Company Name: Int'l. Business Machines Corp.
Public Availability Date: February 3, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
January 19, 2004 Securities and Exchange Commission
Office of the Chief Counsel
Division of Corporation Finance
450 Fifth Street, NW Judiciary Plaza
Washington, DC 20549 Subject: IBM Stockholder Resolution on "Offshoring" by Michael L. Saville
Attention: Keir Gumbs Dear Members of the Office of the Chief Counsel, Division of Corporation
Finance: This letter follows up on my letter of January 13, 2004 to alert you to an
article by staff reporter William M. Bulkeley published in the Wall Street
Journal today, which is attached. Evidence quoted in the Wall Street Journal contradicts an assertion in IBM's
letter to the SEC staff, dated December 16, 2003, which states:
"the eighth paragraph, which states, `We support hiring in other countries, but
we oppose terminating and replacing American IBMers to do so,' should also be
omitted as materially false and misleading. It implies, falsely, and without any
factual foundation that `terminating and replacing American IBMers' is the means
IBM utilizes in order to hire workers in other countries" (IBM's letter, page
17, 4thparagraph). Internal IBM documents reviewed by the Wall Street Journal and described in
today's article confirm that IBM is indeed terminating and replacing American
IBMers to hire in other countries. The article says the internal documents even
give IBM's anticipated severance cost for laying off workers in conjunction with
the plan to transfer work to low wage countries: "According to the IBM documents, the company expects severance costs for laying
off U.S. employees in conjunction with the plan to be $30.6 million in 2004 and
$47.4 million in 2005. Including other transition costs, the documents say, the
offshoring plan will result in a loss of $19 million this year. Savings will
amount to $40 million in 2005 and $168 million annually thereafter.
The Wall Street Journal article establishes from IBM's own internal documents
what IBM calls "the factual foundation" for the assertion (not just the
implication) that "terminating and replacing American IBMers" is indeed "the
means IBM utilizes in order to hire workers in other countries." Thus, paragraph
4 of page 17 of IBM's letter to the SEC is itself false and misleading,
seriously compromising IBM's credibility. Furthermore, proponent would ask the SEC staff to consider that the Wall Street
Journal article provides further evidence that the offshoring issue is one that
has generated widespread public debate and the article further demonstrates
increasing recognition that this issue raises significant social and corporate
policy issues. As the article points out: "Like other high-tech companies, IBM is moving knowledge work to cheap-labor
sites outside the U.S. This `offshoring' process has raised fears that even
high-skill jobs that were supposed to represent the U.S.'s future are being lost
to countries that have already taken over low-skill factory work.
"The trend, largely the result of relentless pressure on companies to cut costs,
is seen by some U.S. workers and politicians as a potential long-term threat to
U.S. employment. Democratic presidential hopefuls have cited the trend as they
have criticized the jobless recovery under President Bush and noted worker
insecurity. Others argue, however, that the jobs lost are typically replaced by
other, higher-paying jobs." In fact the article notes that IBM has established a corporate policy concerning
how to communicate the news to affected employees, demonstrating that IBM itself
recognizes the issue raises significant social and corporate policy issues:
"The IBM documents show that the company is acutely aware of the sensitivities
involved. One memo, which advises managers how to communicate the news to
affected employees, says among other things: "'Do not be transparent regarding the purpose/intent' and cautions that the
`Terms "On-shore" and "Off-shore" should never be used.' The memo also suggests
that anything written to employees should first be "sanitized" by
human-resources and communications staffers. "IBM's human-resources department has prepared a draft `suggested script' for
managers to use in telling employees that their jobs are being moved. The
managers will tell the employees that `this is not a resource action'IBM
language for layoffand that they will help the employees try to find a job
elsewhere in IBM, although they can't promise to pay for any needed relocation."
IBM's internal documents catch IBM in a lie: IBM is planning to spend $30.6
million in 2004 and $47.4 million in 2005 in "severance costs for laying off
U.S. employees in conjunction with the plan," yet, because IBM is "acutely aware
of the sensitivities involved," IBM intends to tell affected workers that "this
is not a resource action," which is IBM language meaning they are not being laid
off. IBM acknowledges the contradiction when it tells managers, "do not be
transparent regarding the purpose/intent." Thus, the internal IBM documents
quoted by The Wall Street Journal show that IBM is planning on having its
managers not be truthful in their statements to their own loyal workers-just as
IBM was untruthful to the SEC staff in its December 16, 2003 letter. If ever a
corporate policy needs stockholder review this is it. In addition, additional recent articles point to the increasing public debate on
the issue of offshoring, and two of them are attached. The TechWeb article lead
says "the debate about offshore outsourcing is getting hot in the run-up to the
November elections." The CNNmoney article subtitle states, "at both state and
national levels, politicians are rushing to introduce anti-offshoring laws," and
describes bills opposing offshoring in eight state legislatures and eight other
bills introduced in Congress, one of which was introduced by a leading
presidential candidate. If the SEC staff has any questions or concerns please do not hesitate to call.
Thank you very much for your attention to this matter. Sincerely,
/s/ James Marc Leas, Esq.
cc Mr. Stuart S. Moskowitz, IBM Senior Counsel
Michael L. Saville, proponent Attachments
Wall Street Journal article, January 19, 2004, "IBM Documents Give Rare Look at
Sensitive Plans on `Offshoring,'" by William M. Bulkeley.
TechWeb, January 7, 2004, "Outsourcing Lands in Political Ring with Both Feet,"
http://story.news.yahoo.com/news?tmpl=story&cid=74&e=4&u=/cmp/20040108/tc_cmp/17300009
CNNmoney, January 12, 2004, "Offshoring Backlash Rising,"
http://money.cnn.com/2004/01/09/pf/q antioffshore/index.htm [INQUIRY LETTER]
December 16, 2003 Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
450 Fifth Street, NW, Judiciary Plaza
Washington, D.C. 20549 Subject: Stockholder Proposal of Michael L. Saville
Ladies and Gentlemen: Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, I am
enclosing six copies of this letter together with a proposal and statement in
support thereof (the "Proposal"), attached as Exhibit A hereto, which Proposal
was submitted on November 10, 2003 by Michael L. Saville, a former IBM employee
(the "Proponent") to International Business Machines Corporation (the "Company"
or "IBM").1 The Resolved section of the Proposal provides:
"that the Board establish a policy that IBM employees will not lose their jobs
as a result of IBM transferring work to lower wage countries."
The last sentence of the submission also sets forth an alternative suggestion
for stockholder consideration, which states: "Alternatively, American IBMers could organize to achieve employment rights that
European IBMers have." IBM believes that the entire submission (i.e. both the Proposal and the
supporting statement containing the alternative suggestion) may properly be
omitted from IBM's proxy materials being prepared for our 2004 annual meeting of
stockholders (the "2004 Annual Meeting") for the reasons discussed below. For
convenience, the submission shall hereinafter be referred to collectively as the
Proposal. To the extent that the reasons for omission stated in this letter are
based on matters of law, these reasons are the opinion of the undersigned as an
attorney licensed and admitted to practice in the State of New York.
