets, own liabilities, own officers, and
its own board of directors. ANALYSIS AND BASES FOR EXCLUSION
The Proposal asks the Company to "describ[e] new initiatives instituted by the
management to address the specific health, environmental and social concerns of
the survivors." In the context of the facts discussed above, the Company is not
undertaking any new initiatives with respect to the concerns set forth in the
Proposal, nor does it believe that it is properly in a position to do so. The
Company believes that UCC has thoroughly and appropriately responded to the
tragedy that occurred at the Bhopal site nineteen years ago. Moreover, the
Company believes that UCC has fulfilled all of its obligations. Indeed, as the
Honorable Judge Keenan of the United States District Court for the Southern
District of New York, stated earlier this year, "Union Carbide has met its
obligations to clean up the contamination in and near the Bhopal plant. Having
sold their shares long ago and having no connection to or authority over the
plant, they cannot be held responsible...." 1. The Proposal May Be Excluded under Rule 14a-8(i)(7) Because the Proposal
Pertains to Matters of Ordinary Business Operations. A. The Proposal is the Subject of Current Litigation.
To the extent that the Proposal requests the Company, either directly or through
any of its subsidiaries, to develop new initiatives or implies that the Company
and/or any of its subsidiaries has any obligation to undertake new initiatives,
the Proposal goes to the very essence of the lawsuit that is currently pending
against the Company's subsidiary. Accordingly, we believe that the Company may
exclude the Proposal from its 2004 Proxy Materials because the Proposal would
adversely affect the management of litigation by requiring the Company to
address a claim or defense that is the subject of litigation involving its
subsidiary. Every company's management has a basic responsibility to defend the company's
interests against unwarranted litigation. That responsibility is at the core of
the everyday business of a registrant. A stockholder request that interferes
with this obligation is inappropriate, particularly when there is a pending
lawsuit involving the company or one of its subsidiaries on the very issues that
form the basis for a proposal. For that reason, the Staff has acknowledged that
a stockholder proposal is properly excludable under the "ordinary course of
business" exception contained in (i)(7). See, e.g., Philip Morris Companies Inc.
(avail. Feb. 4, 1997) (noting that although the Division "has taken the position
that proposals directed at the manufacture and distribution of tobacco-related
products by companies involved in making such products raise issues of
significance that do not constitute matters of ordinary business," the company
could exclude a "proposal [that] primarily addresses the litigation strategy of
the Company, which is viewed as inherently the ordinary business of management
to direct."); R.J. Reynolds Tobacco Holdings, Inc. (avail. Mar. 6, 2003)
(proposal requesting the company to establish a committee of independent
directors to determine the company's direct or indirect involvement in cigarette
smuggling excludable under the "ordinary course" exception because it interfered
with the litigation strategy of a civil lawsuit on similar matters); R.J.
Reynolds Tobacco Holdings, Inc. (avail. Feb. 21, 2003) (proposal requesting
company to find ways to inform customers about the actual risks of smoking
certain kinds of cigarettes to correct common misperceptions about their safety
excludable under the "ordinary course" exception because it interfered with the
litigation strategy of class-action lawsuits on similar matters); Philip Morris
Companies Inc. (avail. Feb. 22, 1999) (proposal requiring the company to stop
using terms "light" and "ultralight" until stockholders can be assured that
those terms reduce the risk of disease excludable for the same reasons).
UCC, a wholly owned subsidiary of the Company, is a named defendant in a class
action lawsuit currently pending before the Second Circuit Court of Appeals. The
claims at issue in that suit involve plaintiffs' allegations that the Bhopal
Facility caused "severe pollution of their land and drinking water, which [in
turn] has caused ... serious health problems." Similarly, the Proposal requests the Company to "prepare a report to
shareholders ... describing new initiatives instituted by the management to
address the specific health, environmental, and social concerns of the [Bhopal]
survivors." Thus, the Proposal asks the Company to effect an action that is
precisely what the Company's subsidiary is arguing in the pending litigation
that it has no obligation to do. Specifically, the Company's subsidiary has
defended itself from plaintiffs' allegations in the class action suit by arguing
that it is not legally responsible for any of the alleged environmental
contamination surrounding the Bhopal Facility. Therefore, the Proposal squarely
addresses matters that are the subject of pending litigation before the Second
Circuit Court of Appeals. Although the Second Circuit has already heard oral
argument on the remaining claims before it, the court's decision is currently
pending, and its ruling may result in further proceedings or appeals.
In effect, the Proposal recommends that the Company facilitate the goals of the
plaintiffs in the lawsuit at the same time that the Company's subsidiary is
actively asserting that it has no ability or responsibility to effect those
actions. If the Company were forced either to comply with the Proposal or to
take a position with respect to the Proposal in the 2004 Proxy Materials, the
Proposal would improperly interfere with the position of the Company's
subsidiary in that litigation. Thus, the Proposal seeks to substitute the
judgment of stockholders for that of the management of the Company on decisions
involving litigation strategy by requiring the Company to take actions that are
contrary to its subsidiary's legal defense in ongoing litigation. Accordingly,
because the Proposal intrudes on ordinary business operations, we believe that
the Proposal properly may be excluded from the 2004 Proxy Materials under Rule
14a-8(i)(7) and request the Staff to concur in our conclusion.
B. The Proposal Advocates a Specific Charitable Giving Program.
We believe that the Company also may exclude the Proposal under Rule 14a-8(i)(7)
because the Proposal requests that the Company contribute money for a specific
charitable purpose. For the reasons discussed above, the Company has never had
any legal liability or responsibility with respect to the health, environmental
or social concerns of the Bhopal survivors, and its subsidiary, UCC, has no
continuing legal liability or responsibility with respect to the health,
environmental or social concerns of the Bhopal survivors. Therefore, any further
actions initiated by either the Company or UCC would be charitable or
philanthropic in nature. The Staff has consistently concurred that proposals that have the goal of
requiring companies to donate to specific types of charitable organizations may
be excluded under Rule 14a-8(i)(7). Thus, for example, in SCEcorp (avail. Feb.
