No-Act: Dow Chemical 2.13.04

Company Name: Dow Chemical Co.
Public Availability Date: February 13, 2004

Document Sections:

INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER

[INQUIRY LETTER]

December 30, 2003

Direct Dial
(202) 955-8671
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: Stockholder Proposal of Daniel Clowes Securities Exchange Act of 1934 - Rule 14a-8

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 the Company's 2004 Annual Meeting of Stockholders (collectively, the "2004 Proxy Materials") a stockholder proposal and statement in support thereof (the "Proposal") received from Trillium Asset Management Corporation as the authorized representative of Mr. Daniel Clowes (the "Proponent"). The Proposal addresses the Company's reporting regarding certain toxic substances. Specifically, the Proposal asserts that the disclosures that the Company already provides in The Dow Global Public Report (the Company's public report on sustainable development) and in the Company's SEC filings have four "gaps" in their coverage. The Proposal describes the purported "gaps" and requests that the Company publish "a report filling the gaps in Dow Chemical transparency discussed above." 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, under Rule 14a-8(i)(10) because the Company has already substantially implemented it, and under Rule 14a-8(i)(7) because the Proposal deals with matters related to the Company's ordinary business operations.1

Pursuant to Rule 14a-8(j), enclosed herewith are six (6) copies of this letter and its attachment. Also in accordance with Rule 14a-8(j), a copy of this letter and its attachment is being mailed on this date to the Proponent and the Proponent's representative, informing them of the Company's intention to omit the Proposal from the 2004 Proxy Materials. The Company 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 materials and form of proxy with the Securities and Exchange Commission.

ANALYSIS

The Proposal seeks to micromanage the form and content of the Company's disclosures regarding certain specifically identified aspects of the Company's environmental initiatives. We believe that the Proposal does not address any general policy issue; instead, the Proposal ignores the broad scope and robust content of the Company's existing disclosures and seeks to micromanage those disclosures by delving into details that relate to the Company's ordinary business operation. Specifically, the Proposal asserts that the Company's existing disclosures do not adequately address the following four topics and requests that the Company provide additional information to fill these purported "gaps:"

"How public policies may impact the company's product lines, including the Stockholm POPs treaty, Great Lakes Water Quality Agreement and the proposed European REACH program."

"The list of Dow Chemical products anticipated to require specific authorization or be restricted under the proposed European "REACH" program."

"A company plan and timeline for phase-out of each product involving a persistent, bioaccumulative chemical or byproduct, or an explanation of why alternatives cannot be substituted, explaining how the company will respond to rising regulatory, competitive and public pressure."

"A listing of the reasonable range of projected costs of remediation or liability anticipated for (a) Midland, Michigan, (b) Agent Orange, and (c) each of the other potentially material toxic sites and issues facing the company."

Because the Company is already addressing these topics both in its existing public disclosures and in the conduct of its ordinary course of business, the Proposal may be excluded under Rule 14a-8(i)(10) and Rule 14a-8(i)(7).

1. The Proposal May Be Excluded under Rule 14a-8(i)(10) Because the Company Has Substantially Implemented the Proposal.

Because the Company already provides extensive disclosure on its goals to further reduce dioxins and bioaccumulative chemicals, progress toward achievement of the goals, its steps to assess the impact of various public policy initiatives and regulations on the Company's products, and its anticipated costs for remediation or liability arising from dioxin and other chemicals, the Proposal should be excluded from the 2004 Proxy Materials as moot. Through a wide variety of reports, including reports filed by the Company with various national, state and local regulatory agencies in the U.S. and around the world, the Company provides an extensive array of information regarding its activities to address a wide range of environmental initiatives.

Much of this information is published and regularly updated on the Company's extensive website devoted to Environment, Health and Safety ("EH&S") at http://www.dow.com/environment/ehs.html. In particular, the Company provides detailed information regarding its environmental policies and expenditures in The Dow Global Public Report (the most recent edition of this report published in May 2003 appears at http://www.dow.com/publicreport.2002/index.htm. Through the disclosures in The Dow Global Public Report and the EH&S section of the Company's website, particularly, a segment entitled "Debates and Dilemmas" that appears at http://www.dow.com/environment/debate.html, the Company addresses both the public policy issues and the Company's actions and/or responses to the product issues enumerated in the Proposal. The web site includes specific and substantive discussions on each of the issues listed in the Proposal.2

The discussion on the Stockholm POPs Treaty is set forth at http://www.dow.com/environment/dioxin/treaty.htm. This site describes the Stockholm Treaty as it relates to the Company, including the fact that the majority of the substances addressed in the treaty are pesticides that are neither created nor emitted by the Company. The site also describes the Company's approach to meeting the requirements of the treaty, and provides a direct link to the official Stockholm Treaty web site. As stated elsewhere on the Debates and Dilemmas site (http://www.dow.com/environment/dioxin/index.htm), the Company actively supports the Stockholm Treaty.

The discussion on the Great Lakes Water Quality Agreement ("GLWQA"), at http://www.dow.com/environment/debate/d12.html, discusses the agreement (with a direct link to the official GLWQA web sites in both the US and Canada), its principle areas of focus and the Company's actions in regard to the agreement.

The discussion on the proposed European Union's Registration, Evaluation, and Authorization of Chemicals ("REACH") program is set forth at http://www.dow.com/environment/debate/d13.html. This site describes the Company's understanding and analysis of, and position on, the proposed regulatory requirements of REACH, explaining that REACH has not been formally adopted so that rules and protocols are not yet developed. The site provides a direct link to the European Union's official REACH web site for current information. The Dow Global Public Report 2002 also states that the Company is continuing to assess the impact of various new regulatory requirements, including the European "REACH" program.

The Company's EH&S web site describes the Company's position on the virtual elimination of by-product POPs associated with the manufacturing of the Company's products. Further, the Company states that it is committed to reducing dioxins by 90 percent by the year 2005, that it has spent more than $500 million on improvements to processes and treatment technologies to reduce generation and emission of dioxins, and that so far it has reduced emissions by 75 percent. Additional information is available at Dow's Commitment to Dioxin Reduction, at http://www.dow.com/environment/dioxin/index.htm.

The Dow Global Public Report 2002, at pages 21-22, provides information about the Company's commitment to the phase-out of priority compounds including bioaccumulative chemicals and byproducts. The Company states that its goal is to reduce the emission of priority compounds by 75%, and that since 1994 the Company has reduced emissions of priority compounds by 81%.

The discussion on environmental remediation and potential future liabilities for remediation is found at http://www.dow.com/environment/debate/d11.html. This site discusses both the current amount accrued by the Company for remediation and provides a direct link to the Company's web site for access to its SEC submissions.

There is also a discussion of the Agent Orange issue at http://www.dow.com/environment/debate/d10.html. This site describes both the historical and current Dow perspective on this issue.

See also The Dow Global Public Report 2002, page 23, http://www.dow.com/publicreport/2002/pdfs/233-00207.pdf, where the Company further discloses its capital spending on environmental, health and safety matters. Id.

We believe that the foregoing disclosures respond to each area of business conduct raised in the Proposal and therefore substantially implement 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, the exclusion provided in Rule 14a-8(i)(10) "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. 12598 (July 7, 1976).

When a company can demonstrate that it already has 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., 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); Nordstrom, Inc. (avail. Feb. 8, 1995) (proposal that the company commit to a 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).

We believe that the disclosures described above and maintained on the Company's website, when compared to the disclosure items that the Proposal specifically addresses, demonstrate that the Company has substantially implemented the Proposal in The Dow Global Public Report and other public disclosures. The fact that the Company's disclosures may not appear in a single report as requested by the Proponent or may not provide as extensive detail as the Proponent would prefer does not mean that the Company has failed to substantially implement the Proposal. Exxon Mobil Corporation (avail. Jan. 24, 2001); E. I. Du Pont de Nemours and Company (avail. Feb. 14, 1995); The Boeing Company (avail. Feb. 7, 1994); Houston Industries Inc. (avail. Apr. 21, 1988); Houston Industries Inc. (avail. Apr. 10, 1987). Accordingly, we believe that the Proposal may be excluded under Rule 14a-8(i)(10).

2. The Proposal May Be Excluded in Its Entirety under Rule 14a-8(i)(7) Because the Proposal Deals with Matters Relating to the Company's Ordinary Business Operations (i.e., Involvement in the Political or Legislative Process and the Assessment of Risks).

Certain of the "gaps" that the Proponent alleges exist in the Company's public disclosures do not involve broad policy issues but instead relate to details of how the Company manages its day-to-day business. In particular, the Proposal seeks information on the possible impact of various prospective legislative and regulatory initiatives and an assessment of certain risks facing the Company. The Staff consistently has concurred that proposals seeking reports on a company's handling of or assessment of legislative, policy and/or regulatory actions are ordinary business matters.3 Accordingly, the Proposal properly may be omitted from the 2004 Proxy Materials pursuant to Rule 14a-8(i)(7) because the Proposal is not limited to significant policy issues but instead seeks disclosure of matters relating to the Company's ordinary business operations.

The Proposal requests information on "How public policies may impact the company's product lines, including the Stockholm POPs treaty, Great Lakes Water Quality Agreement and the proposed European REACH program," and on "The list of Dow Chemical products anticipated to require specific authorization or be restricted under the proposed European `REACH' program." The Staff has frequently concurred that proposals seeking reports on the impact to a company of regulations or legislation being considered by national (or in this case, international or multi-national) policy makers may be excluded because they seek to involve the company in the political or legislative process relating to an aspect of the company's operations.