I. THE PROPOSAL SHOULD BE OMITTED UNDER RULE 14a-8(i)(7) AS RELATING TO THE
COMPANY'S ORDINARY BUSINESS OPERATIONS. Rule 14a-8(i)(7) allows a company to omit shareholder proposals from its proxy
materials "if the proposal deals with a matter relating to the company's
ordinary business operations." The Proposalwhich was drafted with the goal of
supporting union organizing efforts in the United States by the Communications
Workers of America ("CWA")would serve to guarantee the continued employment of
IBM employees in circumstances where work was transferred to "lower wage"
countries. Another portion of the Proposal suggests that stockholders vote on an
alternative that would permit American IBMers to organize to provide them with
union rights similar to those enjoyed by European IBMers. Aside from any of the
other deficiencies and inaccuracies set forth in the Proposal, as outlined
below, and irrespective of any other legal or factual shortcomings associated
therewith, the Proposal should be omitted in its entirety because it relates to
the ordinary business operations of the Company. A. COMPANY DECISION MAKING ON THE MANAGEMENT OF THE WORKFORCE, INCLUDING
DETERMINATIONS AS TO THE STAFFING OF PARTICULAR JOB TASKS, AND THE HIRING,
PROMOTION AND TERMINATION OF COMPANY EMPLOYEES AND SUPPLIERS, ALL FALL WITHIN
THE COMPANY'S ORDINARY BUSINESS OPERATIONS UNDER RULE 14a-8(i)(7).
The Commission has expressed two central considerations underlying the ordinary
business exclusion. See Amendments to Rules on Shareholder Proposals, Release
34-40018 (63 Federal Register No 102, May 28, 1998 at p 29,106). The first
underlying consideration expressed by the Commission is that "[c]ertain tasks
are so fundamental to management's ability to run a company on a day-to-day
basis that they could not, as a practical matter, be subject to shareholder
oversight. Examples include the management of the workforce, such as the hiring,
promotion and termination of employees, decisions on production quality and
quantity and the retention of suppliers." (id. at 29,108) (emphasis added) "The
second consideration involves the degree to which the proposal seeks to
micro-manage the company by probing too deeply into matters of a complex nature
upon which shareholders, as a group, would not be in a position to make an
informed judgment." id. The Commission had earlier explained in 1976 that
shareholders, as a group, are not qualified to make an informed judgment on
ordinary business matters due to their lack of business expertise and their lack
of intimate knowledge of the issuer's business. See Adoption of Amendments
Relating to Proposals by Security Holders, Exchange Act Release No. 12999
(November 22, 1976). The Commission has also noted that the policy motivating the Commission in
adopting the ordinary business exclusion was basically the same as the
underlying policy of most state corporation laws. That is, to confine the
solution of ordinary business problems to the board of directors and place such
problems beyond the competence and direction of the shareholders. The basic
reason for this policy is that it is manifestly impractical in most cases for
stockholders to decide management problems at corporate meetings. See Proposed
Amendments to Rule 14a-8 under the Securities Exchange Act of 1934 relating to
Proposals by Security Holders, Exchange Act Release No. 19135 (October 14,
1982), at note 47. The instant Proposal is clearly subject to omission under
Rule 14a-8(i)(7). B. DECISIONS AS TO HOW AND WHERE A COMPANY SHOULD DEPLOY ITS EMPLOYEES TO
PERFORM WORK IS AN ORDINARY BUSINESS MATTER. It is well established that the establishment, location and relocation of
Company operations have all long been considered ordinary business matters, and
the staff has often determined that stockholder proposals seeking to regulate
where and how a company should perform its work are properly excludable under
Rule 14a-8(i)(7) and its predecessor, Rule 14a-8(c)(7). In a recent letter,
Labor Ready, Inc. (April 1, 2003), the company, a contract provider of temporary
labor, sought to exclude a proposal from a stockholder who wanted the company to
resolve various disputes with the Building & Construction Trades Division of the
AFL-CIO. In seeking to have that company's stockholders vote on providing
guidance to the company on where its workforce should and should not be
deployed, the stockholder proposed, among other things, that the "board should
instruct management to initiate a corporate moratorium on providing labor to
job-action work sites." The proponent evidently thought that it would be best
for the company to avoid friction with the union by not providing temporary
labor at work sites where there were job-actions. In its no-action letter
request to the SEC, the company argued that the stockholder proposal should be
excluded under Rule 14a-8(i)(7), as it raised a matter of ordinary business; in
particular, the company maintained that the selection of work sites (whether a
job-action work site or not) and the timing of such selection were fully within
the purview of the company's management, and therefore the proposal "improperly
impose[d] on the ordinary business functions of management by attempting to
dictate where and when the Company's work force will be used." The staff
concurred with the company's request to exclude the proposal as ordinary
business, noting that employee relations issues fell within Rule 14a-8(i)(7).
Similarly, in J.C. Penney Co., Inc. (March 7, 1991), another proponent,
concerned over the company's policies and its decision-making regarding the
closing of company stores, wanted the company to continue to adhere to seven
basic principles that its founder had established in 1913. In so doing, the
proponent proposed that the company maintain catalog stores in locations where
the company's retail stores were to be closed, and, at the same time, permit the
affected company store managers who would otherwise lose their jobs to retain
their employment by continuing to work as managers of the catalog operations
which would remain at such locations. The proponent listed a variety of benefits
which would accrue, both to the company as well as to the locales where the
affected stores and managers were located. In its no-action letter request to
the SEC, the company argued that store locations and sizing issues were among
the key factors in determining the success of its business operations, and that
the proposal impeded the company's ability to manage its own business. The staff
agreed. In granting no-action relief, the staff noted that questions involving
the operation of store and catalog facilities, as well as personnel and
compensation decisions relating thereto, were matters that related to the
company's ordinary business operations. The proposal was excluded from Penney's
proxy materials. The same result should apply here with the instant Proposal.
As in both Labor Ready and Penney, the instant Proposal seeks to micro-manage
this Company's decision making as to where job tasks are to be performed and who
should be performing such tasks. The Proposal would also regulate all related
personnel decisions and related compensation and benefits by requiring the
continued employment of IBMers whose work is transferred, in the Proponent's
words, to "lower wage countries." While the Proposal does not preclude IBM from
shifting work to "lower wage countries," all affected IBMers would, under the
Proposal, retain their jobs and associated benefits of employment. The Proposal
would therefore effectively remove all decision-making from management,
including management's ability to make the most basic of employment decisions
with respect to the deployment of our work force. By requiring that "employees
will not lose their jobs as a result of IBM transferring work to lower wage
countries," the Proposal would mandate that the Company keep all employees on
the payroll. Hence, if the instant Proposal were to be adopted and implemented,
and IBM transferred work, the Company would be required to pay for two sets of
employees; first for the employees at the new location where the work was now
being performed, and second for the employees who used to do the work, but were
now protected from termination under the terms of the Proposal. In effect, the
Proponent would have IBM provide guaranteed employment contracts for all
affected employees without any commensurate assurance that such employees
remained productively employed. This is precisely the type of stockholder
micro-management that Rule 14a-8(i)(7) is designed to avoid.