20, 1992), the Staff stated it would take no action if the company excluded a
proposal requiring it to consider donating to charities that "work to improve
fisheries and wildlife habitat and management for species which exist at or near
and may be affected by company facilities and operations in the State of
California," noting that this proposal was excludable under Rule 14a-8(i)(7)
because it involved "the determination to commence contributions to a particular
charity." Id. In Corning Incorporated (avail. Feb. 2, 2000), the Staff
determined not to recommend enforcement action if the company relied on Rule
14a-8(i)(7) to exclude a proposal requesting that it refrain from contributing
to particular types of organizations. See also Eli Lilly & Co. (avail. Dec. 26,
2002) (Staff concurred that a basis for exclusion existed under 14a-8(i)(7) with
respect to a proposal that sought contributions to a particular charitable
organization). The Proposal does not seek to affect the level of the Company's corporate
expenditures for charitable purposes, or even to address the extent of the
Company's community and charitable programs in India generally. Instead, the
Proponents seek to force disclosure of the Company's decisions regarding
contributions for one particular group of beneficiaries. While the Proposal
includes a supporting statement that attempts to develop a connection between
any action the Company may take with respect to the particular giving program
that it advocates and the Company's reputation, finances and business expansion
in Asia and elsewhere, this does not distinguish the Proposal from other
proposals addressing specific charitable activities, where proponents typically
argue that donations to a particular charitable purpose (or ceasing donations
for particular types of charities) will enhance a company's business and
reputation. For example, in SCEcorp, the supporting statement asserted that by
increasing donations to certain types of charities operating in California, the
company could "enhance SCE's position of leadership in the environmental area."
Likewise, in Schering-Plough Corp. (avail. Mar. 4, 2002) and American Home
Products Corp. (avail. Mar. 4, 2002), proposals that requested each company to
"study the impact of charitable contributions on the business of the company and
its share value" were excludable because it was clear that the proposals were
addressed to charitable giving to particular types of organizations. In fact,
the Company has publicly stated that in India, as with other regions where it
operates, it fulfills its role as a responsible corporate citizen by supporting
certain humanitarian initiatives.2 However, notwithstanding the Proposal's
general references to a potential impact on the Company's business and
reputation, the Proposal does not address a general charitable giving program
and instead addresses a specific program, and therefore is excludable under Rule
14a-8(i)(7). 2. The Proposal May Be Excluded under 14a-8(i)(10) Because the Company Has
Substantially Implemented the Proposal. Rule 14a-8(i)(10) permits exclusion of a stockholder proposal "if the company
has already substantially implemented the proposal." According to the
Commission, this provision "is designed to avoid the possibility of shareholders
having to consider matters which have already been favorably acted upon by the
management." See Exchange Act Release No. 34-12598 (July 7, 1976). Furthermore,
a 1998 Release notes that this paragraph merely reflects the interpretation
adopted in Exchange Act Release No. 20091 (Aug. 16, 1983) under former Rule
14a-8(c)(10). Pursuant to the 1983 interpretation, the Staff has stated that "a
determination that the company has substantially implemented the proposal
depends upon whether its particular policies, practices and procedures compare
favorably with the guidelines of the proposal." Texaco, Inc. (avail. Mar. 28,
1991). Consequently, a stockholder proposal does not have to be implemented
exactly as proposed; it merely needs to be "substantially implemented."
When a company can demonstrate that it already has adopted policies or taken
actions to address each element of a stockholder proposal the Staff has
concurred that the proposal has been "substantially implemented" and may be
excluded as moot. See, e.g., Nordstrom Inc. (avail. Feb. 8, 1995) (proposal that
company commit to code of conduct for its overseas suppliers that was
substantially covered by existing company guidelines was excludable as moot).
See also The Gap, Inc. (avail. Mar. 8, 1996). As noted above, neither the Company nor UCC, its subsidiary, is undertaking any
new initiatives relating to any remaining health, environmental or social
concerns of survivors of the Bhopal incident. Moreover, consistent with the
federal district court ruling in March 2003, the Company believes that prior to
its acquisition of UCC, UCC had already taken appropriate steps in that regard
and, therefore, that neither UCC nor the Company retain any further obligation
in relation to the concerns addressed in the Proposal. As described below, the
Company has set forth its views on this matter in a statement posted on its
website. Therefore, the Company has substantially implemented the Proposal,
thereby rendering the Proposal moot. As discussed above, the 1989 settlement agreement reached between UCC and the
government of India encompassed "all claims, rights and liabilities related to
and arising out of the Bhopal Gas disaster." (emphasis added). Moreover,
according to the Supreme Court of India, the settlement is "just, equitable and
reasonable." Further, UCC took additional steps that resulted in $90
millionincluding the entire proceeds of the sale of its interest in UCILbeing
used to pay for the construction and operation of a hospital in Bhopal for the
survivors. The Company believes that UCC acted responsibly and thoroughly in
providing for those with claims related to the Bhopal tragedy. Now in 2003, the
Company's view is thatthrough the actions of its subsidiary, UCCall corporate
responsibilities relating to the "specific health, environmental and social
concerns of the survivors" have been addressed and, accordingly, that the
Proposal has been substantially implemented in that regard.
In addition, the Company has published on its website a statement reporting on
its position with respect to steps that have already been taken to address the
Bhopal tragedy and its conclusion that there is no further responsibility with
respect to the incident. A copy of that statement, which appears at
http://www.dow.com/environment/debate/d15.html, is attached to this letter as
Exhibit B. In addition, UCC maintains a website at http://www.bhopal.com setting
forth details of the 1989 comprehensive civil settlement
(http://www.bhopal.com/sna.htm) and the additional humanitarian aid and relief
efforts that UCC has undertaken (http://www.bhopal.com/anr.htm). A copy of those
reports are attached as Exhibit C to this letter. Because of the extensive
actions that UCC has already accomplished and the legal status of the site
described aboveand consistent with the findings of the United States District
Court for the Southern District of New Yorkneither the Company nor UCC has
initiated nor plans to initiate any further actions to address health,
environmental or social concerns at Bhopal. Therefore, we believe that the
Company already has implemented the Proposal within the meaning of Rule
14a-8(i)(10). This is consistent with past no-action letters where the Staff has concurred
that a proposal can be excluded as having been substantially implemented as a
result of past events. See, e.g., Exxon Mobil Corporation (avail. Jan. 24, 2001)
(proposal that board conduct a review of a project and report on its results
substantially implemented by prior corporate disclosures; the company notes that
the proponents' disagreement with the company's decision reflected in its report
and with the format of the company's disclosures does not alter the fact that
the proposal had been substantially implemented); Sarah Lee Corp. (avail. Aug.
29, 2000) (proposal requesting the company support Alan Greenspan as Chairman of
Federal Reserve Board excludable when Alan Greenspan had already been confirmed
for that position); Corning Natural Gas Corp. (avail. Feb. 16, 1983) (proposal
asking board to ensure that the representative of the company's independent
auditors, if any, answer questions from stockholders excludable when the company
noted that a representative had already committed to attend the upcoming
meeting). Accordingly, we request that the Staff concur in our conclusion that
the Proposal may properly be omitted from its 2004 Proxy Materials pursuant to
Rule 14a-8(i)(10). 3. The Proposal Must Be Revised under Rule 14a-8(i)(3) Because the Proposal
Contains False and Misleading Statements in Violation of Rule 14a-9.