For example, in International Business Machines Corporation (avail. Mar. 2, 2000) the proposal asked the company to prepare "a report on the potential impact on IBM of pension-related proposals now being considered by national policy makers, including legislative proposals affecting cash balance pension plan conversions and related issues." Noting that the proposal "appears directed at involving IBM in the political or legislative process relating to an aspect of IBM's operations," the Staff concurred that the company could rely on Rule 14a-8(i)(7) to exclude the proposal. See also Electronic Data Systems Corporation (avail. Mar. 24, 2000) and Niagara Mohawk Holdings, Inc. (avail. Mar. 5, 2001) (both seeking reports evaluating the impact of legislative and regulatory actions of pension-related proposals). In Brown Group, Inc. (avail. Mar. 29, 1993), the Staff concurred that the company could exclude a proposal requesting the board of directors to establish a committee that would evaluate and report on the impact of various health care reform proposals because the proposal appeared to be "directed at involving the Brown Group in the political or legislative process relating to an aspect of the Brown Group's operations." In Northern States Power Company (avail. Mar. 14, 1997), the Staff concurred that a proposal asking the company to take an active public stance on regulatory reform in the utility industry was excludable as "involving the Company in the political or legislative process that relates to aspects of the Company's operation." More recently, in International Business Machines Corporation (avail. Jan 21, 2002), the Staff agreed that a proposal requesting a report on the cost to the company of health care benefits "appears directed at involving IBM in the political or legislative process relating to an aspect of IBM's operations," and therefore could be excluded under Rule 14a-8(i)(7).4

The Proposal also requests "A listing of the reasonable range of projected costs of remediation or liability anticipated for (a) Midland, Michigan, (b) Agent Orange, and (c) each of the other potentially material toxic sites and issues facing the company." The information sought goes to the Company's assessment of the risks it faces from the conduct of its business. Again, it is well established that proposals seeking detailed information on a company's assessment of risks arising from its business operations goes beyond raising policy issues and instead delves into the minutiae and details of the ordinary conduct of business. In this respect, the proposal is very similar to the one addressed in Xcel Energy, Inc. (avail. Apr. 1, 2003). That proposal requested the company to issue a report on (a) the economic risk 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. The Staff concurred that the proposal could be excluded under Rule 14a-8(i)(7) because it related to the evaluation of risks from the company's operations. See Cynergy Corp. (avail. Feb. 5, 2003) (same proposal). See also The Mead Corporation (avail. Jan. 31, 2001) (excluding proposal related to a request for an economic or financial report of the company's environmental risks). Likewise, in Williamette Industries (avail. Mar. 20, 2001), the proposal requested a report on the company's "environmental problems and efforts to resolve them," including an assessment of "worst case" financial liability over the following 10 years and "the major challenges at Willamette facilities to comply with environmental regulations." Consistent with the foregoing precedent, the Staff concurred that the company could exclude the proposal under Rule 14a-8(i)(7) because it involved "ordinary business operations (i.e., evaluation of risk)."

As in the foregoing examples, the Proposal here goes beyond significant policy issues and seeks to micromanage the company by delving into the details of the Company's ordinary business operations by calling for a report on the Company's assessment of pending legislative and regulatory initiatives and an assessment of risks and financial exposure of the Company. As such, we believe that the Proposal may be excluded under Rule 14a-8(i)(7).

***

We would be happy to provide you with any additional information and answer any questions that you may have regarding this subject. 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. 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

Attachment

cc: Tina S. Van Dam, Corporate Secretary, The Dow Chemical Company
Daniel Clowes, Proponent
Shelley Alpern, Assistant Vice President, Trillium Asset Management Corporation

-----FOOTNOTES-----

1 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 (as it did last year) it has contacted the Proponent's representatives and proposed to discuss these matters directly with the Proponent's representatives and others.

2 Because these materials are publicly available through the Company's website, we have not included copies with this no-action letter submission. However, if the Staff would like copies of these materials, or an electronic version of this letter so that it can follow the hyperlinks, please contact the undersigned at (202) 955-8671.

3 Even if some of the alleged "gaps" in disclosure do not relate to ordinary business matters, the Staff has consistently held that a proposal calling for a report that addresses a number of different items can be excluded if any part of the proposed disclosures relate to a company's ordinary business. See Release No. 34-20091 (Aug. 16, 1983). For example, in Chrysler Corporation (avail. Feb. 18, 1998), the proposal requested the company to initiate a review of the company's code or standards for its international operations and issue a report thereon. The Staff agreed that the proposal could be excluded under Rule 14a-8(i)(7), stating "although the balance of the proposal and supporting statement appears to address matters outside the course of ordinary business, paragraph 5 of the resolution relates to ordinary business matters, and paragraph 6 is susceptible to a variety of interpretations, some of which could involve ordinary business matters." Likewise, the Staff recently confirmed that "where the subject matter of the additional disclosure sought in a particular proposal involves a matter of ordinary business ... it may be excluded under Rule 14a-8(i)(7)." Johnson Controls, Inc. (avail. Oct. 26, 1999). In accordance with all the precedents cited herein, the Company should be permitted to exclude the entire Proposal from its 2004 Proxy Materials because it calls, at least in part, for a report on matters related to the Company's ordinary business operations in contravention of Rule 14a-8(i)(7).

4 In this respect, the Proposal is also similar to numerous other proposals that the Staff has concluded related to the costs and other implications to a company's operations of compliance with governmental statutes and regulations and therefore are excludable pursuant to Rule 14a-8(i)(7). In Duke Power Company (avail. Feb. 1, 1988), for example, the Staff concurred that a proposal requiring an annual report detailing Duke Power's environmental protection and pollution control activities could be omitted from its proxy statement on Rule 14a-8(i)(7) grounds because compliance with government environmental regulations was considered part of Duke Power's ordinary business operations. Likewise, in Carolina Power and Light Company (avail. Mar. 30, 1988), the Staff concurred that a report on the company's environmental protection and pollution control activities was excludable because it related o the conduct of the Company's ordinary business activities. This conclusion has been reached even when the subject matter of the report in question related to legal compliance issues. For example, in Allstate Corporation (avail. Feb. 16, 1999), despite the subject matter of the report, the Staff concluded that the proposal did not raise significant policy considerations and did relate to Allstate's ordinary business activities even though the proposal concerned the creation of an independent committee to prepare a report on alleged illegal activity by Allstate, other state actions against Allstate, and recommendations to control costs of actions.

[APPENDIX]

Report Regarding Certain Toxic Substances

Whereas:

Concerns about chemical hazards are growing. Increased monitoring is demonstrating widespread exposure from current and past practices. In the opinion of the proponents, related policy proposals and litigation will also grow. with implications for Dow.

New technologies of analysis make it possible to detect chemicals such as dioxin and pesticides in the bodies of people, even at low levels, and to identify trends in chemical exposures. Among these are compounds found in Dow products, such as Dursban. The testing may aid the correlation of exposure to disease, and liability suits against chemical producers.

Dow's Midland, Michigan manufacturing facility releases dioxin to air, land and water. The surrounding city and watershed are contaminated with dioxin, with levels detected in the floodplain downriver as high as 80 times the state's residential cleanup standard. A state advisory has warned that exposure to the contaminated soil could pose a health hazard. A class action lawsuit on behalf of as many as 2000 residents asserts property damages and seeks medical monitoring.

Agent Orange, a Viet Nam era pesticide, was contaminated with dioxins. US and Viatnamese veterans and their families are demanding compensation from Dow. A 2003 US Supreme Court decision may allow thousands of new US veterans' suits to proceed.

Emerging public policies may require changes in production and use of certain Dow product lines. For example, the European Union proposes requiring manufacturers that sell chemicals in Europe to provide data on hazards and uses, and would require special approval of certain "very high concern" chemicals, including some persistent and bioaccumulative toxics, carcinogens, mutagens and reproductive toxins. The Stockholm Treaty on Persistent Organic Pollutants and the Great Lakes Water Quality Agreement both encourage elimination of persistent toxic chemical products and precursors.

In the opinion of the proponents, management's sustainability report and SEC filings obscure rather than clarlfy some of the most important policy issues confronting Dow, because they leave gaps in disclosure, specifically:

How public policies may impact the company's product lines, including the Stockholm POPs treaty, Great Lakes Water Quality Agreement and the proposed European REACH program.

The list of Dow Chemical products anticipated to require specific authorization or be restricted under the proposed European "REACH" program.

A company plan and timeline for phase-out of each product involving a persistent, bioaccumulative chemical or byproduct, or an explanation of why alternatives cannot be substituted, explaining how the company will respond to rising regulatory, competitive and public pressure.

A listing of the reasonable range of projected costs of remediation or liability anticipated for (a) Midland, Michigan, (b) Agent Orange, and (c) each of the other potentially material toxic sites and issues facing the company.

RESOLVED: Shareholders request that the Board publish by October 2004, at reasonable cost and excluding confidential information, a report filling the gaps in Dow Chemical transparency discussed above.