Employee relations matters are an integral part of the day-to-day conduct of
IBM's ordinary business operations, and the terms and conditions associated with
the Company's employment relationships with its general workforce involve a
balancing of a variety of complex business issues. The ability for this Company
to successfully manage these issues, the productivity and efficiency of our
workforce, the work product delivered by our employees and vendors to our
customers, and ultimately, the success of our business, all necessarily involve
making a variety of complex and interrelated decisions, all in the ordinary
course of business. The Proposal, by seeking to guarantee continued employment
and benefits for employees in specified situations, serves to unduly
micro-manage the company's decision making capability. Clearly allowing
stockholders to interfere with management's conduct and administration of our
business in this situation is both unwise and unwarranted. In sum, the Proposal
is excludable under 14a-8(i)(7) because it would substitute an ill-advised
solution for the knowledge, expertise, and judgment of the Company's management
in dealing with specific, fundamental day-to-day business decision-making.2
C. THE DETERMINATION OF COMPANY POLICIES AND PROCEDURES RELATING TO SELECTION OF
SUPPLIERS IS ANOTHER ORDINARY BUSINESS MATTER. To the extent the Proposal involves our Company's outsourcing decisions, it also
necessarily seeks, improperly, to involve the Company's stockholders in basic
decision-making over whether and how we should use third party suppliers, as
opposed to Company employees, to accomplish our work. This is clearly another
ordinary business matter. In this connection, the SEC has viewed company
decision making about its suppliers, including outsourcing decisions relating
thereto, as within a company's ordinary business. See, e.g., Chrysler
Corporation (January 16, 1996), where a proposal requesting that the company
cease outsourcing its automotive parts needs to foreign suppliers was excluded
because it related to decisions related to product choices and the company's
sourcing of components. See also Seaboard Corporation (March 3, 2003) (proposal
seeking company report on suppliers' use of antibiotics excludable under Rule
14a-8(i)(7); Hormel Foods Corporation (November 19, 2002) (to same effect);
Nike, Inc. (July 10, 1997) (proposal requesting review of wage adjustments for
independent contractors and addressing contract compliance with company's code
of conduct excluded as ordinary business). The same result should apply here. As
noted earlier, the Commission has specifically noted that the "retention of
suppliers is one of the tasks "so fundamental to management's ability to run a
company on a day-to-day basis that [it] could not, as a practical matter, be
subject to direct shareholder oversight." See Amendments to Rules on Shareholder
Proposals, Release 34-40018 (63 Federal Register No 102), May 28, 1998 at p
29,108. For this reason alone, the Proposal does not pass muster under Rule
14a-8(i)(7) and should be excluded from our proxy materials.
D. THE DETERMINATION OF COMPANY POLICIES AND PROCEDURES RELATING TO REDUCTIONS
IN FORCE IS ALSO AN ORDINARY BUSINESS MATTER. For many years, stockholders have attempted to suggest layoff and related
personnel policies through the filing of stockholder proposals. Indeed, a review
of the staff's no-action file reveals that employees and former employees often
have ideas on how their companies can be better run. Yet, such ideas, which are
often based upon the personal knowledge and history of such proponents, in many
instances, are not matters which are properly the subject of stockholder
proposals. Thus, proposals similar to the instant one have also been rejected
under the ordinary business exclusion. For example, in Mobil Corporation
(January 26, 1993), a former employee whose job had recently been eliminated as
a result of consolidation resulting from "Mobil's need to improve efficiency and
to respond to continued competitive conditions in the oil industry," filed a
proposal requesting that the company adopt various policies with respect to its
downsizing activities. After referring to a Fortune magazine article
highlighting that Mobil was the largest loser of employees during the 1981-1991
period, the proponent urged the company to "make every effort to retain as many
employees as possible, using attrition, hiring freezes and work sharing." The
company argued, and the staff concurred, that the proposal could be omitted
under the ordinary business exclusion, inasmuch as it related to the management
of the workplace. The instant Proposal, seeking similar relief, is similarly
subject to exclusion under Rule 14a-8(i)(7). In the same vein, a proposal was filed by a Ford stockholder, unhappy over the
way that company was being run, and requesting, among other things, that when
company layoffs were deemed to be warranted, such layoffs would "not be
exclusive to the lower echelon." That stockholder, recognizing the ongoing
nature of that company's layoffs, also sought to have such layoffs apply to
Ford's managerial and supervisory personnel. In seeking exclusion of the
proposal, the company argued that it related to the company's personnel
policies, which policies fell within the company's ordinary business operations.
The staff concurred. In granting no-action relief, the staff wrote that "[t]he
formulation of definitive guidelines for the hiring, layoff and retirement of
Company employees, in the opinion of this Division, necessarily relates to the
Company's ordinary business operations." Ford Motor Company (March 5, 1975). The
same result should apply to the instant Proposal. It is noteworthy that the proponents in Mobil and Ford both recognized the
realities associated with the need to manage the workforce, and each proponent,
in their own way, sought to minimize the effects of such layoffs. Yet, this was
still insufficient to avoid exclusion of such proposals. In the instant case,
our Proponent ignores business realities and seeks to go much further. The
instant Proposal would preclude IBM from effecting layoffs of any workers as a
result of the transfer of work to "lower wage countries." The Proponent is
impermissibly substituting his own judgment for that of the Company's
management, as the Proposal would effectively remove from the discretion of
management a variety of decisions regarding management of our workforce,
including the hiring, promotion and termination of employees and the retention
of suppliers. See Amendments to Rules on Shareholder Proposals, Release 34-40018
(63 Federal Register No 102), May 28, 1998 at p 29,108. By making the "transfer
of work to lower wage countries" the basis for guaranteeing the continued
employment of all affected IBMers, the Proponent would effectively remove from
management all of the basic decision making relating to the management of our
employee workforce, which decision making is required for the ultimate success
of our Company. This is precisely what the ordinary business exception is
designed to prevent. Aside from the confusing nature of the Proposal, see Argument II, infra, the
Proposal, by its very terms, would eliminate the ability of management to make
the day-to-day employment decisions which are fundamental to operating our
business effectively and efficiently. Every day, decisions have to be made about
what the Company should be doing, and where, how and with whom we should be
doing it. These decisions aren't new and have been effected in the ordinary
course of our business ever since IBM was established in 1911. Indeed, it is
difficult to conceive of a greater intrusion into the ordinary business of the
Company than a stockholder proposal that would totally remove from management
the discretion to design and effect programs for employee retention, benefits
and layoffs. Since the lawful administration of these issues for our general
employee workforce falls at the heart of the ordinary business exclusion, the
Proposal is fully and properly excludable under Rule 14a-8(i)(7).
Finally, the instant Proposal should be viewed in the same way as the one filed
by a former employee in International Multifoods Corporation (April 10, 1987).
There, the stockholder had been employed by a business unit which was sold to a
third party. At the time of sale, the proponent was not vested in the pension
plan. The proponent requested retirement benefits and was advised that he was
not entitled to benefits under the applicable retirement plan. The proponent
thereafter sought in a proposal for the company to amend all company retirement
plans in order to fully vest all employees whose employment was terminated
because of sales or closings of businesses by the company. The company argued
that the proposal could be excluded as it related to the company's ordinary
business operations, and the staff concurred. The staff employed the facts and
circumstances test under former Rule 14a-8(c)(7) as existed prior to the Cracker
Barrel3 decision, and determined that the Proposal was excludible as ordinary
business. Just as the proponent in International Multifoods sought for the
company to include a proposal in its proxy which would have provided certain
employee benefits not otherwise available to a group of employees similarly
situated in the event of a sale or closing of one of the company's businesses,
the instant Proposal is similarly infirm, inasmuch as it would also seek for
this Company to provide continued employment (including all related employee
benefits) in situations where the Company moved work to a "lower wage country,"
and the idled employees at the original location would no longer be performing
the work for which the Company hired them to do. The instant Proposal should be
excluded under Rule 14a-8(i)(7), under the same rationale as International
Multifoods. E. THE PROPOSAL DOES NOT FOCUS ON ANY SIGNIFICANT SOCIAL POLICY ISSUE WHICH
WOULD TRANSCEND THE DAY TO DAY BUSINESS MATTERS RAISED BY THE PROPOSAL.