If the Staff disagrees that the Proposal may be excluded on the bases described
above, then the Proposal requires substantial revision under Rule 14a-8(i)(3)
because it contains numerous statements that are false and misleading in
violation of Rule 14a-9. A stockholder proposal or supporting statement may be
excluded under Rule 14a-8(i)(3) where it is "contrary to any of the Commission's
proxy rules, including Rule 14a-9, which prohibits materially false or
misleading statements in proxy soliciting materials."
The Proposal is misleading in at least the following respects. First, the
Proposal is captioned "Dow Chemical Resolution Regarding Bhopal." This
incorrectly suggests that the Proposal is sponsored by the Company, when in fact
it is a stockholder resolution. In addition, the first paragraph of the Proposal
states "Dow Chemical has acquired Union Carbide, its assets and it [sic]
liabilities." This statement is absolutely untrue. The acquisition of a
company's stock does not transfer the target company's assets or liabilities to
the acquirer. Instead, in a stock transaction the target company remains a
single, viable company with all of its assets and liabilities intact. See Pauley
Petroleum, Inc. v. Continental Oil Co., 231 A.2d 450, 454 (Del. Ch. 1967); A.W.
Fiur Co. v. Ataka & Co., 422 N.Y.S.2d 419, 422 (N.Y. App. Div. 1979).
The Company acquired only UCC's stock. Therefore, it did not acquire UCC's
assets or its liabilities. UCC continues to be a separate legal entity with its
own headquarters, own assets and its own liabilities. The Proposal is therefore,
false and misleading to the Company's stockholders as it contains an inaccurate
statement regarding the status of the Company's relationship to UCC.
The second paragraph of the Proposal is also misleading. It states that "Union
Carbide has failed to appear in court to face continuing criminal charges in the
Indian Courts for `culpable homicide, not amounting to murder' in the Bhopal
disaster." However, neither UCC nor its former chief executive officer are
subject to the jurisdiction of the court, and therefore they are not proper
parties to the proceeding. Moreover, with respect to UCIL and the other parties
that are properly before the court, the Supreme Court of India ruled that only a
lesser charge of "causing death by negligence," was appropriate. Therefore, this
portion of the Proposal is misleading because it fails to disclose all the
relevant facts relating to the criminal charges and falsely creates the
impression that UCC would face liability for culpable homicide when charges
against the proper defendants have been reduced. Finally, the fourth paragraph of the Proposal is misleading. It states:
Dow, through its wholly owned subsidiary Union Carbide, has become implicated in
the continued controversy over the Bhopal criminal case, as well as remediation
of contamination at the site and redress of health and economic concerns of the
community, and the survivors and their supporters have refocused their efforts
upon Dow. This paragraph implies that Dow has been drawn into the criminal case and that
there is a connection between the Indian criminal case and the remediation and
redress of environmental and health claims (which are the remedies sought in the
New York litigation). However, Dow is not a party to either lawsuit. In
addition, the criminal proceeding does not seek remediation of contamination or
redress of health and economic concerns. Therefore, we believe that the
statement is misleading because it inaccurately suggests that Dow is associated
with the criminal proceeding and the New York litigation and inappropriately
intermingles the criminal case with the New York litigation.
CONCLUSION Based on the foregoing, we hereby respectfully request that the Staff not
recommend any enforcement action if the Proposal is excluded from the Company's
2004 Proxy Materials. In the alternative, we believe the Staff should require
the Proposal be revised as discussed above. Should you disagree with the
conclusions set forth in this letter, we respectfully request the opportunity to
confer with you prior to the determination of the Staff's final position. We
would be happy to provide you with any additional information and answer any
questions that you may have regarding this subject. Please do not hesitate to
call me at (202) 955-8671, or the Company's Corporate Secretary, Tina S. Van
Dam, at (989) 636-2663, if we can be of any further assistance in this matter.
Sincerely, /s/
Ronald O. Mueller Attachments
cc: Tina S. Van Dam, Corporate Secretary, The Dow Chemical Company
Church of the Brethren Benefit Trust
Sisters of the Holy Cross of Notre Dame, Indiana
Sisters of Mercy of the Americas
-----FOOTNOTES----- 1 Indian financial institutions owned more than 20% of UCIL and the remaining
shares were owned by approximately 24,000 investors. 2 See the concluding paragraphs in the Company's statement on Bhopal appearing
at http://www.dow.com/environment/debate/d15.html, a copy of which is attached
as Exhibit B to this letter. [INQUIRY LETTER]
January 29, 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
Re: Shareholder Proposal Submitted to Dow Chemical Regarding the Bhopal Chemical
Disaster On Behalf of Church of the Brethren Benefit Trust, Sisters of the Holy
Cross of Notre Dame and Sisters of Mercy of the Americas Dear Sir/Madam:
The above-named proponents (the proponents) are a beneficial owner of common
stock of Dow Chemical Corporation who have submitted a shareholder proposal to
Dow Chemical Corporation (the company) regarding the Bhopal chemical disaster. I
have been asked by the proponents to respond to the letter dated December 30,
2003, sent to the Securities and Exchange Commission by Gibson, Dunn & Crutcher,
LLP, on behalf of the company. In that letter, Dow contends that the proponent's
shareholder proposal may be excluded from the company's 2004 proxy statement by
virtue of Rules 14a-8(i)(7), 14a-8(i)(10) and 14a-8(i)(3).
I have reviewed the Proponent's shareholder proposal, as well as the letter sent
by the company, and based upon the foregoing, as well as a review of the
relevant rules, it is my opinion that the Proponent's shareholder proposal must
be included in Dow Chemical's 2004 proxy statement and that it is not excludable
by virtue of said rules. BACKGROUND In February 2001, Dow Chemical acquired Union Carbide Corporation as a wholly
owned subsidiary. The 1984 Union Carbide gas disaster in Bhopal, India, exposed
500,000 people and killed as many as 8,000 people in its immediate aftermath.
The Bhopal disaster, though it happened nearly twenty years ago, poses a
continuing crisis for the city of Bhopal. Many of the survivors and their
children continue to suffer serious health effects. It is estimated that of the
over half a million people exposed to Union Carbide's toxic gases, close to
150,000 people continue to suffer from exposure induced chronic illnesses.