[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 Corporation On Behalf of Daniel Clowes (Report Regarding Certain Toxic Substances)

Dear Sir/Madam:

Daniel Clowes (the proponent) is a beneficial owner of common stock of Dow Chemical Corporation who has submitted a shareholder proposal to Dow Chemical Corporation (the company) through his representative, Trillium Asset Management Corporation. I have been asked by the proponent 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, the Dow Chemical Company 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) and substantially 14a-8(i)(10).

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 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 those rules.

BACKGROUND

The proponent's shareholder proposal pertains to the company's broad policies on the use and production of chemicals which persist in the environment, and build up in living things - persistent bioaccumulative pollutants - including dioxins. This relatively small group of compounds is under heightened scrutiny by international, federal, state and local policymakers, who have been targeting many of them for elimination.

Because the company's choice of products arguably makes it one of the world's leading producers of products that can be linked to formation and emission of persistent bioaccumulative substances at some point during their life cycle, the trends calling for elimination or strict authorization of these compounds pose a major public policy and marketplace challenge to the company.

This shareholder resolution is in essence an update and refiling of the resolution filed last year regarding Dow Chemical's toxic chemical management issues. Last year, the Staff rejected the ordinary business argument advanced by the company. Dow Chemical (March 7, 2003). Last year's resolution, filed by the same lead filer as the present resolution, sought a report summarizing the company's plans to remediate existing dioxin contamination sites and to phase out products and processes leading to emissions of persistent organic pollutants and dioxins. In the supporting statement it was stated that shareholders believe that such report should include:

* A list of current and future Dow Chemical products and waste treatment facilities creating or emitting dioxin or PBT's at any point in their life cycle.

* Timetables and benchmarks to meet phase-out goals of the treaties.

* Annual expenditures for each year from 1995-2002 summarizing funds spent on attorney's fees, expert fees, lobbying, and public relations/media expenses relating to the potential health and environmental consequences of dioxin releases or exposures at all Dow sites, as well as actual expenditures on remediation of dioxin contaminated sites.

* A list of the company's major reservoir sources of dioxin (concentrated deposits in the environment which may disperse into the ambient environment) at Dow-owned facilities in the US and globally.

* A description of any major controversies involving community and environmental stakeholders concerning the remediation of particular sites including Michigan, and reasonable projections of any material liabilities for cleanup or otherwise related to the contamination.

Dow argued last year that the resolution delved into ordinary business and was therefore excludible due to the level of scrutiny into timing of activities, spending levels of lobbying and litigation, and because it asked for a detailed list of items including controversies, material liabilities, etc. SEC staff rejected the company's argument, stating that it could not concur that the resolution could be excluded as ordinary business. The resolution garnered the support of shareholders holding 6.9% of shares.

In the succeeding year, there have been a number of public policy and judicial developments affecting Dow's management of the toxic substances in question. As a result, proponents updated the resolution to reflect those developments.

In 2003, the company was immersed in some very large controversies concerning specific products and sites. For instance, in 2003 the US Supreme Court opened the door to a new round of lawsuits by Viet Nam veterans and their families due to exposures related to the herbicide produced by Dow and other companies, Agent Orange. Also in 2003, the controversy surrounding the contamination of at least 22 miles downstream of Dow's headquarters with dioxin heated up further. The state of Michigan rejected the company's proposed slow timeline for study of the region, commissioned a study showing serious threats to wildlife in the region, and also warned residents to avoid contact with the contaminated soil. Pilot residential sampling conducted thus far has shown elevated levels of dioxin in the yards tested. There are an estimated 2,000 properties in the floodplain. In addition, the state is poised to begin a pilot sample of blood from residents in the contaminated area to determine if they have elevated levels of the contaminant in their bodies.

Dow Chemical is the world's leading producer of vinyl chloride monomers, one of two key building blocks in the production of PVC plastics. PVC has come under fire as a `worst in class plastic" for many reasons, including its link to persistent bioaccumulative toxicants. A report published by the Global Development and Environment Institute at Tufts University in December 2003 reviewed the economics of alternatives to PVC as well as the array of environmental policies being adopted by various governments and institutions to encourage that shift. The report notes widespread action to move away from PVC around the world. The report also found that less toxic alternatives are successfully competing with PVC in many applications and markets. It also concluded that a PVC phase-out is now "achievable and affordable." Excerpts of the Tufts University study are included in Appendix 2. Though a PVC phase-out may be achievable on a societal basis, and the advocacy for such phase-out is mounting primarily due to dioxin-generation concerns, the impacts on Dow and its shareholders may be substantial.

Also in 2003 the European Union, through the European Commission, proposed a new Europe-wide chemical regulation program, known as REACH. REACH stands for Registration, Evaluation, and Authorization of Chemicals. Registration requires companies to provide data on their products including toxicity and information about how humans or the environment might be exposed to them. This will place the responsibility and cost for information about the industry's products on the industry. Evaluation will be required for chemicals produced in large amounts or chemicals that are especially toxic. One consequence of evaluation might be to ban certain uses of a chemical. The most toxic chemicals would require authorization. These chemicals could include carcinogens, mutagens, reproductive toxicants, and chemicals that persist and accumulate in the environment. As currently written, one potential outcome of the authorization requirement can be an outright ban on a chemical in favor of a safer alternative.

The focus of policy instruments at every level is increasingly on giving priority to the elimination of production of persistent bioaccumulative substances, because policymakers have concluded that as long as these products are marketed, they will eventually enter and pollute the environment either as products, as byproducts of their production, or in the form of pollutants that result from disposal of the products. Therefore, several of the products that the Company is producing are likely to be impacted by the groundswell of policy seeking phase-outs of problematic products.

The company, however, is focusing on controlling dioxins emitted from its facilities, rather than moving away from toxic-generating product lines such as vinyl chloride. As a result, the proponents believe that the company may be on a collision course with public policy - failing to change its product lines to track the emerging direction of public policy.

As a result, the proponent has revised and refiled the proposal, this time asking the management to issue a report filling gaps in its reporting, specifically:

How public policies may impact the company's product lines, including the Stockholm POPs treaty, Great Lakes Water Quality Agreement and the proposed European REACH program.

The list of Dow Chemical products anticipated to require specific authorization or be restricted under the proposed European "REACH" program.

Dow Chemical, through its attorneys, asserts first that the resolution has been substantially implemented. Secondly, the company asserts once again that the resolution relates to ordinary business. Proponents strongly disagree with the company, and provide our analysis below.

ANALYSIS

I. The actions requested in the resolution have not been substantially implemented by Dow Chemical Management.

Dow claims, first, that its publications, principally on its web pages, "substantially implement" the reporting requested by the proposal. The company has published vague but colorful web pages that mention some of the issues in the resolution. But to determine "substantial implementation" one must ask whether the core concerns of shareholders raised by the resolution have been reasonably and substantively addressed by the company. Proponents assert that those concerns have not been effectively addressed, and further, that several of the statements on the Dow website are actually materially misleading to investors and others who visit the site for information.

In the following analysis we will walk through each of the items listed by Dow and show why the company's web activities do not fill the informational gaps targeted by the shareholder resolution. On the pages following, we examine in more depth the websites listed by Dow Chemical's attorneys, to assess the extent of responsiveness to the disclosure gaps highlighted by the resolution.

In our view, the company has not substantially implemented the proposal for two separate reasons:

First, it has not provided the substantive information requested by the proposal.

Secondly, we believe the information that the company does provide is often materially misleading. Publication of information that may itself pose violations of SEC rules 14a-9 and 10(b)(5) because it is materially misleading cannot, in our opinion, be a substantial fulfillment of a shareholder resolution requesting disclosure on major public policy issues by the company.

[Chart omitted and under conversion.-cch]

A. Persistent Organic Pollutants/Stockholm Convention on Persistent Organic Pollutants

The Dow Chemical web page on Persistent Organic Pollutants and the Stockholm Convention Treaty1 acknowledges the growing public policy attention to these pollutants. However, thereafter it describes the issues in a way that is quite misleading.

While the management is entitled to report that its focus has been and continues to be on reducing emissions of these products, it fails to provide a reasoned appraisal as to whether such an approach is responsive to the Treaty, and most importantly, what the impact will be on the company if it continues to hew to this strategy.

The web page noticeably fails to note that public policy is pointing towards product phaseouts! It even notes quite misleadingly "Some might argue that the generation of unwanted byproducts should be the signal that we should no longer make particular materials." This highly misleading statement neglects to note that the very treaty that they are referencing contains an Article 5 and an Annex C that provide specific provisions aimed at minimizing, and where feasible, eliminating all release of dioxins and certain other unintentionally produced persistent organic pollutants (furans, PCBs and hexachlorobenzene). Article 5 states that Each Party shall at a minimum ... (paragraph c). "Promote the development and where it deems appropriate, require the use of substitute or modified materials, products and processes to prevent the formation and release of chemicals listed..."

The Stockholm Convention also (in Annex C, part V, section A) states that "Priority should be given to the consideration of approaches to prevent the formation and release of the chemicals listed... Useful measures could include:" (paragraph d) "Replacement of feed materials which are persistent organic pollutants or where there is a direct link between the materials and the release of persistent organic pollutants from the source."

There has been a scientific and policy debate for more than a decade on whether or not a "direct link" can be demonstrated between dioxin releases and the production and disposal of chlorinated organic chemicals and materials. In North America, this debate was first seriously engaged in the early 1990's when the International Joint Commission on the Great Lakes (IJC) first reached this conclusion in its Sixth Biennial Report (March 1992). Given that the Stockholm Convention is a more global policy instrument than is the Great Lakes Water Quality Agreement (from which the IJC derives its relevant Terms of Reference), one must assume that this debate will gain momentum in coming years in the context of the implementation of this global, legally binding instrument. The outcome of this public policy debate could substantially effect the longer-term viability of many Dow products and sunk capital investments.