We acknowledge the Commission's position that certain employment-related
proposals that focus on sufficiently significant social policy issues are
generally not considered to be excludable, because those proposals would
transcend the day-to-day business matters and raise policy issues so significant
that it would be appropriate for a shareholder vote. However, this is NOT such a
proposal. The instant Proposal provides for IBM employees to retain their jobs
when their work is transferred to "lower wage countries." After making reference
to www.allianceibm.org, a union website dubbed as the "official national site
for the IBM Employees' Union, CWA Local 1701" (See Exhibit B), and then
providing a variety of snippets from various news sources on the topic of
"offshoring" some of which sources make no mention of IBMthe final sentence of
the Proponent's submission sets forth an alternative suggestion for stockholder
consideration: i.e., that "American IBMers could organize to achieve employment
rights that European IBMers have." Neither the Proposal, the supporting
statement, nor the alternative suggestion focus on any significant social policy
issue. Instead, the submission seeks to advance ordinary business matters
regulating how the Company should be dealing with its workforce. These are not
matters which shareholders, as a group, are in a position to make an informed
judgment. See Amendments to Rules on Shareholder Proposals, Release 34-40018,
supra, at p. 29,108. In this light the term "offshoring" is used to describe relocating mainly
labor-intensive activities to "developing countries" to take advantage of two
things: deep, technically proficient workforces in nations that have made
massive investments in their educational systems; and well-documented wage
differentials in many of those nations. For IBM, we have been following a
business model we've been practicing and refining for decades. Simply put, IBM
invests locally, hires locally, sources talent wherever it resides in the world,
and continuously remixes its portfolio of businesses and its skills to better
compete, and better serve the evolving needs of our customers, all in the
ordinary course of business. The Proponent's effort to describe "offshoring" in terms of work that belongs in
America versus the rest of the world simply doesn't mesh with the global nature
of IBM's business, which in large part has been conducted "offshore" for many
years. IBM employs the world's largest professional workforce, with more than
315,000 people in more than 160 countries. In addition to the fact that the
majority of our workforce is already situated outside the United States, since
1979, the majority of IBM's revenues have also come from our global, or non-US
operations. Hence, when IBM identifies work that can be performed competitively
in an "offshore" market, we examine that as an option, all in the ordinary
course of business, and, if the Company determines the work can be done to the
standards we expect and our customers demand, we will properly consider making
that shift; again, all in the ordinary course of our business.
As noted earlier, the Company's decision-making as to whether to expand,
contract, or relocate existing business operations and the associated workforce
is a complex one, involving the consideration of many factors, including,
without limitation, assessing the type of work that is being performed and how
and where it can best be performed; optimizing the match of the skill sets of
company personnel to perform the work (both current and expected); whether and
how to consider various employment alternatives (i.e., use of contractors and
agents to perform certain tasks); optimizing the costs associated with training
and retooling to perform both present and projected work; balancing
considerations relating to the ultimate delivery of products, services and
solutions, both internally as well as to our customers; legal and regulatory
compliance; projected profitability; demographics; and the overall effects of
such actions on the Company's work force and the respective locations where the
Company's business operations are situated. The instant Proposal, which would establish a blanket "policy that IBM employees
will not lose their jobs as a result of IBM transferring work to lower wage
countries," would effectively remove all of the Company's analyses and
decision-making ability on many of the factors outlined above, as well as on
other matters affecting our day-to-day business operations, since it would
baldly require that all affected employees retain their jobs in situations where
work was transferred. In effect, by usurping all of management's discretion on
how to handle IBM employees whose work was transferred, implementation of the
Proposal would effectively preclude the Company from sourcing any of its
business operations in "lower wage countries" by providing IBM employees in the
country where the work originally resided with the equivalent of guaranteed
employment contracts. This appears to be the goal of the Proponent, who in his
supporting statement, after making reference to workforce rights in Europe,
suggests stockholders consider his alternative suggestion that:
"American IBMers could organize to achieve employment rights that European
IBMers have." He prefaces this alternative with his comment that:
"Adopting this resolution puts American IBMers on a more equal footing with
European IBMers." Aside from the inconsistencies and inaccuracies in the submission, we submit
that the Proposal, which would usurp IBM management's discretion by requiring
the Company to continue the employment of IBM employees "as a result of IBM
transferring work to lower wage countries" coupled with the alternative
suggestion that "American IBMers could organize to achieve employment rights
that European IBMers have" represents no more than a defective submission
seeking to micro-manage IBM's employee relations activities, which activities
fall within our ordinary business operations. Moreover, the submission, as
drafted, is clearly devoid of any significant social policy issues which might
avoid its exclusion under Rule 14a-8(i)(7). In reaching our conclusion that the Proposal is fully excludable under Rule
14a-8(i)(7), we are cognizant of the position of the staff in the Pacific
Telesis Group (February 2, 1989) letter relating to plant closings, but that
letter is readily distinguishable. There, a proponent requested that the
registrant study the impact on communities of the closing or consolidation of
company facilities, including alternatives that could be developed by the
company to help mitigate company decisions to close or consolidate company
facilities. In denying no-action relief under the ordinary business exclusion,
the staff acknowledged that in the past, it had permitted registrants to omit
from their proxy materials shareholder proposals dealing with plant closings,
including proposals dealing with specific decisions regarding the closing or
relocation of particular plant facilities, or proposals raising questions as to
how companies intended to deal generally with the broad social and economic
impact of plant closings or relocations, or both. In such cases, the staff had
concurred in registrants' arguments that proposals could be omitted as ordinary
business in reliance upon former Rule 14a-8(c)(7). In announcing its change of
position, the staff noted that certain proposals, including the one at issue,
involved substantial corporate policy considerations that went beyond the
conduct of the Company's ordinary business operations. The staff also stated
that its new position would not apply to proposals concerning specific decisions
regarding the closing or relocation of particular plant facilities, noting that
its position with respect to those proposals would remain unchanged and would
continue to be excludable pursuant to former Rule 14a-8(c)(7). In addition, the
staff expressed its view that former Rule 14a-8(c)(7) also would be available to
exclude a proposal that refers to the closing or relocation of a particular
facility; even if such proposal deals generally with the broad social and
economic of plant closings and relocations. The instant Proposal is readily distinguishable from Pacific Telesis and similar
letters. Unlike the proposal in Pacific Telesis, which required the registrant
to "study the impact on communities of the closing or consolidation" of company
facilities and that "alternatives be developed that help mitigate" decisions to
close or consolidate company facilities, the instant Proponent requests none of
this. The instant Proponent, being concerned only with ensuring employment
rights for "American IBMers" fails to give any discretion to the Company.