Breathlessness, persistent cough, diminished vision, early age cataracts, loss
of appetite, menstrual irregularities, recurrent fever, back and body aches,
loss of sensation in limbs, fatigue, weakness, anxiety and depression are the
most common symptoms among survivors. There is also allegedly a rise in cancers,
tuberculosis, reproductive system problems and other problems such as growth
retardation among children born after the disaster. The International Medical
Commission on Bhopal (an independent group of 15 doctors from 11 countries)
estimated in 1994 that, among adults between age 18 and 60, about 50,000 were
permanently damaged. In the aftermath of the Bhopal disaster, the chemical industry as a whole
instituted a reputation management program known as Responsible Care. The
program was geared to improvement of the industry's reputation after the Bhopal
disaster. Dow's own ethics web page notes that the Chemical Industry adopted the
Responsible Care program as a public relations response to the Bhopal disaster.
www.dowethics.com/r/environment/care_info.html. A more detailed description of
this history appeared in Chemical and Engineering News at
pubs.acs.org/hotartcl/cenear/980112/responsible.html Yet today, Dow Chemical has come full circle by acquiring Union Carbide. The
management hopes to paint for shareholders and the world a picture of Bhopal as
a tragic bygone that is just about finished in the courts, and then will be
entirely a matter of the distant past. It has gone to lengths to say that when
it acquired Union Carbide it thoroughly investigated the matter and did not buy
with it any of the liabilities. Yet, the management is adopting a posture in
which it is unwilling or unable to grasp the full impact that the acquisition is
having on the companymaking it an international target of protest, political
interventions and media scrutiny. The environmental contamination of the sitemuch of it created prior to the
chemical disaster, has rendered the city a dangerous place to live. Thousands of
tons of toxic wastes, including obsolete pesticides such as the persistent and
bioaccumulative poison HCH and persistent metals such as mercury, have been
abandoned at the factory site. Mercury levels in some areas are 6 million times
the background values. The groundwater carries high loads of heavy metals,
persistent chemicals and solvents, and chlorinated chemicals. Although a portion
of the residents have access to overhead tanks of clean water, many of the
nearly 20,000 people living in the vicinity are routinely exposed to these
chemicals in their drinking water from local wells. The economy, environment and
public health of the city of Bhopal remains devastated by the chemical disaster.
The case has been subject to litigationsome in the past, and some continuing or
looming at present. The civil case filed by the Indian government on behalf of
the survivors was settled for $470 million in 1989. The 470 million dollars,
according to survivors' organizations today, was based on estimations that have
proved far too low, whether quantifying the dead, the injured or the property
lost. It also never accounted for future medical claims. As a result, the 470
million dollars has proved to be extremely inadequate even to satisfy the claims
of the acknowledged victims of the disaster. The balance of the amount remaining
in the fund is committed to compensation of victims, and cannot be used for the
many other needs of the communitynot the public health and economic devastation
resulting from the disaster, and not for remediation of the contamination left
behind by Union Carbide. A civil suit for remediation of the ongoing contamination was filed in the US
against Union Carbide and former Chairman Warren Anderson, and is currently
pending on appeal in New York. Union Carbide is one of twelve named defendants
in the criminal case resulting from the Bhopal disaster, still pending in the
courts in India. Since the company and its former CEO have never filed an
appearance in the criminal case, they have been declared absconders from justice
by the Bhopal Chief Judicial Magistrate, and the court has ordered the
government to seek extradition of Anderson. Although Union Carbide Corp. attempted to transfer its shares in Union Carbide
India Ltd. in order to evade liability in this matter, the chief judicial
magistrate of Bhopal declared the transfer of Union Carbide Corp. shares as
"malafide" (invalid) because it was done with the intent to evade its potential
criminal liabilities arising out of the case in the Bhopal court. On October 14,
1994, the Supreme Court declared that despite allowing liquidation of the
Carbide Corp. shares in Union Carbide India Ltd. to fund the setting up of a
hospital in Bhopal, its order does not alter the validity of the Bhopal court's
order declaring that a Union Carbide Corp. share transfer was not bona fide.
Further, the court ordered all Union Carbide assets in India to be attached,
with $74 million of those assets held for purpose of securing the company's
appearance in the criminal case. As far as we know, those assets remain attached
to date.1 Bhopal survivors and their supporters are actively pressing the courts and
government to implead Dow in the criminal case and to pursue Dow Chemical's
assets in India. There is also reportedly an effort underway to pursue
litigation against Dow Chemical for remediation of the Bhopal site. See Appendix
5. In addition, since the purchase of Union Carbide in 2001, Dow has been subjected
to escalating public scrutiny and demands for action. These include:
In 2001 and 2002, survivors of the Bhopal disaster and their representatives
met with the management of Dow regarding its completed acquisition of Union
Carbide. The discussion ended inconclusively after Dow Chemical's CEO was
replaced and the discussions were brought to a standstill. With growing
dissatisfaction of the survivors as to Dow's responses, protests have escalated
rather than subsiding.
Survivors appeared at the 2003 Dow Chemical shareholder meeting, where CEO
William Stavropoulis repeatedly stated that there was nothing the company could
do to answer the victims' pleas for helpthat the company had neither liability
nor responsibility for the prior disaster nor its continuing after effects.
In December 2003, the 19th anniversary of the Bhopal disaster, protests
erupted at Dow facilities worldwide. This included the first organized student
protest of Dow Chemical since Viet Nam, on 25 American campuses. A total of 65
activities worldwide protested against Dow and demanded justice for Bhopal.
A large coalition of organizations met in Bhopal in January 2004 and announced
an escalating campaign against Dow in the coming months, culminating with this
year's 20th anniversary of the Bhopal disaster, December 2004. See Press
Release, Appendix 3.
On January 19, 2004, more than 500 people including Bhopal survivors, and
representatives from Dow-impacted communities in Vietnam (Agent Orange) and
Saginaw, Michigan demonstrated outside the Dow Chemical India headquarters in
Chembur, Mumbai. An 8-member delegation, including an Agent Orange victim and a
former parliamentarian from Belgium, presented a memorandum to Dow Chief Ravi
Muthukrishnan. Among other things, the memo urged Dow to present itself to the
court in the ongoing criminal proceedings in Bhopal.
Eighteen members of Congress sent a letter to Dow management urging the
company to provide medical rehabilitation and economic reparations for the
victims of the tragedy, clean up contamination in and around the former factory
site in Bhopal, provide alternative supplies of fresh water to the affected
communities, and ensure that the Union Carbide Corporation appears before the
Chief Judicial Magistrate's court in Bhopal where it faces criminal charges of
culpable homicide. Appendix 2. Similar declarations have also been proffered by
parliamentarians in the UK, and European Union. In light of these developments, the resolution filed by a group of three
religious shareholder organizations speaks to the company's moral responsibility
to the survivors, and financial responsibilities to its shareholders. It
requests that the company "prepare a report to shareholders by October 2004, at
reasonable cost and excluding confidential information, describing new
initiatives instituted by the management to address the specific health,
environmental and social concerns of the survivors." In the supporting
statement, the resolution states that the proponents believe that such report
should also assess the impacts that the Bhopal matter may reasonably pose on the
company, its reputation, its finances and its expansion in Asia and elsewhere.