The focus of policy instruments at every level is increasingly on giving priority to the elimination of production of persistent bioaccumulative substances, because policymakers have concluded that as long as these products are marketed, they will eventually enter and pollute the environment through products and disposal pathways. Therefore, several of the products that the Company is producing are not only targeted by public policy for emissions reduction at the site of production but they are also targeted for phase-outs of product sales and distribution. The International Joint Commission, in implementing the Great Lakes Water Quality Agreement, has repeatedly called for a phase-out of production and products that lead to persistent bioaccumulative compounds, especially chlorine products.

Partly in response to the POPs treaty and the IJC's recommendation, numerous communities and states have adopted resolutions or laws seeking to end the purchase or production of dioxin-generating products. In addition, institutional purchasers are also moving away from such products.

For example, quite a few institutions have begun to move away from PVC plastic because of its link to the potential for dioxin formation, among other reasons (Dow is a major manufacturer of the feedstocks for PVC plastic). There is a growing trend away from PVC purchasing worldwide. See Appendix 2 for examples cited in the Tufts University study.

In addition, a number of states and localities have begun adopting policies generally relating to dioxins and/or PBTs. For example, Oregon Executive Order NO. EO-99-13 charges the Oregon Department of Environment Quality to lead a statewide effort to eliminate the release of PBTs into the environment, and among other things utilize education, technical assistance, pollution prevention, economic incentives, government procurement policies, compliance, and permitting activities to eliminate PBTs.

The EPA and the American Hospital Association signed an MOU committing the nation's hospitals to the reduction of PBT's. Several of the largest healthcare institutions and the purchasing organizations that supply them have articulated policies to prefer non-PVC products. They are leading efforts in other industry sectors to move away from PVC because of the products' link to PBTs.

On October 29, 2003 the Boston City Council unanimously passed a Dioxin Resolution, calling for the City Council to encourage "elimination of dioxin emissions through its procurement practices wherever possible." The Council is working with the Purchasing Department to create a framework for substituting alternatives to dioxin emitting products whenever economically feasible.

Dow's reports state that the reason Dow has chosen to focus its efforts on dioxin emissions to air and water (from Dow facilities) in goal setting is because these emissions "ultimately end up in the environment." This is a distortion of the actual situation, which is that quite a lot of dioxins end up in the environment as a result of the use and disposal of Dow products. The planned reductions do not take into account real world use of Dow products. Dioxin and other PBT's are unavoidably produced during production, and unavoidably produced during both burning or controlled incineration. Increasingly, dioxin formation is being attributed to the uncontrolled burning of plastics (notably PVC, for which the basic building blocks are manufactured by Dow). Backyard burning, or the uncontrolled burning of household waste, has recently been estimated to contribute more than 800 grams of dioxin to the national inventory according to an EPA official quoted in Science News. That is a substantial portion of the national total of 3,000 grams from all sources. In addition, unquantified but likely large additional sources include landfill fires, house fires and car fires. All contain products manufactured with Dow feedstocks, all are uncontrolled and will not be controlled, and all are efficient producers of dioxin.

The Dow website states: "Dow currently has no specific reduction goals for landfill disposal of dioxins... Conversely, Dow uses specially designed hazardous waste landfills for dioxin disposal where there is no potential for release to the environment."

Although the company may not be setting goals for dioxins it loads into landfills, landfills provide a reservoir for dioxins that may hold future liabilities for Dow. First, landfills leak, representing a high potential for environmental releases.2 Second, landfill fires provide a demonstrated dioxin source. Finally, the Stockholm Convention seeks to eliminate all dioxin releases to all media.

Uncontrolled burning in developing countries is far more widespread, and the scale of such burning dwarfs US numbers. Reliable statistics are not available, but the lack of basic infrastructure for waste handling leads to major uncontrolled burning in many of the countries that are both major growth markets for Dow, and signatories to the Stockholm Convention. Reduction efforts for these sources will unavoidably be focused on changing the materials used in basic consumer products.

Dow Chemical states that "in managing risk, we consider everything from byproduct minimization and emissions reduction, to elimination of those products or uses that poses a significant risk to human health and the environment." The fact that they "consider" the options is interesting in light of the apparently very little actual phase-out of particular products using this rationale. The resolution asks Dow to go beyond this, however, to either provide a timetable for phaseouts, or explain why they are not phasing out the toxic products and replacing them with safer alternatives. Dow has done nothing in its reporting to respond substantively to that request.

B. Great Lakes Water Quality Agreement

The Dow Chemical web page discussing the Great Lakes Water Quality Agreement (GLWQA)3 notes that the GLWQA has a goal of "virtual elimination" of persistent toxic substances. The company then goes on to say that Dow Chemical is "supportive of emission reduction programs" for persistent toxic substances as part of the bi-national toxics strategy. The placement of these two statements in this sequence is highly misleading to visitors to this Dow web site, including shareholders, because it fails to note that the policies adopted under the Great Lakes Water Quality Agreement by the International Joint Commission to implement the goal of virtual elimination includes the elimination of certain Dow productsnot just Dow emissions. In 1992 and again in 1994, the International Joint Commission (IJC) on the Great Lakes recommended that the United States and Canada develop a timetable to sunset the use of chlorine and chlorine-containing compounds in industrial feedstocks. The IJC recommendation was based on their reading of the Great Lakes Water Quality Agreement.4

Thus, while the company points to its efforts to reduce the production and release of byproduct chemicals, it fails to assess or apprise the reader of the impact of the emerging policies seeking to eliminate or alter Dow Chemical products themselves.

C. Impacts of Proposed European REACH Program

The Dow Chemical web page on the European REACH program,5 vaguely mentions that:

the company and the European Chemical Industry Association are engaged in advocacy efforts, to attempt to soften the impact of the proposed program.

prudence dictates that (unnamed) preparations be undertaken within Dow to eventually implement the requirements of the program.

the company anticipates increased (but unquantified) costs for product testing, risk characterization, and preparation of reports under the REACH program.

some Dow products may be subject to the EU authorization process,

Dow believes it will be able to demonstrate adequate risk management for the use and application of the majority of such substances.

It would be impossible for shareholders visiting the Dow site to assess how impactful the pending REACH program may be on the company. According to Dow's reporting to shareholders, 33% of 2002 revenues were derived from Europe, and 31% of revenues from its Chemicals and Performance Chemicals businesses.6 The likely adoption of REACH presents a clear challenge to its business strategy worldwide.

The proposed authorization process focuses on carcinogens, mutagens, substances toxic to reproduction, and persistent organic pollutants and has the potential to prohibit the use of chemical. These properties are well-represented in Dow's product lineup. The proponent believes that shareholders have the right to know which chemicals might be impacted (i.e. exported to the EU), current sales to the EU of these products, and potential financial impact on the company. Dow glosses over this by implying that few, if any, of their products will be constrained by EU authorization requirements.

The website misleadingly implies that demonstrating "adequate risk management" will allow Dow products to persevere through the proposed EU system to authorization.

"Some Dow products may be subject to the authorization process under EU REACH, but it is expected that Dow will be able to demonstrate adequate risk management for the use and application of the majority of such substances."

This outcome may be contingent on Dow and the European Chemical Industry Association persuading the European parliament to modify the current proposal so that a company's "risk management" is adequate for the use, application and disposal of substances: By contrast, in the current proposal a realistic scenario could involve some Dow products being taken off the market in Europe. But even Dow's language on the website fails to mention the implications for the company of the portion of Dow chemicals that they imply will fail a risk management screen.

In the REACH Program in its current formulation a targeted and nonexempt substance would be required to receive authorization to continue to be marketed in Europe. To be authorized, a targeted chemical must be controlled in its release and exposure to levels corresponding to prevention of potential harm to human health. Alternatively, a substance that is not so-controlled can still be authorized if it can be shown both that the socio-economic benefits outweighed the risk to human health or the environment rising from the use of the substance and there are no suitable alternative substances or technologies.

As discussed above regarding the GLWQA and the POPs treaty, policymakers have been concluding that it is necessary to eliminate products that lead to persistent, bioaccumulative toxicants, because they persist and magnify when they enter the environment and work their way up the food chain, therefore making the regular release of even small amounts dangerous because of their tendency to build up in living things. So it is unclear that Dow will be able to meet the "acceptable levels" test for some of its products.

Therefore, it could be necessary for the company to meet the latter test, showing both that the benefits outweigh the risks to human health or the environment and that there are no safer substitutes available. In a growing number of instances, harmful products produced in high volume by Dow do have safer substitutes. So, many Dow products may not be able to pass this test and receive authorization. The end effect: a potential end to European markets for some Dow productsbut how many are at risk, and to what extent, is something that the management knows, and investors and the public are left to guess.

Dow Chemical's reporting does not provide any real assessment of the impacts of the possible REACH program - the number of Dow products targeted by requirements for reporting, testing and authorization and the cost of these requirements, the relative significance of those products within the Dow product family or the implications of the company's commitments to "risk management" of toxic product lines. Instead of providing a reasonable assessment of the range of potential impacts of the program, and the product lines at stake, the Dow website reporting provides a uselessly distorted view based on Dow's hopes to modify the proposed program. Without providing shareholders with a realistic assessment of the potential impacts of the REACH program, the shareholders are unable to assess issues relative to the large policy challenges looming on the horizon.