Instead, the true focus of the Proposal is to require IBM retain local (i.e. US)
jobs and to unionize the American workforce, which, not surprisingly, are the
same as the objectives of the Alliance@IBM CWA union website which the Proponent
points us to in his submission (see Exhibit B). In this light, the Proponent states: "We support hiring in other countries but
we oppose terminating and replacing American IBMers to do so." By proposing that
IBM implement a policy that "IBM employees will not lose their jobs as a result
of IBM transferring work to lower wage countries" and that "American IBMers
could organize to achieve employment rights that European IBMers have," the
Proponent is focused on the local job interests of local US IBM employees (an
excludible ordinary business matter), not on employment policies affecting
IBMers generally (which would also be an excludible ordinary business matter),
and certainly not on any significant social policy issues which, in other
circumstances not present here, might make it appropriate for stockholder
consideration. See Exchange Act Release 40018 (May 28, 1998); 63 F.R. 29,106 at
p.29,108. As noted earlier, in addition to the fact that the instant Proposal
does not attempt to have the IBM Board of Directors review and consider any
significant social policy issues, the Proposal would utterly usurp IBM
management's discretion by requiring the Company to retain IBM employees in all
situations where work was transferred to "lower wage countries." The instant
Proposal, raising only ordinary business matters, is therefore fully excludable
under Rule 14a-8(i)(7). Moreover, we categorically reject the Proponent's attempt to refer to media
articles on "offshoring" in order to create a significant corporate or other
social policy matter relating to either to job retention, downsizing or union
organizing. In this light, issues relating to job security and related employee
benefits have long been the subject of multiple proposals over the years, both
before and after the Pacific Telesis decision. In particular, a host of
stockholder proposals were submitted to a large number of aerospace and other
industrial companieswhich companies were then subject to widespread layoffs due
to the cyclical nature of the industries, and the downsizing of various
governmental projects. In an attempt to address the growing problems associated
with ongoing layoffs, dozens of stockholder proposals were filed over the years
to a number of such companies, all urging the creation of an inter-industry
committee to provide skilled professionals with such items as portable pensions,
accrued vacation rights and other benefits. However, in a consistent series of
no-action letters over these years, the SEC staff uniformly and correctly ruled
that all of these proposals should be excluded under former Rule 14a-8(c)(7), as
relating to the companies' ordinary business operations. See, e.g., Rohr
Industries, Incorporated (September 10, 1991 and October 19, 1989); The Boeing
Company (November 28, 1990, January 16, 1990, January 10, 1989, November 30,
1987, November 6, 1986, November 21, 1985 and November 15, 1984); Lockheed
Corporation (March 12, 1990, February 9, 1989, January 9, 1987 and February 19,
1986); McDonnell Douglas Corporation (February 4, 1991, October 13, 1989,
January 30, 1989, January 25, 1988, January 3, 1986, January 28, 1985 and
January 17, 1984); General Motors Corporation (March 13, 1990, March 10, 1989
and March 31, 1988); Northrop Corporation (February 21, 1991, December 27, 1989,
December 27, 1988, January 25, 1988, November 28, 1986, January 6, 1986 and
January 4, 1985); Rockwell International (November 24, 1989, November 5, 1985,
November 14, 1984 and November 18, 1983); General Dynamics Corporation (October
20, 1989, January 10, 1989, January 29, 1988, February 27, 1987, January 9, 1986
and January 28, 1985); GenCorp (January 25, 1988, January 7, 1987 and December
12, 1985). Furthermore, news articles and general media attention have not in the past,
been the mechanism for creating substantial policy issues, and certainly should
not be in the instant case. In this light, we view the staff's position in the
above-referenced stockholder proposals as very instructive. Indeed, looking back
on the aerospace and other heavy industries receiving governmental contracts
during the 1980's and 1990's, the undersigned can remember the large-scale
unemployment and the disruption of many thousands of workers' lives across the
country associated with military downsizing, the resultant industry
consolidation and the overall cyclical nature of the work in these industries.
Indeed, the employees' desire for portable pensions, vacation rights and other
employee benefits were referenced in each instance, both in the proposals and in
the supporting materials submitted by the respective stockholder proponents.
Moreover, at that time, the human element associated with downsizing activities
was noted everywhere. The press highlighted the plight of workers and it was
also the subject of legislative activity both at the state and federal levels.
At one point, the Los Angeles Times reported that Congress was considering a
variety of legislation to help defense-industry workers who were laid off
because of cost-cutting in Congress and the defense industry, as further
described in the footnote below.4 In that article, it was also reported that
tens of thousands of local aerospace workers would already have lost their jobs
by the time any of such proposed legislation would take effect.
Yet, notwithstanding the host of press on the subject matter, as well as a
variety of federal and state legislative efforts to provide relief for these
industry workers, the SEC staff members uniformly and correctly concluded that
these stockholder proposals could properly be excluded from registrants' proxy
statements as "ordinary business." The staff employed the same facts and
circumstances test under former Rule 14a-8(c)(7) as existed prior to the
now-famous Cracker Barrel decision. See Cracker Barrel Old Country Store Inc.
(October 13, 1992 and January 15, 1993). None of the proposals lodged during
those years on those subjects were viewed by any of the staff reviewers at the
SEC as raising any significant social, economic or other important policy issues
sufficient to take such proposals outside the scope of the ordinary business
exclusion. The same result should apply to the instant Proposal. The staff
should reject any attempt by the Proponent to try and create a substantial
policy issue using this process. When we employ the same facts and circumstances
test under current Rule 14a-8(i)(7) to the instant Proposal, it follows that the
very same result should apply to the instant Proposal as the above-referenced
letters, and the instant Proposal should also be excluded outright as an
ordinary business matter. F. THE PROPONENT'S `ALTERNATIVE' SUGGESTION IN THE SUPPORTING STATEMENT THAT
AMERICAN IBMers ORGANIZE TO ACHIEVE EMPLOYMENT RIGHTS THAT EUROPEAN IBMers HAVE
IS YET ANOTHER ORDINARY BUSINESS MATTER. The clear focus of the Proponent, as set forth within the text of the "Resolved"
sentence, is to ensure that IBMers retain their jobs when work is transferred to
lower wage countries. However, the Proponent goes further. At the end of the
submission, the Proponent also suggests: "Alternatively, American IBMers could
organize to achieve employment rights that European IBMers have."
This alternative suggestion also cannot pass muster under Rule 14a-8(i)(7). It
has long been recognized that a proposal which would have stockholders vote on
union organizing matters is also an excludable ordinary business matter. The
recognition of collective bargaining units as well as the negotiation of wages,
hours and other working conditions and benefits between companies and unions
involve ordinary business matters that fall under Rule 14a-8(i)(7) and its
predecessor, Rule 14a-8(c)(7). See Modine Manufacturing Company (May 6, 1998).
In Modine, a proposal requesting the Board of Directors to form a committee to
develop a corporate code of conduct addressing, among other issues, the right of
employees to organize and maintain unions was excluded, with the staff noting
that the proposal was directed at matters relating to the conduct of the
company's ordinary business operations (i.e., relations between the company and
its employees). Similarly, in Humana Incorporated (October 17, 1990), a proposal
which would have recognized a particular union for collective bargaining was
also excluded, with the staff noting that questions involving a registrant's
relations with its employees, including provisions for collective agreement with
an accredited representative of employees on issues such as wages, hours and
other terms and conditions of employment dealt with matters relating to the
conduct of ordinary business operations. See also UAL, Inc. (March 3,
1986)(proposal seeking a report on the conduct of negotiations with employees
and the effect of a strike by such employees was properly excluded as ordinary
business (i.e., the negotiation and settlement of collective bargaining
disputes)). The same result should apply here, and the instant Proposal,
advancing unionization in the United States for "American IBMers," excluded as
relating to IBM's ordinary business operations. Since the instant Proponent appears focused on having American IBMers keep their
jobs and having American IBMers organize to achieve greater job protection, it
is clear that the instant Proposal does not focus on any significant social
policy issues which would transcend ordinary business matters. In this light, we
view the instant Proposal as much more like the proposal excluded in J.C.
Penney, supra, another post Pacific Telesis decision which addressed similar
questions on managing the closing of various store locations, as well as on
retaining the employment of specified personnel at such locations. As in J.C.
Penney, the instant Proponent describes his own specific micro-managed solution
to address a variety of intricate and complex employment-related business
matters. And, just as in J.C. Penney, the instant submission impermissibly seeks
to impose upon the Company a solution which shareholders as a group are not in a
position to make an informed judgment. As such, the instant Proposal runs afoul
of Rule 14a-8(i)(7), as the decision making in connection with respect to the
matters covered by the Proposal is best left with this Company's management.
G. WHERE PART OF A PROPOSAL IMPLICATES ORDINARY BUSINESS MATTERS, THE ENTIRE
PROPOSAL MUST BE OMITTED UNDER RULE 14a-8(i)(7). The Company firmly believes that the entire Proposal is excludable as ordinary
business. However, even of a portion of the Proposal is seen as falling outside
the ordinary business exclusion, that fact simply cannot carry the day and avoid
the exclusion of the entire Proposal under Rule 14a-8(i)(7). See, e.g.