ANALYSIS I. The resolution does not address ordinary business, but rather focuses on
profound public issues facing the company as a result of the largest chemical
disaster in history. The company asserts that the resolution relates to the ordinary business of the
corporation, alleging that it either relates to existing litigation regarding
Bhopal, or it attempts to direct the charitable giving of the corporation.
Examination of the matter at hand demonstrates, however, that the resolution
neither requests reporting or action on existing litigation, nor attempts to
direct the company's charitable giving. Instead, the resolution asks the company
to report on and take action to address a major public controversy facing the
corporation. A. The resolution does not attempt to address or require reporting on
litigation, but instead addresses major public issues facing the corporation.
The shareholders do not request and do not intend for the company to report on
the Bhopal litigation in the requested report. Instead, the plainly stated
purpose of the resolution is to address the continuing humanitarian crisis in
Bhopal, and the impacts on Dow as a result of public campaigns and assertions of
injustice. The request of the resolution is for the company to prepare a report
describing new initiatives instituted by the management to address the specific
health, environmental and social concerns of the survivors. By contrast, the
resolution does not ask for the company to force Union Carbide to appear in the
criminal case, does not ask for settlement, or explanation of the civil case in
the US, or any other action in relation to litigation strategy or settlement.
Despite the ongoing litigation, the resolution does not relate to or ask for
responses to any of these matters. Instead, the company is asked primarily to
report on "new initiatives" to resolve the ongoing demands posed by the
survivors of the disaster. These demands have been expressed in letters to the
management, and are backed by an extensive international campaign of public
protest, independent of the litigation. For instance in a letter to Dow
management of March 11, 2002 (Appendix 4), the survivors wrote in follow-up to
conversations with the management requesting that the company address the
following issue areas: 1. Ensuring that people in the communities next to the Union Carbide factory are
not exposed to toxic chemicals .... we request. The Dow Chemical Company to take
urgent action to decontaminate the soil and ground water in and around the
abandoned Union Carbide factory. 2. Medical research on present health status of survivors of the disaster ...
Since 1994 when the International Medical Commission on Bhopal published its
report on the health status of the exposed people there has been no full scale
study to document the long term health impact of exposure to Carbide's
chemicals. There is a great need for a large scale epidemiological study to make
an assessment of the current health status of the survivors and their children
so that helpful directions for health care providers can emerge.
3. Economic rehabilitation to those unable to do their usual work Close to 80%
of the exposed people are toiling people, or used to. Involved in carrying
loads, pushing hand carts, vending vegetables, construction, and such physically
demanding work. .... The compensation money they have received has been too
meagre and most if not all of it spent in repaying debts and paying for medical
treatment. Thousands of families are on the brink of starvation.... ... On
humanitarian grounds we request Dow to provide gainful employment to the persons
who have lost the capacity to do their usual work. 4. Social support to widows, orphans and disabled people
Close to 10, 000 persons widowed or orphaned due to the Union Carbide disaster
and about 40,000 severely disabled survivors are in need of social security in
the form of monthly pension or as free and regular supply of basic needs. Given
the governments abandoning this vital and life saving task we request Dow to
provide the means for such support. A proposal cannot be excluded by Rule 14a-8(i)(7) if it focuses on significant
policy issues. As explained in Roosevelt v. E.I. DuPont de Nemours & Company,
958 F. 2d 416, (DC Cir. 1992) a proposal may not be excluded under clause (c)(7)
if it has "significant policy, economic or other implications". Id. at 426.
Interpreting that standard, the court spoke of actions which are "extraordinary,
i.e., one involving `fundamental business strategy' or `long term goals.'" Id.
at 427. As we will explain below, in this instance the items requested in the
proposed report are at a level of summarization needed to illuminate trends
related to the public policy issues facing the company. Therefore the proposal
may not be excluded, because it deals exclusively with major policy matters.
Although the Commission has stated in Exchange Act Release No. 40018 (May 21,
1998) that a central consideration for the ordinary business operations
exclusion is whether the resolution probes too deeply into the questions at
hand, the proposal does not cross the line into that level of depth.
In RJ Reynolds (March 7, 2000) the resolution called for RJR Nabisco to create
an independent committee to investigate retail placement of tobacco products, in
an effort to prevent theft by minors. The company argued that due to two current
lawsuits (against FDA and the state of Massachusetts) the Proposal, if
implemented, would interfere with litigation strategy by asking the company to
take voluntary action in opposition to its position in the lawsuits. The
proponent prevailed by arguing significant policy issue (tobacco and children)
and that the Proposal is unrelated to litigation. "Litigation strategy has been
interpreted to encompass matters ranging from the decision whether to institute
legal proceedings, to the conduct of a lawsuit, to the decision whether to
settle a claim or appeal a judgment." That Proposal, as the one in the present
case, dealt with none of those factors. To decide that the existence of litigation on the subject matter would be enough
to bar resolutions would mean that the most substantial issues facing
corporations would not be discussable in shareholder resolutions. This would be
a flawed response to the major policy issues that confront corporations.
Since nothing in the Proponents' shareholder proposal deals with the questions
of whether the Company should institute a lawsuit, how it will conduct a lawsuit
or whether to settle a lawsuit, it does not attempt to micro-manage the Company
in an excludible manner. In Philip Morris (Feb. 14, 2000), the resolution called for management to
develop a report for shareholders describing how Philip Morris intends to
address "sicknesses" caused by the company's products and correct the defects in
the products that cause these sicknesses. The company argued that the Proposal
requested the Company to issue a report on matters that are prominently at issue
in numerous lawsuits. The proponent prevailed by arguing that the Proposal
neither requests information about litigation nor tells the Company how to
handle the litigation. Due to statements on PM's web site, essentially admitting
to cigarettes causing "sickness," the Proposal asking how the company will
address that "sickness" will not likely interfere with any litigation strategy.