D. Environmental remediation and liability estimation

The Dow web page on environmental remediation describes how costs of environmental matters such as site remediation are accrued.7 The policies for reporting these liabilities are described in general terms in both the company's annual reports to shareholders and on the web page. The company reports on the web page and in its shareholder reports that it "accrues the costs for environmental matters when it is likely the liability has been incurred and the amount of the liability can reasonably estimated based on current law and existing technologies."

Remarkably, it is not possible to ascertain from the website or the company's shareholder reports whether the enormous potential liabilities associated with Midland, Michigan have as yet been accrued and reported.

Dow's production facility in Midland has produced chlorinated compounds for more than 60 years. In 2001, extensive dioxin contamination was discovered downriver from Dow's manufacturing facility and water discharge outfalls. The dioxin contamination is thought to have resulted primarily from historical operations and some catastrophic releases, particularly related to flooding, although the company continues to release the compound. The contamination extends more than 20 miles downstream from Dow's manufacturing site and appears to be distributed throughout floodplain soils. According to state regulations, cleanup is required if dioxin levels are higher than 90 parts per trillion (ppt) in a residential area. Samples tested thus far range from background to more than 7,200 ppt, more than 80 times the state cleanup standard.8

Dow Chemical management attempted late in 2002 to negotiate an agreement with the state of Michigan to elevate the standard of contamination allowed in some of the contaminated area. However, after a lawsuit by environmental organizations, the effort to elevate the standard was dropped. As a result there is a wide area downstream of the facility that must be subject to remediation. The company has never provided investors with an assessment of how that failure affects the magnitude of liabilities facing the company.

Since then, the company has been in an ongoing battle with the state of Michigan regarding the studies needed to assess the extent of remedial obligations. According to an Associated Press story of December 4, 2003, Al Taylor, senior geologist for the DEQ's hazardous waste division, said that Dow Chemical's proposed contamination study plan is not sufficient. The plan gives Dow too much time to complete its work. Taylor wants to see the timeline compressed to "this year or as soon as possible." It also lacks plans for sampling soil in Midland neighborhoods near Dow, for identifying properties in Saginaw Township where residents are at high risk for dioxin exposure, and for posting warning signs in public parks along the river, Taylor said.

Despite the company's delays, other studies are being done that are escalating the level of concern. For instance, a 2003 report from the Michigan Department of Environmental Quality states that the high levels of dioxins in the Tittabawassee River are also found in local fauna, including several species of fish, and fish eating birds and mammals. Bioaccumulation of the toxicant in local birds was in some instances 200 times higher than the level known to cause harm, such as reduced fertility and early life stage death. The Midland Daily News, 10/08/2003. Now a pilot study is being conducted by the Michigan DEQ to assess levels of dioxin found in the blood of Tittabawassee River flood plain locals. The investigation is a precursor to a larger study that could include hundreds of test samples. Midland Daily News, 1/7/2004.

The company's apparent failure to estimate and disclose Midland area liabilities may have striking parallels to the company's handling of liabilities associated with asbestos. At the time that Dow acquired the Union Carbide company it apparently did not even mention the issue of potential asbestos liabilities. The company was never able to directly estimate liabilities associated with Union Carbide's asbestos - instead, it calculated liabilities by considering the trends in liability for other similar cases at other companies. The result was a large estimate $2.2 billion in liabilities over the next seventeen years, and a write down of Dow assets by $828 million.

The issues surrounding the Midland site, if they are not already accrued as part of currently reported environmental remediation obligations, may represent another large hidden liability akin to asbestos. It is possible, and the proponents believe, necessary, for Dow Chemical to do as it did with asbestos - to base interim liability projections on other similar cases in the field. Calculating the range of costs in this way is relatively straightforward - e.g. estimation of potential volume of soil that could be required to be removed and treated in the floodplain, number of households to be relocated, etc.

There are extensive databases of contamination cleanup and liability costs available to the management, which is best situated to suggest the range of potential costs associated with Midland. For example, Solutia Inc., a subsidiary of Monsanto Co., is expected to spend at least $700 million for liabilities with regards to PCB contamination in and around its 70 acre facility in West Anniston, AL. Total cost for Anniston includes about $50 million in cleanup costs and about $700 million in tort judgments and settlements. (WSJ 8/21/03.) Other sites with contaminated downriver soils can provide good references for the costs of cleaning up contaminated soil.

E. Agent Orange Liabilities

Between 1962 and 1971, approximately 20 million gallons of Agent Orange were used in Vietnam.9 At least 100,000 US troops - and possibly many more - were exposed to the dioxin containing herbicide.10 The Institute of Medicine (IOM) states in its 2003 report, Veterans and Agent Orange, that there is a positive association ("in which chance, bias, and confounding could be ruled out with reasonable confidence") between exposure to Agent Orange and soft-tissue sarcoma, non-Hodgkin's lymphoma, Hodgkin's disease, chloracne and chronic lymphocytic leukemia. Furthermore, the IOM reports that limited/suggestive evidence connects exposure to elevated levels of respiratory cancers, prostate cancer, multiple myeloma, porphyria cutanea tarda, acute and subacute transient peripheral neuropathy, and spina bifida in the offspring of the exposed.11

In the 2003 Supreme Court decision of Dow Chemical v. Stephenson, the court reopened the right of thousands of veterans and their families - who claim to have developed illnesses after 1994 due to Agent Orange. They now have a right to file suits against the manufacturers of Agent Orange, including Dow Chemical. As a result of improved scientific studies in the years since the original Agent Orange settlement, causal connections to some illnesses alleged in the new litigation are backed with additional, strengthening scientific evidence. The original Agent Orange settlement was for $180 million.

To make matters worse, a study by the US Air Force released January 23, 2004 found that Air Force veterans exposed to Agent Orange during the Vietnam War have a higher-than-average risks of prostate and skin cancer. The ongoing study of 2,000 Vietnam veterans showed for the first time an elevated risk of melanoma, the deadliest form of skin cancer. Previous studies have found increased risks of prostate cancer, chronic lymphocytic leukemia and also diabetes.

The company's website reporting regarding the Agent Orange case12 fails to substantively do what the resolution requests, namely to assess the range of potential liabilities. Instead, it mentions a series of defenses that its lawyers hope will work to the company's advantage in the courts. Dow has so far failed to provide quantification for its investors of the range of potential costs associated with Agent Orange in the event that the company loses the legal arguments remaining such as the government contractor defense.

F. Deciding that Dow's reporting does not amount to substantial implementation is consistent with SEC staff precedents.

Often companies have argued that the limited reporting that they have done is substantial implementation, and SEC staff has concluded it was not. For example, in Raytheon (Feb. 26, 2001) the proposal requested that the board conduct a special executive compensation review to "look for ways to link a portion of executive compensation to measures of employee satisfaction," and summarize the results of this review in the Compensation Committee's report to shareholders. Raytheon argued that it regularly conducts an executive compensation review across a variety of factors. The proponent prevailed by arguing that, "from the information provided in the Committee's report to shareholders in last year's proxy statement and from Raytheon's letter to the SEC it is not clear that the inclusion of `people-related incentives' is anything more than an aspirational platitude." This is very similar to the present case, where the company's statement that it considers phasing out products is not backed up with reporting on what will be phased out by when.

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."

II. The resolution is not excludible as ordinary business because its focus is on fundamental public policy issues facing the company.

A. Dow's dioxin-producing products pose an ever-increasing public policy challenge to the company.

Dioxins are a general scientific term used for a group of chlorinated substancesdioxins and furanswhich all exhibit similar chemical and physical properties. Seventeen members of this group are considered most toxic. USEPA, Draft Exposure and Human Health Reassessment of 2,3,7,8-Tetrachlorodibenzo-p-Dioxin (TCDD) and Related Compounds, September 2001.

Dow produces an array of products which can lead to the emission of dioxins. According to industry data, dioxins are produced and emitted in the production of vinyl chloride monomers (VCM's), for instance. Dow is one of the world's largest producers of these feedstocksmaterials that are the components of polyvinyl chloride plastics. When polyvinyl chloride products are disposed after use, their incineration is also believed by many experts to lead to the generation of dioxin, for instance, in municipal incineration or in house, car, or landfill fires. While the amount of dioxins released depends most importantly on combustion conditions and control technologies, dioxin is indisputably released. USEPA, Draft Exposure and Human Health Reassessment of 2,3,7,8-Tetrachlorodibenzo-p-Dioxin (TCDD) and Related Compounds, September 2001.

Dow also produces a variety of chemicals that can be associated with dioxin formation either during manufacture, or during disposal if incinerated. Those chemicals include chlorinated pesticides, chlorinated solvents, and elemental chlorine. The environmental advocacy group Greenpeace has targeted Dow as one of the leading root sources of dioxin given the company's product line and an assessment of dioxin formation associated with the entire life cycle of the company's products. Greenpeace, Dow Brand Dioxin, 1995.