International Business Machines Corporation (January 9, 2001, reconsideration
denied February 14, 2001) and General Electric Company (February 10, 2000) The
IBM and GE rulings were based upon long-standing staff precedent that when any
portion of a proposal implicates ordinary business matters, the entire proposal
must be omitted under Rule 14a-8(i)(7). In this connection, the staff has regularly and expressly permitted the
exclusion of a variety of other proposals implicating both corporate governance
as well as social or other substantial policy issues, where only a portion of
the relief sought addressed ordinary business matters. For example, in Wal-Mart
Stores, Inc. (March 15, 1999), for example, a proposal sought for a report to be
prepared on the company's actions to ensure it did not purchase from suppliers
who manufactured items using forced labor, convict labor, child labor or who
failed to comply with laws protecting their employees' wages, benefits, working
conditions, freedom of association and other rights. The staff noted that a
paragraph of the submission related to the registrant's policies to implement
wage adjustments to ensure adequate purchasing power and a sustainable living
wage. Given that this last paragraph implicated ordinary business matters, the
staff determined that the entire proposal could be excluded under Rule
14a-8(i)(7), reiterating the Division's practice not to permit revisions of a
proposal under Rule 14a-8(i)(7). See also The Warnaco Group, Inc. (March 21,
1999)(to same effect); Kmart Corporation (March 12, 1999)(to same effect);
Z-Seven Fund, Inc. (November 3, 1999) (proposal containing corporate governance
recommendations as well as ordinary business recommendations was permitted to be
excluded in its entirety, with the staff reiterating its position that it is not
their practice to permit revisions to shareholder proposals under the ordinary
business exception); M&F Worldwide Corp. (March 29, 2000) (proposal to implement
actions designed to enhance shareholder value, including but not limited to
repurchase of shares, cash dividends, sale of assets and curtailment of
nonoperating activities was properly determined by the staff to be excludable in
its entirety under Rule 14a-8(i)(7), since the proposal related in part to
non-extraordinary transactions). Thus, even assuming, arguendo, that the staff views any portion of the Proposal
or supporting statement to fall outside of the ordinary business exclusion, this
does not affect the analysis of the Proposal in its entirety and its exclusion
under Rule 14a-8(i)(7). The instant Proposal must be excluded under the ordinary
business exception because the "Resolved" section of the Proposal itself,
dealing with management of the workforce-which would establish a policy that
"IBM employees will not lose their jobs as a result of IBM transferring work to
lower wage countries" implicates a well-established ordinary business matter.
See IBM and General Electric Co., supra. By the same token, the "alternative"
portion of the Proposalwhich also suggests that stockholders vote on permitting
American IBMers to organize to achieve similar employment rights to European
IBMersis another ordinary business matter. In this connection, other recent letters have reached the same conclusion on
proposals addressing both executive compensation (a subject matter generally
outside of the ordinary business exclusion) and other matters. It is also
noteworthy that the staff, in Associated Estates Realty Corporation (March 23,
2000), concluded that a proposal which made recommendations concerning the
compensation of the chief executive officer and the institution of a business
plan which would include disposition of non-core businesses and assets could
also be excluded in its entirety because it related in part to ordinary business
operations. Similarly, in E*Trade Group, Inc. (October 31, 2000), the staff
recently concurred in the omission of a proposal under the ordinary business
exclusion which recommended a number of potential mechanisms for increasing
shareholder value, including: (a) the sale of the company; (b) changes to the
executive compensation plan to more accurately reflect company performance and
tie compensation to that performance; (c) reduction of staff to improve earnings
performance and (d) dismissal and replacement of executive officers. The staff
concluded that since two out of four of the mechanisms suggested by the
proponent implicated ordinary business matters, the entire proposal should be
omitted. The staff again reiterated in E*Trade Group, Inc. that it was not the
Division's practice to permit revisions under rule 14a-8(i)(7). The same
conclusion should be reached here. Consistent with past staff precedent, no revisions to this Proposal, excludable
under Rule 14a-8(i)(7), should be permitted. Moreover, to the extent any
portions of the submission implicate ordinary business matters, the entire
Proposal should be excluded. For all of these reasons, the Company hereby
reasserts that the Proposal relates to the conduct of the Company's ordinary
business operations, and should be excluded in its entirety from the Company's
2004 proxy materials pursuant to Rule 14a-8(i)(7). We therefore respectfully
request that no enforcement action be recommended to the Commission if the
Proposal is so excluded under Rule 14a-8(i)(7). II. THE PROPOSAL SHOULD BE OMITTED FROM THE COMPANY'S PROXY MATERIALS UNDER
RULES 14a-8(i)(3) AND 14a-9, AS VAGUE AND INDEFINITE AS WELL AS FALSE AND
MISLEADING TO THE COMPANY'S SHAREHOLDERS AS WELL AS THE COMPANY. AS A RESULT THE
PROPOSAL IS ALSO BEYOND THE POWER OF THE COMPANY TO IMPLEMENT UNDER RULE
14a-8(i)(6). The Company firmly believes, as a matter of law, that Rule 14a-8(i)(7) provides
a fully adequate basis for the exclusion of the entire Proposal. In addition,
however, Rule 14a-8(i)(3) provides another equally adequate basis for its
exclusion in this case. Rule 14a-8(i)(3) permits the omission of proposals and
associated supporting statements that are contrary to the Commission's proxy
rules, including Rule 14a-9, which in turn, prohibits false or misleading
statements in proxy materials. Rule 14a-9(a) provides that no proxy solicitation
shall be made containing any statement which, at the time and in the light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, or which omits to state any material fact necessary in order
to make the statements therein not false or misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading. Note (b) to Rule 14a-9 also provides that material which directly or
indirectly impugns character, integrity or personal reputation, or directly or
indirectly makes charges concerning improper, illegal or immoral conduct or
associations, without factual foundation, may also be misleading within the
meaning of such Rule. Following our review of the Proposal, the Company believes that the instant
Proposal should also be omitted pursuant to Rules 14a-9 and 14a-8(i)(3) because
portions of such Proposal are false and misleading, and others are so inherently
vague and indefinite as to be subject to a host of varying interpretations by
both shareholders and the Company. As a result, the Company also believes that
it does not have the power or authority to properly implement the Proposal under
Rule 14a-8(i)(6). The instant Proposal starts out in the "Resolved" paragraph by seeking that the
Company establish a policy that IBM employees will not lose their jobs as a
result of IBM transferring work to lower wage countries. The proposal is utterly
unclear as to which IBM employees under the Proposal are eligible to keep their
jobs if work is transferred to lower wage countries. Aside from the confusion
associated with what the Proponent means by "lower wage countries," is the
Proposal supposed to apply to any and all IBM employees or just American IBM
employees? For example, if work is transferred from Canada to Brazil, are
Canadian IBMers covered if the wages in Brazil are lower? A reading of the text
of the Resolved sentence of the Proposal would appear to require such a result,
yet such a reading is utterly inconsistent with the last paragraph of the
supporting statement, which states that "Adopting this resolution puts American
IBMers on a more equal footing with European IBMers." (emphasis added) It is
also inconsistent with the Proponent's earlier statement that "[w]e support
hiring in other countries, but we oppose terminating and replacing American
IBMers to do so." (emphasis added) In this situation, why would a shift of work from Canada to Brazil have anything
to do with placing American IBMers on a more equal footing with European IBMers?
It would not. While the Proponent may well be focused on protecting American
IBMers, the protection is not so limited in the Resolved clause.
Also, how would employee retention issues be handled when work was transferred?