In Bristol-Meyers (Feb. 21, 2000), the resolution called for implementation of a
policy of price restraint on pharmaceutical products for individual customers
and institutional purchasers to keep drug prices at reasonable levels and report
to shareholders on any changes in its current pricing policy by 9/2000. The
company argued that the Proposal seeks to have the company take action in an
area of its business currently subject to litigation: its pricing practices. The
resolution was found by the staff to be not excludible, due to the large policy
issues at stake. The mere mention of lawsuit in a shareholder resolution does not render the
resolution excludible as ordinary business. In RJR Nabisco (Feb. 13, 1998), the
resolution called for the company to implement in developing countries the same
programs for prevention of smoking by youths as voluntarily proposed and adopted
in US. The company mentioned that proponents refer to lawsuits against
subsidiaries in France and Philippines dealing with alleged violations of
marketing regulations as a basis for extending the US policy abroad. The company
argued that if implemented, the proposal may interfere with efforts to litigate
the legality of certain regulations regarding tobacco products and free speech,
as well as efforts to propose and lobby for alternative proposals. Still,
because of the focus on voluntary measures, the staff rejected the ordinary
business argument. Finally, this issue is not excludible ordinary business because it relates to a
major ecological and environmental matterthe continuing crisis in the aftermath
of the largest chemical disaster in history. In Maxxam Inc. (available March 26,
1998) the Staff concluded that a proposal requesting the company to prepare a
report on strategies for ending all operations that cut, damage, remove, mill or
otherwise involve old growth trees was not ordinary business. The staff noted
that it was not ordinary business because it related to the adoption of a policy
"designed to address a major ecological and environmental matter."
B. The voluntary actions sought by the proponents are not requests to direct the
charitable donations of Dow Chemical, but rather are a flexible call for the
company to undertake action responsive to the continuing crisis of Bhopal.
While denying any liability, the management does acknowledge in its internet
publication that there is "an entirely separate humanitarian question-that is:
can Dow, in its role as a corporate citizen, help to address any of the
present-day needs which are apparent in India?" It states that this is why "for some time, Dow has been exploring various
initiatives which might address some of those needsjust as we do in other parts
of the world where we have business interests." But this situation in Bhopal is not just like any other situation in the world.
It is in fact the site of the worst chemical disaster in history, and a tragic
legacy of Dow's subsidiary, Union Carbide. The management's position suggests that any effort to ask a company to
voluntarily redress an enormous public policy challenge in a specific geographic
region amounts to an attempt to direct its charitable giving.
There is no attempt in this resolution to dictate how the company's charitable
giving programs are directed, since there is no attempt to say what initiatives
the company should, in fact take. Rather, the focus of the resolution is to urge
the management to take some new initiatives, and to report on them. By way of
example, the following is a recitation of just a few of the diverse initiatives
that management could take that would not amount to "charitable giving:"
Dispatch Dow environmental staff and equipment to Bhopal to undertake or
supervise remedial efforts;
Disclose all information held by Union Carbide regarding the health impacts of
MIC;
Conduct and disclose health studies or testing of MIC to assist in meeting the
continuing medical needs of the survivors;
Conduct meetings in Bhopal with survivors' organizations;
etc... II. The management has not "substantially implemented" the proposal.
The company asserts that because it believes there is no Bhopal liability
associated with the acquisition of Union Carbide, and because it has described
its arguments to that effect on its website, it has substantially implemented
the proposal requesting a report on the status of new company initiatives
regarding Bhopal. However, the proposal requests that the company to take new initiatives. The
proposal also asks for reporting on the impacts of this major issue on the
company. Neither are accomplished by the company's current reporting or actions.
Bhopal is not an issue that lies only in the past. As described above, there are
mounting efforts and calls for action by Dow outside of the litigation. It is
apparent to the proponents that to address its moral responsibilities, protect
the company's reputation and address the public issues and campaigns facing the
company, new initiatives will be needed. The shareholder proponents are aware that the company has so far declined to
take any specific actions to assist the people of Bhopal. The resolution calls
for new action and reporting and examination of future impacts. The focus is not
on past cases and impacts, but rather what is happening now and what is likely
to happen in the future. That is why the proposal asks for a report on "new"
initiatives. The request made in the resolution is therefore not substantially implemented by
the company because what is requested is a response to the current
developmentsthe protests, the congressional intervention, and the continuing
media scrutiny. It is a request to respond and report in the coming year
regarding what is happening now, and what is anticipated to happen over the
coming months in the lead up to the 20thanniversary of the Bhopal disaster.
In addition, when reporting is requested of a company, the reporting cannot
"substantially implement" the request, if the reporting that is done is
materially misleading. Proponents believe that in very important aspects, the
reporting that has been done by the company so far is quite misleading, and
materially so. In the company's online statement regarding the Bhopal tragedy, Dow Chemical
notes that the Bhopal plant was operated at the time of the disaster by Union
Carbide India Ltd., a 51% affiliate of Union Carbide Corp. It notes further that
when Dow acquired Union Carbide's shares in February of 2001, "the company
conducted an exhaustive assessment to ensure that there was absolutely no
outstanding liability in relation to Bhopal. There was none; the company that
Dow acquired retained absolutely no responsibility for either the tragedy or for
the Bhopal site." The company cites a number of issues and developments to back
up this claim. This statementthough a clear statement of position by the managementis
factually misleading given the actual occurrences in Bhopal. Union Carbide
remains a named accused in the criminal case in India, and all of its assets in
India have been and remain attached for that purpose. Appendix 8. The Indian
government is reportedly processing a request to sue Dow to engage in
remediation of the site.2 Appendix 5. The Dow website also states "On February 14, 1989, a settlement agreement was
reached between Union Carbide, Union Carbide India Limited and the Indian
government through which Union Carbide paid $470 million in compensation,
covering all claims relating to the incident." This is misleading because it can be read as resolving the criminal actions,
which are not resolved. The website states "In November 1994more than six years before Dow acquired
Union CarbideUnion Carbide sold its interest in Union Carbide India Limited
(later renamed Eveready Industries India Ltd.or EIIL) to MacLeod Russell
(India) Ltd. of Calcutta. As a consequence of that sale, Union Carbide retained
no interest in or liability for the Bhopal site. EIIL took exclusive possession
of the land under lease from the government of Madhya Pradesh. The money from
this transaction was used to fund a hospital in Bhopal which now provides
specialist care to victims of the tragedy." This statement is HIGHLY misleading in light of the subsequent judicial
decisions in India. The Chief Judicial Magistrate for Bhopal has held that Union
Carbide Corp.'s transfer of shares was not bona fide because it was done to
evade potential liabilities arising out of the ongoing criminal case in Bhopal.
As a result, $74 million in Union Carbide assets were attached pending
appearance in the criminal case. See Appendix 8. Rejecting the claim of substantial implementation is consistent with other
precedents in which companies have argued that the limited reporting that they
have done is substantial implementation, and SEC staff has concluded it was not.