The Environmental Protection Agency issued its Updated Draft Reassessment of Dioxin in 2001. The in-depth scientific review, the most exhaustive review of a single compound ever undertaken by the agency, affirmed and amplified the already known hazards of dioxins. The biggest change in the new draft is that EPA has found that the cancer risk from exposure to dioxin is 10 times greater than reported in 1994. The new review also underscores concerns about the developmental and reproductive effects of dioxin exposure in children indicating that children, particularly developing infants, are highly sensitive and vulnerable to the toxic effects of dioxin. The review concludes that impacts on development, the reproductive system and metabolismmay be occurring in people who are exposed to the high end of the general population's "background" levels.

There is also human evidence that dioxin is toxic in tiny amounts, and can disrupt many systems of the body. The large body of evidence on dioxin has demonstrated effects including cancer, reproductive and developmental harm, disruption of normal hormone functions, skin rashes (chloracne), immune suppression, endometriosis, diabetes and liver damage.

During 2003, the Dow Chemical Environment, Health and Safety team heard a presentation from the USEPA regarding the dioxin reassessment. Linda Birnbaum, Director of the EPA's Environmental Toxicology Division, Health Effects Research Laboratory, informed Dow officials that the information used by EPA in assessing cancer risks is based on human evidence, and shows that any exposure to dioxin poses an added cancer risk.

New attention has been focused in the last year on the human "body burden" of dioxinthat is, the amount of the chemical found in the tissues of humans. Previous testing has shown that many Americans already have levels of this compound in their bodies, with any additional exposures only adding to that risk.

Persistent bioaccumulative toxics (PBT's) are substances that are known to persist in the environment, accumulate and bioconcentrate in the food chain, and cause threats to life as a result of their presence. Because of these characteristics, even small amounts of PBT's, if released over time, have the potential to concentrate in the food chain, posing risks to consumers.

Numerous public policy bodies and instruments are targeting products that lead to PBT's and dioxins as a priority public health and environmental concern.

In 1993, the American Public Health Association, the largest association of public health professionals in the US, with over 50,000 members, endorsed a phase-out of chlorine and chlorinated compounds in industry processes, in part, because of the link between PBT formation and chlorinated products. The proposed phase-out would only allow exceptions if an industry could show that an individual use is safe.

In 1992 and again in 1994, the International Joint Commission on the Great Lakes recommended that the United States and Canada develop a timetable to sunset the use of chlorine and chlorine-containing compounds in industrial feedstocks because of potential PBT formation during manufacture, use and disposal. Their recommendation was based on their reading of the Great Lakes Water Quality Agreement, an agreement negotiated between the US and Canada.

In Europe, the Paris Commission on the Northeast Atlantic and the Barcelona Convention on the Mediterranean Sea and several other informational forums have called for the total elimination of chlorine in manufacturing processes.

The Stockholm Convention on Persistent Organic Pollutants, signed May 2001, states in its Annex C, which addresses dioxins, that:

Priority should be given to the consideration of approaches to prevent the formation and release of the chemicals.... Useful measures could include:

(a) The use of low-waste technology;

(b) The use of less hazardous substances;

(d) Replacement of feed materials which are persistent organic pollutants or where there is a direct link between the materials and releases of persistent organic pollutants from the source;

(e) Good housekeeping and preventive maintenance programmes;

(f) Improvements in waste management with the aim of the cessation of open and other uncontrolled burning of wastes, including the burning of landfill sites. When considering proposals to construct new waste disposal facilities, consideration should be given to alternatives such as activities to minimize the generation of municipal and medical waste, including resource recovery, reuse, recycling, waste separation and promoting products that generate less waste. Under this approach, public health concerns should be carefully considered;

(g) Minimization of these chemicals as contaminants in products;

(h) Avoiding elemental chlorine or chemicals generating elemental chlorine for bleaching.

It also states that:

When considering proposals to construct new facilities or significantly modify existing facilities using processes that release chemicals listed in this Annex, priority consideration should be given to alternative processes, techniques or practices that have similar usefulness but which avoid the formation and release of such chemicals.

In 2003 the European Union, through the European Commission, proposed a new Europewide chemical regulation program, known as REACH. REACH stands for Registration, Evaluation, and Authorization of Chemicals. Registration requires companies to provide data on their products including toxicity and information about how humans or the environment might be exposed to them. This places the responsibility and cost for information about the industry's products on the industry. Evaluation is required for chemicals produced in large amounts or chemicals that are especially toxic. One consequence of evaluation might be to ban certain uses of a chemical. The most toxic chemicals would require authorization. These chemicals could include carcinogens, mutagens, reproductive toxicants, and chemicals that persist and accumulate in the environment. One potential outcome of the authorization requirement can be an outright ban on a chemical in favor of a safer alternative.

As indicated by these examples, the focus of policy instruments at every level is increasingly on giving priority to the elimination of production of persistent bioaccumulative substances, because policymakers have concluded that as long as these products are marketed, they will eventually enter and pollute the environment through products and disposal pathways. Therefore, several of the products that the Company is producing are not only targeted by public policy for emissions reduction at the site of production but they are also targeted for phase-outs of product sales and distribution.

B. Because the resolution relates in its entirety to major public policy issues facing Dow Chemical, it cannot be excluded under the ordinary business exception.

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. Although the company implicitly acknowledges that the proposal raises public policy issues, it contends that the details suggested in the supporting statement delve into excludable ordinary business matters rather than major policy issues. 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.

i. Requests for the company to report on whether and when the company will phase out products and processes leading to emissions of persistent organic pollutants and dioxins are major policy questions rather than ordinary business.

The resolved clause of the shareholder resolution primarily asks the company to issue a report summarizing its response to public policies calling for the company to phase out products and processes leading to emissions of persistent organic pollutants and dioxins. In light of the above discussion, the questions of phase-out of products and processes, is clearly a major public policy issue and reflective of major, long term strategic questions facing the company. Thus the phase-out proposal is consistent with numerous similar public policy resolutions on chemical phase-outs which have been determined by Staff to not be ordinary business. This included last year's Dow Chemical resolution by the proponent. (March 7, 2003). In that resolution, as in this year's, the primary focus was on the need for reporting on the company's responses to public policies calling for the phase-out of certain product lines that result in the generation of persistent toxic substances.

A long line of SEC staff precedents regarding product and materials phase-outs supported the staff's decision that the Dow resolution in 2003 was not excludable as ordinary business.

For example, in the HCA/Columbia and Universal Health Services decisions (both available March 30, 1999), health care providers were asked to phase out the use of polyvinyl chloride in medical devices. Also, a similar resolution was found not to intrude on ordinary business, focusing on medical device manufacturer Baxter International (available March 1, 1999) calling for the company's phase-out of PVC in medical devices. PVC is one of the key substances produced by Dow that would also be a target of the present resolution.

In Time Warner Inc. (available February 19, 1997) a resolution on the phase out of the use of chlorinated paper by the publisher, as a paper user, was found to not be ordinary business. In Union Camp Corporation (available February 12, 1996) a resolution asked the company to "establish a schedule for the total phaseout of processes involving the use of organochlorines in its pulp and paper manufacturing" (due to dioxin concerns). The Staff ruled that it could not be excluded as relating to ordinary business. In Chevron Corporation (available Feb 11, 1998) a requirement to report on toxic compounds, including dioxin, released from refineries, was found not to be ordinary business.

Also relevant are tobacco cases such as those involving Philip Morris and Loews Corporation (parent of tobacco company Lorillard). In Philip Morris Companies, Inc. (March 14, 1990) the proposal requested the company to amend its Articles of Incorporation to provide a prohibition against the company engaging in the tobacco business after a specified date. It was found not excludable as ordinary business. In Loews (available Feb. 22, 1990) a shareholder proposal for eventual cessation of manufacture of tobacco products, the company unsuccessfully argued that directing it to phase out its focus on particular products involves "ordinary business operations".

The proposal is also consistent with a previously allowed Dow Chemical resolution (available February 11, 1980) which requested the company to:

"establish a review committee to examine and evaluate the existing and potential health consequences of 2.4,5-T, Silvex and their derivatives, and to make recommendations to the Board relating to the economic justification of continued production of these herbicides. The committee shall have the following structure and duties;

1) The committee shall be no less then seven persons and shall include outside directors and representatives of management, employees and non-company persons expert in environmental science, medicine and public health;

2) Release its report-on the public health consequences of these herbicides to the board and shareholders within 6 months of the 1980 annual meeting;

3) Funds to be expended by the committee shall be limited to reasonable amounts as determined by the board.

Be it further resolved that the shareholders request that Dow Chemical place a moratorium on all production destined for export of these herbicides until publication of the review committee report."

In that matter, Staff responded that the resolution was not directed to Dow's ordinary business operations despite its consideration of the consequences and economic justification of individual products. The staff concluded that this was not directed to the ordinary business operations of the Company.

More than twenty years after that Staff decision, the company is deeply enmeshed in and affected by the public policy issues related to its production, sales and release of products which can lead to the generation of persistent toxic substances including dioxins. Dioxin contamination as a result of historic and ongoing operations by the company remains an important issue. Dow's operations, at their global headquarters in Michigan, are thought to be responsible for contamination of an entire watershed downriver from its plant. The company is facing substantial liability in that matter. The 1980 resolution is environmentally relevant today, because dioxin generated as part of 2,4,5-T production may have added to the dioxin loading in the region now looming as a substantial liability. Dow's operations at other plant sites may well also have resulted in some contamination of the local environment.

As public policy increasingly moves towards greater concern and control of dioxin and other PBT's, the issue only grows in importance and relevance for the company and its shareholders.