And, assuming that work was transferred, but then returned to the transferor
country, would the Company then be permitted to dismiss employees who had, until
that point, been retained on the payroll during the period when the work was
being performed in the initial transferee country? How should retention
situations be handled when the wage rate in a transferee country rises, and it
either equals or exceeds the wage level of the transferor country? Would the
Proponent's policy then permit the Company to do anything with the idled workers
in the transferor country? Also, how should we properly measure what the
Proponent refers to as "lower wage countries?" Is it to be based on an average
of the wages of all employees in that country, or is it to be measured only by
the wages of specific employees whose jobs are to be created from a work
transfer from the "higher wage" country? Should we include non-cash employee
benefits in the cost determinations in one or both of the higher and lower wage
countries? Or not? And, if non-cash benefits are to be included, how would the
Proponent have us value these benefits? The Proposal addresses none of these
issues, and neither the Company nor its stockholders should be made to speculate
on these matters. The Proposal does not seem to contemplate subsequent transfers of work beyond
the initial transfer to a "lower wage" country. Hence, in a situation where work
had been initially been transferred, and then because of rising wages in the
transferee country, the work was again transferred to a second country, would
the employees in the initial transferee country also be subject to the same job
protections under the Proposal as the employees of the original transferor
country? Again, the Proposal does not address this issue, and the limitations
found elsewhere in the Proposal which suggest that the Proponent is interested
in protecting only American IBMers only further confuses matters. In fact, the
more we look at the Proposal, the more confused we get. The statements following the Resolved section do nothing to answer these
questions. In fact, these statements only further confuse matters. As noted
below, in addition to merely adding a number of citations to media articles,
which do nothing to answer our questions relating to the Resolved sentence, the
Proponent concludes by offering up an "Alternative" suggestion for stockholder
consideration. As described below, this second alternative only further
compounds the confusion. The second paragraph of the Proposal should also be eliminated in its entirety.
While it purports to summarize the comments of one IBMer, it describes only a
fraction of that person's comments. For the same reasons, the ninth paragraph of
the submission, also relating to statements attributable to another IBMer,
should also be omitted. Moreover, the hyperlink reference to the
www.allianceibm.org homepage should also be omitted inasmuch as such URL does
not, in fact, link to the full text of the comments of these quoted IBMersthe
text of which was not transcribed by IBMbut rather to the general "home page"
of the website of the Alliance@IBM, an organization sponsored by the
Communications Workers of America union. (See Exhibit B) A cursory review of the www.allianceibm.org homepage predictably focuses on a
variety of IBM union organizing activities, and highlights a host of other
matters totally unrelated to the subject matter of the instant Proposal. These
matters include the union's position on such issues as pension benefits, health
care benefits, workplace safety litigation, as well as the "offshoring" issue.
In addition to the fact that this union website can be changed at any time, the
reference to "offshoring" is particularly inflammatory. It provides the
following introductory statement: "SeeThe Executive Rats! ... IBM Executives
guilty of plotting to send jobs abroad and fire US employees!"
On the webpage, a number of specific IBM executives are equated with rodents,
and rotating photographs of these IBM executives are each labeled as a "RAT."
The photos of IBMers are interspersed on the website with pictures of real
rodents. Impugning the integrity of these IBM executives, as well as the
Company, is a clear violation of Rule 14a-9. For this reason, the entire second
and ninth paragraphs of the Proposal, including this hyperlink, should be
omitted. See SEC Division of Corporation Finance, Staff Legal Bulletin 14 (July
13, 2001) at Items (C)(2)(b) and F(1). Paragraphs 3, 4, and 5 contain one sentence snippet quotations from news
articles. While the words within the quotation marks may be accurately cited,
these snippets portray an extremely small piece of the subject matter described
in the articles. Indeed, the snippets do not fully capture the gist of these
articles, and such references lend an undue air of credibility to the Proposal
itself. The Proponent goes on in the sixth paragraph to quote another snippet
from a Time Magazine article (8/4/03) in a manner which is false and misleading.
In addition to the fact that the text of this snippet was also selectively
quoted by the Proponent, the actual quote was attributable not to the author of
the article, but rather to a union representative. Hence, all of these snippets
should be omitted as both vague and indefinite as well as materially false and
misleading. The eighth paragraph, which states that "[w]e support hiring in other countries,
but we oppose terminating and replacing American IBMers to do so" should also be
omitted as materially false and misleading. It implies, falsely, and without any
factual foundation that "terminating and replacing American IBMers" is the means
IBM utilizes in order to hire workers in other countries. While this type of
hyperbole may be commonplace at union meetings, it has no place in our company's
proxy statement. As noted earlier, the Proponent's reference to American IBMers
here is also utterly inconsistent with the text of the Resolved paragraph, which
is not so limited. The tenth and final paragraph is also hopelessly confusing. As noted earlier,
given the fact that the text of the Resolved section is not limited to American
IBMers, we fail to comprehend how "[a]dopting this resolution puts American
IBMers on a more equal footing with European IBMers."
For the same reason, the last sentence, which purports to advance an alternative
for consideration by IBM stockholders, also focuses on facilitating union
organizing efforts by American IBMers, "to achieve employment rights that
European IBMers have." This alternative, which would facilitate union organizing
by American IBMers, is very confusing. In short, IBM stockholders reading this
could not be sure what they were being asked to vote on. Would they be voting to
have IBM "establish a policy that IBM employees will not lose their jobs as a
result of IBM transferring work to lower wage countries" or would they be voting
on the alternative that "American IBMers could organize to achieve employment
rights that European IBMers have?" Or both? We just don't know, and we certainly
don't think our stockholders would know either. As a result, we would not
understand what it is we should do if the Proposal were to come to a vote, and
our Board ultimately determined to implement it. Given all of these problems,
the Proposal would be beyond the power of our Company to effectuate under Rule
14a-8(i)(6). In Joseph Schlitz Brewing Company (March 21, 1977), the staff was asked to
examine a resolution seeking for the registrant to adopt a corporate policy that
the registrant not allow its advertisements to appear in television programs
containing excessive and gratuitous violence. The staff concurred that the
proposal could be excluded under former Rule 14a-8(c)(3). After recognizing that
the determination of what constitutes "excessive and gratuitous violence" is a
highly subjective matter, the staff wrote that such a determination, and any resultant action by the Company would have to be
made without guidance from the proposal, and consequently, in possible
contravention of the intentions of the shareholders who voted on the proposal.
That is, the action requested by the proposal is so inherently vague and
indefinite that the shareholders voting on the proposal would not be able to
determine with any reasonable certainty exactly what actions or measures the
Company would take in the event the proposal was implemented. Consequently, we
believe that the proposal may be misleading, in that any action ultimately taken
by the Company upon the implementation of the proposal could be quite different
from the type of action envisioned by the shareholders at the time their votes
were cast. The Schlitz ruling rings particularly true here. Given all of its multiple
infirmities, the Company submits, after having studied the instant Proposal and
each of its component pieces carefully, that it is both vague and indefinite as
well as woefully false and misleading. Clearly, neither IBM stockholders nor the
Company should have to wonder how this Proposal ought to be interpreted, let
alone implemented. Over the years, there have been many situations in which the
staff has granted no-action relief to registrants with proposals which were
similarly infirm. In this connection, the Commission has found that proposals
may be excluded where they are so inherently vague and indefinite that neither the shareholders voting on the
proposal, nor the Company in implementing the proposal (if adopted), would be
able to determine with any reasonable certainty exactly what actions or measures
the proposal requires. See Philadelphia Electric Company (July 30, 1992).
The staff's response above applies with full force to the instant Proposal. In
Wendy's International, Incorporated (February 6, 1990), the staff excluded under
former Rule 14a-8(c)(3) a proposal seeking to "eliminate all anti-takeover
measures previously adopted and refrain from adopting any in the future." The
staff noted that the proposal, if implemented, would require the Company to
determine what constitutes an anti-takeover measure, and that such a
determination would have to be made without guidance from the proposal, and
would be subject to differing interpretations by shareholders voting on the
proposal and the Company if the proposal were implemented. The staff therefore
determined that the Proposal could be misleading because any action ultimately
taken by the company upon implementation could be significantly different from
the actions envisioned by shareholders voting on the Proposal. See also
Comshare, Incorporated (August 23, 2000) (second proposal asking for Comshare
not to "discriminat[e] among directors based upon when or how they were elected"
and "try to avoid defining change of control based upon officers or directors as
of some fixed date," properly excluded by registrant as vague and indefinite).