In ExxonMobil (March 24, 2003) the proposal asked the board to report on the
effect of the health pandemic on Exxon's operations in Sub-Saharan Africa and
its response to the pandemic. Exxon claimed it had reported extensively on the
topic, including reports to shareholders as well as others. SEC staff disagreed
that the reporting amount to substantial implementation. In ExxonMobil (March 17, 2003) the proposal requested Exxon to prepare a report
describing any operating, financial and reputational risks to it associated with
climate change and explaining how Exxon will mitigate those risks. Exxon argued
its extensive previous reporting to shareholders and the public on climate
change issues and the Company's approach to these issues more than satisfies the
Proponent's request. SEC staff disagreed. In Johnson and Johnson (Feb. 25, 2003) the proposal requested J&J's Compensation
Committee to consider advances in the areas of equal employment opportunity and
work place diversity when determining compensation for senior executives, and
report to shareholders on implementation of this policy. J&J argued that it
already considers progress toward meeting goals for equal opportunity in
employment, development and advancement in its executive compensation and has
already made this information publicly available to shareholders through
information in its 2002 proxy statement. The SEC staff disagreed.
A proposal to American Electric Power (Feb. 18, 2003) required the board to
issue a report disclosing: (a) the economic risks associated with the company's
past, present, and future emissions of carbon dioxide, sulfur dioxide, nitrogen
oxide and mercury emissions, and the public stance of the company regarding
efforts to reduce these emissions; and (b) the economic benefits of committing
to a substantial reduction of those emissions related to its current business
activities. AEP argued that by complying with its federally mandated disclosure
obligations by substantially duplicating its disclosure required by Items 303
and 101(c)(xii) of Regulation S-K and including it in its Annual Report on Form
10-K in Appendix A to the Proxy Statement, AEP already substantially implemented
the Proposal. Furthermore, AEP had much of the information available on its
website. The proponent prevailed, arguing that a review of the Company's public
filings, including its annual report filed on Form 10-K and its proxy
statements, shows that the Company has in fact not provided the information
requested in the Proposal. Similarly, in Kohl's (March 31, 2000) the proposal requested the board report on
Kohl's vendor standards and compliance mechanisms in the countries where it
sources. Kohl's argued that because it responds to inquiries from customers,
shareholders and others explaining the Policy and the Company's inspections and
evaluation procedures of its Vendor Partners, it substantially implements the
Proposal's request for a report to shareholders. The proponent prevailed by
asserting that assurances of "paper guidelines" are insufficient when "the
Proposal is addressed to the question of whether those guidelines are being
implemented and enforced as opposed to being mere pieces of paper." Also,
claiming that the information is available to shareholders without informing
them of this possibility "is no report at all." III. The proponents are willing to revise the resolution to the extent that SEC
staff finds potentially false or misleading statements. The proponents drafted the resolution in a good faith belief that it does not
contain false or misleading statements; however we are willing to make
corrections to clarify any points of concern to the SEC staff. As shareholders
we do not want to include any statements in the resolution that may serve to
increase the liability exposure of the company, and so we want to ensure that
the language contained therein will state the situation simply and accurately
without misleadingly downplaying the actual risk and exposure of the company.
The company asserts first that the heading of the proposal "Dow Chemical
resolution regarding Bhopal" is misleading because it implies that it is the
company's resolution. It is hard to imagine that anybody would mistake this for
a resolution filed by the management. Nevertheless, we would gladly delete the
reference to Dow Chemical in this header and replace it with "Stockholder."
Secondly, the company notes that it has only acquired the stock of Union Carbide
and not its assets and liabilities. Although the company's statement that it has
not acquired assets or liabilities of Union Carbide may be technically true
under US law, as a practical matter the wholly owned subsidiary Union Carbide
itself has a pending criminal case against it in India, and its assets in India
amounting to $74 million have been seized by the Indian government pending the
outcome of the case.3 So Dow has acquired the subsidiary subject to some
substantial liabilities and limits on the assets. Also, as a matter of the law of India, the statement in the resolution as
drafted appears to be accurate. Under the Indian Company Law, a company that
buys the shares of another company and acquires the `controlling interest' of
the latter company automatically has the power to alienate its stocks and assets
which it does in exercise of powers under the Companies Act, 1956. The company
that takes over is thereafter answerable to the shareholders as well as to the
Central Government for anything and everything that happens to its assets and
liabilities. It is not even theoretically possible under the Indian Companies
Act that only the shares of a company (controlling interest) will be taken over
but the assets and liabilities will not be under the control of the company or
entity that acquires those shares. That UCC held a controlling interest (51%) in
UCIL is not in dispute. Proponents have reason to believe that Dow Chemical itself may under certain
circumstances also be subject to liabilities related to its holdings. The
inherited liabilities of Union Carbide are, of course, of major relevance to Dow
Chemical. For instance, more than two years after the acquisition, Dow reported
the liabilities associated with asbestos of Union Carbide. Dow Chemical
management finally reported at the end of 2002 that the liability - unreported
at the time of the merger - is projected as $2.2 billion over the next seventeen
years, and the company took a $828 million write off against assets to reflect
the portion of those costs believed to be uninsured. The degree to which Union Carbide and/ or Dow Chemical may be held liable for
Bhopal related liabilities as a result of the acquisition of Dow hinges in part
upon whether the Indian courts will pierce the corporate veil after finding, for
instance, inadequate capitalization combined with effective control of Union
Carbide India Ltd. (UCIL) by the parent corporation, Union Carbide. There are
reportedly numerous bases upon which India's lawyers or private plaintiffs may
argue that UCC maintained effective control of UCIL. (See Appendix 6. This will
surely be a hotly contested issue in the ongoing litigation. Therefore, the
proponents would gladly amend the resolution to state, for instance, that:
"proponents believe that when Dow Chemical acquired the stock of Union Carbide
and thereby connected itself to the legacy of Bhopal, it also may have assumed
reputational and market risks, or even liabilities as may be determined under US
or Indian law." Thirdly, the company questions the second paragraph of the resolution which
states, "Union Carbide has failed to appear in court to face continuing criminal
charges in the Indian courts for `culpable homicide not amounting to murder' in
the Bhopal disaster." The company asserts that neither its former chief
executive officer nor Union Carbide corporation are subject to the jurisdiction
of the court, and therefore they are not proper parties to the proceeding. As
with the previous issue above, this is a question that may yet be resolved
unfavorably to the company in litigation. The Indian government has not agreed
that those parties are outside of their jurisdiction. Union Carbide and Warren
Anderson have been declared absconders from justice by the Indian courts, and an
extradition order has reportedly been issued by India for Warren Anderson.