The proponent believes that if the company does not heed public policies calling for the speedy phase out of dioxins and persistent toxic compounds, and products which significantly generate these compounds during their life cycle, it will also be vulnerable to additional damage suits which could negatively impact shareholder value. It may also be vulnerable to loss of market share due to downward pressure on product sales and production worldwide.

The company notes that it has set a goal of reducing its dioxin emissions to air and water by 90% by the year 2005 and reports expenditures in excess of $250 million toward this goal. But this statement does not answer the fundamental question of whether and when the company will act consistently with the international treaties and other public policy measures that call for the elimination of dioxin emissions and precursors, and give preference to strategies for eliminating dioxin and PBT's at the source, that is, shifting away from harmful products rather than only controlling emissions once generated at Dow facilities. The company's 2005 dioxin reduction goal, while a positive development, is largely unresponsive to the policy challenges ahead. Reducing its previous high volume of emissions to a smaller level still will leave dioxin emissions to be controlled. More importantly, the 2005 goal does not address the very large problem of Dow products which enter the marketplace and cause dioxin or persistent toxic chemical emissions in their use or disposal - emissions which include large uncontrolled sources - the problem which has led to the characterization of the company as the largest manufacturer of dioxin precursor products.

The issues involved are not ordinary business because they address "a major ecological and environmental matter." 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."

The company also cites in footnote 4 the Duke Energy Corp. resolution(Feb. 1, 1998), where the proponents had attempted to impose very specific emission control standards of 5 lbs. of NOx per million btu's of heat by 2007. This was akin to imposing a specific regulatory standard on the company, in other words micromanaging. In contrast, in the present case the proponents are asking a much larger question about whether and how the company will meet treaty goals and other policy measures which shift away from certain products and processes, and additionally, a summary of the costs in recent years from the company's failure and resistance to making such a shift.

ii. Requested reporting on policy developments does not amount to an attempt to control lobbying so as to be excludible "ordinary business."

The request to report on various policy developments in no way represents an excludible attempt by the proponent to dictate the company's lobbying practices. Although the resolution asks for reporting regarding some issues of public policy that are in current deliberation, the resolution does not ask for the company to take any particular position in the context of lobbying. Moreover, even if it did, there is precedent for allowing such concerns and requests as part of resolutions addressing larger public policy issues.

SEC staff did not treat as ordinary business a resolution asking Bank of America (avail. December 30, 1999) to adopt a policy that it not make or solicit any political contributions. And it did not treat as ordinary business a resolution directed toward General Electric (Avail. December 20, 1999) requiring a summary of GE's federal and state campaign finance contributions, policies on allocation of shareholder funds for political purposes, or lobbying position on campaign finance reform.

Proponent believes that the company is keeping shareholders in the dark on information that taken together, may demonstrate the material impacts of the company's materials policies.

With regard to resolutions on lobbying and political matters, if anything the commission staff has grown more lenient in recent years. For instance, it did not treat as ordinary business a resolution asking Bank of America (avail. December 30, 1999) to adopt a policy that it not make or solicit any political contributions. And it did not treat as ordinary business a resolution directed toward General Electric (Avail. December 20, 1999) requiring a summary of GE's federal and state campaign finance contributions, policies on allocation of shareholder funds for political purposes, or lobbying position on campaign finance reform.

In the Coca-Cola Company (February 2, 2000), the resolution called for the board to require Coca-Cola to promote the retention and development of bottle deposit systems and laws and to cease efforts to replace deposit and return systems in developing countries. The company argued that the Proposal would be excludible as ordinary business because it would necessitate lobbying for, and not against, laws requiring bottle deposit systems. The proponent prevailed after arguing that the proposal concerns broad social issues; more specifically, the need to alter economic actions in order to meet the needs of (ecological and social) sustainable development.

In General Electric Company (February 9, 1998), the resolution called for the Company to develop and report on criteria for military contracting, the company argued that two-thirds of the proposed criteria listed in the supporting statement are clearly generic business issues (e.g., ethical business practices; environmental impact; stability of employment; lobbying and marketing; competitive bidding; prison, child, or forced labor). The Proponent prevailed, however, by arguing that the subparagraph of the proposal dealing with lobbying and marketing is intended to raise the military related issue of whether the company generates demand for armaments, either in foreign countries or here in the United States. Because the proposal specifically concerns "military criteria," it is not excludable by virtue of (c)(7).

In Chevron Corporation (March 23, 1987), the resolution called for the corporation to 1) state publicly to the Angolan Communist government that it will terminate operations in Angola unless the government takes [a series of step listed] and 2) expend no resources to influence the policy of the U.S. government concerning Angola, Namibia, Zaire, and South Africa. The Company argued that the Proposal would interfere with Chevron's ability to exercise its business judgment in the selection, operation, and closing of corporate facilities and in the conduct of lobbying activities in an area directly related to the Corporation's ordinary business. The SEC staff rejected this argument because even though lobbying of the Angolan government might have been affected, the resolution related to a major public policy issue.

The present resolution does not attempt to dictate the company's political activities or lobbying. The resolution is not prescriptive in defining any lobbying perspectives or actions to be taken in the course of, or after, preparing the requested report.

iii. Requested reporting of liability estimates does not render the resolution excludible as ordinary business.

In 2003, the proponent's resolution (in the supporting statement) asked that the company "include a description of any major controversies involving community and environmental stakeholders concerning the remediation of particular sites including Michigan, and reasonable projections of any material liabilities for cleanup or otherwise related to the contamination."

This year, in light of the emergence of the Agent Orange decision of the Supreme Court in Dow Chemical v. Stephenson, which may have opened the gates to additional dioxin-related Dow liabilities, the resolution asks for a listing of the reasonable range of projected costs of remediation or liability anticipated for (a) Midland, Michigan, (b) Agent Orange, and (c) each of the other potentially material toxic sites and issues facing the company.

The resolution asks for a reasonable range of liabilities because, in trying to understand the company's opaque shareholder reports, it became apparent that the company may be providing no estimates for these liabilities in its ongoing shareholder reporting, or may be only reporting the lowest of a range of possible estimates.

The present case is very different from the recent SEC decisions in which the staff regarded requests for reporting on corporate risks as ordinary business. This case stands in stark contrast to cases such as Willamette Industries (March 20, 2001) (proposal to create an independent committee to prepare a report of Willamette's environmental problems and efforts to resolve them, including an estimate of worst case financial exposure due to environmental issues for the next ten years, excluded per Rule 14a-8(i)(7)); and Xcel Energy Inc. (April 1, 2003) and Cinergy Corp. (Feb. 5, 2003) ((both seeking reporting on 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 economic benefits of committing to a substantial reduction of those emissions). In those cases, shareholder proposals were in essence using the vehicle of a shareholder resolution to principally attempt to set general requirements for reporting of whole large categories of risk at those companies. For example, in the Xcel and Cinergy cases a nearly identical resolution was proposed which would have required reporting on global warming impacts on the company. The resolution was notable in its breadth and vaguenessattempting to prescribe a standard for ongoing risk reporting for the long termsomething that a company already does or should be doing in its annual 10 K reports and as part of the management discussion and analysis. Similarly, in the Willamette case, shareholder proponents attempted to prescribe a framework for reporting of environmental liabilities, namely an estimate of worst case financial exposure due to environmental issues for the next ten years.

In those other instances, shareholders have attempted, through a resolution, to make a policy issue out of a company's environmental accounting practices. In other words, the entire resolutions basically revolved around whether or not the company was engaged in appropriate environmental accounting.

By contrast, the present resolution is not about the environmental accounting practices of Dow Chemical. Instead, it is about the challenges posed to the company in its production and use of particular toxic chemicals targeted by policymakers. The quantification of related liabilities is a necessary piece of information for any shareholders who want to consider whether the management is moving in an economically wise direction in continuing to emphasize production of some of the most toxic chemicals on the market. Shareholders are asking here This year, in light of the emergence of the Agent Orange decision of the Supreme Court in Dow Chemical v. Stephenson, which may have opened the gates to additional dioxin-related Dow liabilities, the resolution asks for a listing of the reasonable range of projected costs of remediation or liability anticipated for (a) Midland, Michigan, (b) Agent Orange, and (c) each of the other potentially material toxic sites and issues facing the company.

The key factor in SEC staff decisionmaking is whether the resolution addresses a large public policy challenge that is facing the company, and whether the elements of the resolution collectively address issues within the zone of issues that shareholders are reasonably concerned with.

In the present instance, the resolution, in the context of a broad array of policy concerns, simply asks for the company to fill gaps in reporting on specific, known public controversies facing the company. The company has been requested to provide projections of the range of possible liabilities associated with Midland, Michigan and Agent Orange and each of the other potentially material toxic sites and issues facing the company.

At present the company is apparently providing no such projections. See the discussion in the "substantial implementation" section of this letter.