Appendix 7. Further, Union Carbide Corp. assets remain attached and in the
control of the Chief Judicial Magistrate, Bhopal. The CJM's court has held that
Union Carbide Corp.'s transfer of shares to the Bhopal hospital trust were not
bona fide and were done to evade potential liabilities arising out of the
ongoing criminal case in Bhopal. To better address management's position, proponents would be willing to
substitute language such as the following: The management has asserted that neither Union Carbide nor Warren Anderson are
subject to the jurisdiction of the Indian courts. However, the Indian government
has not agreed, and has reportedly filed a request for the extradition of Warren
Anderson and attached Carbide Corp's assets in India. The company further notes that other parties to the proceeding have had their
charges reduced to a lesser charge of "causing death by negligence," and implies
that if Union Carbide or Warren Anderson were to appear in Indian courts, they
would be eligible for the same reduction in charges. It should be noted that there is some basis for believing that the company Union
Carbide, and its CEO Warren Anderson, would not be subject to the same reduced
charges if they appeared before the Indian courts. In reaching its 1996
judgment, the Supreme Court had accepted the defense plea by the Indian accused
that they "did not know that an ultra-hazardous poison like MIC could kill human
beings and animals and harm the environment." By contrast, such an argument may
not be persuasively argued by UCC or its officials - so this and other parts of
the 1996 Supreme Court judgment would not necessarily be valid precedent to
apply to the non-Indian parties. Appendix 8. Therefore, we do not believe the current language would be misleading. However
proponents are willing to revise the language to note the lowering of charges
against other defendants. The 4th paragraph of the shareholder proposal states that "Dow, through its
wholly-owned subsidiary Union Carbide, has become implicated in the continuing
controversy over the Bhopal criminal case, as well as remediation of the
contamination at the site and redress of health and economic concerns of the
community and survivors and their supporters have refocus their efforts upon
Dow." The company's letter asserts that this is misleading because it implies that Dow
has been drawn into the criminal case and further that there is a connection
between the criminal case and remediation and redress of environmental health
claims. Proponents did not intend the referenced paragraph to imply that the criminal
case had actually added Dow Chemical as a defendant, but rather that there are
continuing charges against Dow subsidiary Union Carbide. The proponents would
gladly amend this statement to clarify this point. In addition, the proponents
would be glad to amend the paragraph if needed to segregate the issues of
criminal liability from the other issues stated in the paragraph.
In conclusion, we request the Staff to inform the Company that the SEC proxy
rules require denial of the Company's no-action request. In the event that the
Staff concludes that certain parts of the document may require revision, please
be advised of the willingness of the proponent to make needed modifications.
Please call me at 781 894-0709 with respect to any questions, or needs for added
documentation or further information. Sincerely,
/s/ Sanford Lewis
Attorney at Law Cc:
Ronald O. Mueller, Esq. Gibson, Dunn & Crutcher
Tina S. Van Dam, Corporate Secretary, The Dow Chemical Company
Church of the Brethren Benefit Trust
Sisters of the Holy Cross of Notre Dame
Sisters of Mercy of the Americas
Geeta Aiyer, Boston Common Asset Management
-----FOOTNOTES----- 1 The order of the Chief Judicial Magistrate, Bhopal, of April 30, 1992
concluded" accused No. 10 Union Carbide Corporation, USA, wants to transfer its
50.9% properties by any means to evade criminal action against it in this case
in India and in these circumstances there is no other option but to attach its
properties situated in India so that it can be compelled to be present in Court.
In such a situation, the application of the State regarding attachment of
properties situated in India of accused No. 10, Union Carbide Corporation, USA,
is accepted. Shri Prasad has also stated that shares in UCIL have been pledged
to the Hospital Trust but no actual transfer has taken place hence properties
should immediately be attached and Union Carbide India Limited be directed not
to register any charges regarding pledged shares. Accordingly movable and
immovable properties of accused No. 10, Union Carbide Corporation, USA, situated
in India is being attached under Section 83 of Cr. PC. 2 Members of the Indian government and survivor organizations assert that Union
Carbide was bound under the terms of their site lease to return the land to the
Indian government in usable and habitable condition. Instead, the company
undertook some cosmetic remediation work, which community residents assert did
nothing to diminish the danger of contamination to local aquifers, before
requesting local government departments to take back the lease. Though the
government took the site back from Carbide, currently the government is working
to sue Dow as current owner of Union Carbide, asserting a failure of the company
to abide by the lease terms. 3 In its Form 10K Annual Report for the year ended December 31, 1994, filed with
the SEC on March 10, 1995, Union Carbide stated: "LitigationThe corporation's stock in Union Carbide India Ltd (UCIL) has been
sold for the Indian rupee equivalent of $92 million. Or that amount, the
equivalent of approximately $15 million went to The Bhopal Hospital Trust,
which, with other funding from unremitted dividends and UCIL, discharged the
corporation's and UCIL's commitment for funding, in the amount of approximately
$19 million, a hospital to be built in Bhopal by the Government of India. The
remainder of the proceeds of the sale of the stock, after payment of certain
expenses of the transaction, is subject to attachment in the pending criminal
proceedings against the corporation in Bhopal, in which the corporation has not
appeared. The corporation had earlier reduced the carrying value of its stock in
UCIL to zero. In the opinion of counsel for the corporation, under generally
recognised legal principles, the criminal proceedings in India should not have
adverse financial consequences for the corporation outside of India." Emphasis
added. Notably, Union Carbide reported in its SEC filing that it was the advice of
counsel that the criminal case "should not have adverse financial consequences
for the company outside of India." By implication, the case could be expected to
have adverse consequences within India for Carbide, and now that Dow Chemical is
the owner of Carbide, this Carbide counsel's comment begs a follow-up evaluation
as to whether, for instance, Dow's assets in India may be subject to seizure as
the criminal case moves forward.
[STAFF REPLY LETTER]
February 11, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Dow Chemical Company Incoming letter dated December 30, 2003
The proposal seeks a report describing new initiatives instituted by management
to address the specific health, environmental and social concerns of the Bhopal
survivors. We are unable to concur in your view that Dow may exclude the entire proposal
under rule 14a-8(i)(3). However, there appears to be some basis for your view
that a portion of the supporting statement may be materially false or misleading
under rule 14a-9. In our view, the proponents must revise the caption to clarify
that it is a stockholder proposal. Accordingly, unless the proponents provides
Dow with a proposal and supporting statement revised in this manner, within
seven calendar days after receiving this letter, we will not recommend
enforcement action to the Commission if Dow omits only this portion of the
supporting statement from its proxy statement in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Dow may exclude the proposal under
rule 14a-8(i)(7). Accordingly, we do not believe that Dow may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(7). We are unable to concur in your view that Dow may exclude the proposal under
rule 14a-8(i)(10). Accordingly, we do not believe that Dow may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(10).
Sincerely, /s/
Michael R. McCoy
Attorney Adviser
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