The recent history of major liabilities that were underreported to Dow shareholders alone elevates the resolution above ordinary business. These concerns were not foremost in the resolutions excluded by SEC staff as ordinary business. Dow Chemical has developed a sordid record of providing poor or misleading disclosure of toxic risks and liabilities. For instance:

The company advertised to consumers that its product Dursban was safe despite a 1994 agreement with the New York Attorney General's office that it would not do so. The Dow pesticide Dursban (chlorpyrifos) is believed to be associated with illness in thousands of exposed people, including potential neurological damage to children. The EPA fined the company $732,000 in 1995 for failing to disclose reports of adverse effects associated with use and exposure to Dursban. In 2003, the company settled a threatened consumer fraud lawsuit by the New York State Attorney General for $2 million, a record level for a consumer pesticides suit in New York, due the company's continued marketing of the products as safe for various uses. In 1994, Dow had agreed to review and change its advertising claims. Underlying the Attorney General's threatened suit were several label claims, advertisements and web publications. For instance, as late as 2003, the Dow Chemical website claimed: "Consumer exposure from labeled use of chlorpyrifos products provides wide margins of safety for both adults and children." By contrast, according to Dr. Philip Landrigan, chair of the Department of Community and Preventative Medicine at Mount Sinai Medial Center, "Excellent studies conducted by independent scientists have clearly shown that chlorpyrifos, the active ingredient in Dursban, is toxic to the human brain and nervous system and is especially dangerous to the developing brain of infants." (Note: the Attorney General's threatened suit and the $2 million settlement were apparently not disclosed in Dow's SEC filings.)

The company acquired Union Carbide without disclosure of the enormous associated asbestos liabilities to shareholders. The disclosure and estimation practices at Dow Chemical are presumably so inadequate that the company didn't even realistically estimate and disclose the enormous long-term asbestos liabilities associated with the acquisition of Union Carbide until two years after the purchase of Carbide stock. It apparently failed to even disclose any mention of the asbestos issue when it acquired Union Carbide, only to announce, two years later, that with Union Carbide came a $2.2 billion projected liability for asbestos - and an $828 million write-down of assets as a result. Now, the proponents believe, there is a similar risk that additional, large liabilities have not been characterized to shareholders.

Dow has stated that "there is absolutely no liability" associated with Bhopal due to the purchase of Union Carbide, yet there are currently $74 million dollars in Union Carbide assets attached in India pending the company's appearance in the criminal case pending against the company.

Today there are potentially major undisclosed liabilities looming for Dow Chemical. The ground-breaking Supreme Court decision in 2003 in Dow Chemical v. Stephenson opened the gates for thousands of veterans to pursue new litigation for personal injuries against Dow and other producers of Agent Orange - yet the company has engaged in no public assessment of these liabilities nor even a discussion of this case in its shareholder filings.

The remedial costs and liabilities associated with the extensive contamination of properties downstream from Dow Chemical headquarters have also not been articulated either narratively or quantitatively by the company. The dioxin contamination of Midland, Michigan, where the company's headquarters is located, is a major topic of public controversy and is likely to impose expensive costs on the company and its shareholders. The request for better disclosure of remedial costs is appropriate because of the large costs that may result at those sites. It also may help to give a sense of what lies ahead if the company does not move toward phase out of production of the relevant products.

The precedent for requiring reporting on site remediation plans is clear. Although SEC rules already require some reporting on remediation, various resolutions cleared by SEC Staff have requested additional reporting. For example, a resolution filed with Kodak requested that it disclose progress on a list of hazardous waste sites and other circumstances in which the company expects to accrue environmentally based financial liabilities. (avail. Feb. 1, 1999). This resolution was cleared by Commission staff on other charges. It was not even asserted to constitute "ordinary business," despite the detailed request:

The shareholders request Kodak's Board to disclose in its environmental progress report, a complete listing of all hazardous waste sites where Kodak is a potentially responsible party, and other circumstances in which the company and its shareholders can be expected to accrue environmentally-based financial liabilities through retirement of operations, court orders, consent decrees, litigation, or government requirements, that environmental remediation, pollution clean-up, pollution equipment upgrades, and/or damage compensation.

A similar resolution was filed in Advanced Micro Devices (available February 25, 1998) in which a set of policies related to environmental contamination were requested to be disclosed. The Staff concluded that the resolution was not excludable as ordinary business.

Shareholders who may be fortunate enough to be familiar with the existence of Dow Chemical's litigation are left guessing regarding the management's appraisals of the range of possible impacts that these matters may have on the company's finances. These liabilities exemplify a deep problem and challenge facing the Dow Chemical Co. As long as this company continues to make a specialization of toxic product lines, enormous problems like Midland and Agent Orange are an inevitable result. Shareholders who come to understand this through the disclosures requested in the shareholder resolution will be empowered to press the management for the needed changes.

The company has been named as a potentially responsible party under federal or state Superfund laws at 24 different sites. Given the poor liability disclosures regarding asbestos, Midland, Agent Orange, etc., it is reasonable to wonder whether there are other potential big ticket liabilities among those sites.

In the present matter the issue of disclosure of liabilities is enmeshed in a number of other elements of the broader public policy issue of toxic chemical phase-outs. It is a logical element of the disclosures sought by the investors seeking to address a clear public policy challenge facing the company.

In the aftermath of Enron and Tyco one of the most important lessons learned is the apparent failure of the web of legal and regulatory mechanisms to prevent companies from concealing liabilities. The issue of corporate concealment of environmental liabilities has been well documented numerous reports and advocacy efforts.13 The self-help remedy of a shareholder resolution to flag particular liabilities, known to an investor to be one facet of a larger policy challenge facing the company, is an entirely appropriate element of securities law and policy. The vehicle of a shareholder resolution is a congressionally guaranteed right of a shareholder to organize and galvanize investors on issues of obvious concern to them. Nothing could be of greater concern to the shareholders of Dow Chemical than the apparent failure of the management, once again, to quantify some major liabilities that may be coming their way.

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. Also, we respectfully request an opportunity to confer with SEC staff in the event that the staff should decide to concur with the company. Please call me at 781 894-0709 with respect to any questions in connection with this matter, or if the staff wishes any further information.

Sincerely,

/s/

Sanford Lewis
Attorney at Law

cc:

Ronald O. Mueller, Esq. Gibson, Dunn & Crutcher
Shelley Alpern, Trillium Asset Management
Tina S. Van Dam, Corporate Secretary, The Dow Chemical Company

-----FOOTNOTES-----

1 http://www.dow.com/environment/dioxin/treaty.htm

2 See http://www.ejnet:org/landfills/ and http://www.ejnet.org/rachel/rhwn116.htm and http://www.ejnet.org/rachel/rhwn117.htm.

3 www.dow.com/environment/debate/d12.html

4 The Seventh Biennial Report on Great Lakes Water Quality issued by the International Joint Commission pursuant to the US-Canada Great Lakes Water Quality Agreement, addressed the topic of why persistent toxic substances such as dioxin cannot be safely regulated and must be phased out

The idea of a non-zero assimilative capacity in the environment or in our bodies (and hence allowable discharges) for such chemicals is no longer relevant. The Great Lakes Water Quality Board supports this view, concluding that there is no acceptable assimilative capacity for persistent, bioaccumulative toxic substances. It states, therefore, that the only appropriate water quality objective is zero....

Within the environment's carrying capacity for human activity, there is no space for human loadings of persistent toxic substances. Hence, there can be no acceptable loading of chemicals that accumulate for very long periods, except that which nature itself generates. Moreover, conventional scientific concepts of dose-response and acceptable risk can no longer be defined as good scientific and management bases for defining acceptable levels of pollution. They are outmoded and inappropriate ways of thinking about persistent toxics...

The production and release of these substances into the environment must, therefore, be considered contrary to the agreement legally, unsupportable ecologically and dangerous to health generally. Above all, it is ethically and morally unacceptable. The limits on allowable quantities of these substances entering the environment must be effectively zero, and the primary means to achieve zero should be the prevention of their production, use and release rather than their subsequent removal. International Joint Commission, 7^thBiennial Report, 1994.

5 www.dow.com/environment/debate/d13.html

6 CEO William Stavropoulos, Presentation to the Smith Barney Citigroup "14th Annual Chemical Conference" Dec. 3, 2003.

7 www.dow.com/environment/debate/d11.html

8 See Michigan Department of Environmental Quality web page: Tittabawassee River Flood Plain Contamination http://www.michigan.gov/deq/0,1607,7-135-3308_21234-43808-,00.html.

9 http://www1.va.gov/agentorange/

10 www.cnn.com/2001/HEALTH/conditions/04/19/agent.orange/

11 americasveterans.org/news/060003b.html

12 www.dow.com/environment/debate/d10.html

13 For advocacy efforts on the environmental accounting issue, see for instance the websites corproratesunshine.org and rosefdn.org.

[STAFF REPLY LETTER]

February 13, 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 requests that the board of directors publish a report related to certain toxic substances, including a "range of projected costs of remediation or liability" for Midland, Michigan, Agent Orange, and each of the other material toxic sites facing the company.

There appears to be some basis for your view that Dow Chemical may exclude the proposal under rule 14a-8(i)(7), as relating to its ordinary business operations (i.e., evaluation of risks and liabilities). Accordingly, we will not recommend enforcement action to the Commission if Dow Chemical omits the proposal from its proxy materials in reliance on rule 14a-8(i)(7). In reaching this position, we have not found it necessary to address the alternative basis for omission upon which Dow Chemical relies.

Sincerely,

/s/

John J. Mahon
Attorney-Advisor

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Company Name: Dow Chemical Co. Public Availability Date: February 13, 2004

Document Sections:

[INQUIRY LETTER]

[APPENDIX]

[INQUIRY LETTER]

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Company Name: Dow Chemical Co.
Public Availability Date: February 13, 2004