The courts have supported such a view, quoting the Commission's rationale:
it appears to us that the proposal, as drafted and submitted to the company, is
so vague and indefinite as to make it impossible for either the board of
directors or the stockholders at large to comprehend precisely what the proposal
would entail. Dyer v. Securities and Exchange Commission, 287 F. 2d 773, 781
(8th Cir. 1961). In the case of NYC Employees' Retirement System v. Brunswick Corp., 789 F. Supp.
144, 146 (S.D.N.Y. 1992), the court stated: the Proposal as drafted lacks the clarity required of a proper shareholder
proposal. Shareholders are entitled to know precisely the breadth of the
proposal on which they are asked to vote. In Eastman Kodak Company (February 8, 1991), the registrant was also faced with
a proposal which, like the instant one, was hopelessly vague and indefinite.
There, the proponent urged that the registrant not provide or make available its
products, services, or other resources to any government or entity doing
business with or in any country which demonstrated its anti-Americanism and
threat to U.S. national security by voting in the United Nations more than 80
percent of the time during the last five years against the position of the
United States. Upon review of that proposal, the staff concurred that it simply
could not stand, noting specifically "the absence of any specificity as to what
constitutes the Company making its resources `available' to a prohibited entity
or as to what constitutes an `entity doing business with' an anti-American
company." Given the fact that the instant Proposalincluding the "Alternative"
suggestionsuffers from the very same infirmities noted in the above staff
letters and the cases cited above, the Company hereby submits that the instant
Proposal should also be omitted under Rules 14a-8(i)(3), (i)(6) and 14a-9. The
Company therefore respectfully requests that no enforcement action be
recommended to the Commission if the Company excludes the instant proposal on
the basis of Rules 14a-8(i)(3), (i)(6) and 14a-9. In summary, for the reasons and on the basis of the authorities cited above, IBM
respectfully requests your advice that the Division will not recommend any
enforcement action to the Commission if the Proposal is omitted from IBM's proxy
materials for the 2004 Annual Meeting. We are sending the Proponent a copy of
this submission, thus advising him of our intent to exclude the Proposal from
the proxy materials for the 2004 Annual Meeting. We respectfully request to be
copied on any response that may be made to the Commission. If you have any
questions relating to this submission, please do not hesitate to contact the
undersigned at (914) 499-6148. Thank you for your attention and interest in this
matter. Very truly yours, /s/
Stuart S. Moskowitz Senior Counsel
Copies with Exhibits to: Michael L. Saville
P.O. Box 397 Riverton, Utah 84065
-----FOOTNOTES----- 1 Mr. Saville had originally acted as a co-filer to a separate proposal filed by
Mr. James Leas, another former IBMer who is currently a member of the Governing
Council of a group calling itself the "Alliance@IBM." This group, which has
unsuccessfully attempted to organize IBM employees, is affiliated with the
Communications Workers of America (CWA) union. The Alliance@IBM is neither a
certified nor recognized bargaining agent for any IBM employees. Mr. Saville
withdrew as a co-filer in order to file the instant Proposal. The same day, Mr.
James Mangi, the Secretary of Alliance@IBM, filed another proposal on
"offshoring," which is the subject of a separate no-action letter request.
2 This position is supported by the staff's recent conclusion in an unrelated
matter that the decision by a company to cease operations in a particular
location is also a matter falling within its ordinary business operations.
Allstate Corporation (February 19, 2002)(excluding a proposal of a stockholder
urging that insurance company to stop doing business in Mississippi because of
"over-the-top jury awards" and other matters for which the stockholder claimed
particular expertise.) 3 Cracker Barrel Old Country Store Inc. (October 13, 1992 and January 15, 1993)
4 Los Angeles Times, Thursday, Home Edition, "LEGISLATION WOULD HELP WORKERS IN
DEFENSE LAYOFFS," July 26, 1990. The article reported that House Bill 3999,
introduced by Rep. Mary Rose Oakar (D-Ohio), would provide about $200 million
for programs including more unemployment benefits for defense workers,
educational grants for retraining, and reimbursement money for job-search and
relocation expenses. The program also sets aside funds for entrepreneurs who
want to market their defense-industry know-how in the private sector. The bill
would create an administrative staff, but not a new bureaucracy, Oakar said at a
public hearing in Paramount on Monday. She said the policy-making committee
would include the heads of already-existing departments, such as the Labor
Department, Defense Department and Small Business Administration.
House Bill 5327, authored by Barbara Boxer (D-Greenbrae), would return 10% of
defense cuts to the communities affected by the loss of these federal funds. The
secretary of labor would determine which areas would be eligible. Cities could
use the money for job training or other needed programs. Her bill also penalized
contractors that relocate, requiring them to leave behind 20% of their
contracts' value when they move their facilities and leave employees behind.
Boxer also introduced legislation she said will help communities recover from
the closing of military bases, which is another aspect of defense cutbacks. One
bill provided financial incentives to federal employees who accept early
retirement. Another gave military employees first crack at federal jobs when
their base is taken over by another agency. A third bill mandated 60 days'
notice when the government eliminates jobs at a military base. [INQUIRY LETTER]
11466 South 2700 West
South Jordan, Utah 84095
PO Box 397
Riverton, Utah 84065 November 10, 2003
801-254-7136 Office of the Secretary
International Business Machines Corporation
New Orchard Road
Armonk, NY 10504 Submitted by email and by US Postal Service Express Mail
Sir: I would like to bring the attached Stockholder Proposal on Offshoring to the
shareholders at the year 2004 annual meeting. I will be at the meeting to
present the resolution. My name is Michael L. Saville. My address is 11466 South 2700 West, South
Jordan, Utah 84095. The IBM Corporation Investor Services Program (ISP) holds a approximately 731
shares for me. My account number is 16876-85045. I also have certificates for
shares. You should have that record. If you cannot please let me know.. I have
held these shares continuously for over one year, in fact since 1967. I intend
to retain these shares until the meeting. I wish my resolution to be included in
the proxy statement for a vote. Thank you very much for your attention to this. If you have any questions please
call. And please confirm that you received this letter and my stockholder
resolution by email. Sincerely, /s/
Michael L. Saville [APPENDIX]
Stockholder Resolution on "Offshoring" submitted by Michael L. Saville
Resolved: The stockholders request that the Board establish a policy that IBM
employees will not lose their jobs as a result of IBM transferring work to lower
wage countries. Tom Lynch, IBM's Director of Global Employee Relations, told an internal meeting
that "US workers or workers in a country where the work is being relocated from,
will, in many cases, be asked to train their replacements." He also said "that's
going to raise a lot of tensions as you're training someone to do a job that you
know is no longer going to be yours at the end of a fixed period of time." He
called attention to a Washtech union website where "you can see some of the
fairly appealing arguments that they're making to why employees need to do some
things like organize to help fight this." He noted "issues like dignity and
justice and fairness, those sort of gut sort of issues tend to raise or strike
an emotional cord after which the money issues, pay and benefits can come in but
the dignity of being told that it's not that your job is going away it's just
that's it's moving and you're going to be put out of work as a result of that.
It certainly raises those kind of dignity issues." Full text at
www.allianceibm.org "IBM has expanded offices in Bangalore, India, to handle engineering work, and
is reportedly considering a big offshore push." (USA Today, 8/5/03)
"In the next 15 years, American employers will move about 3.3 million
white-collar jobs and $136 billion in wages abroad, according to Forrester
Research. (USA Today, 8/5/03). "The job market now is the harshest it's been in decades." (Fortune 6/23/03).
"How can America be competitive in the long run sending over the very best
jobs?" (Time Magazine, 8/4/03). Young Americans can well ask, why study engineering if your job may be offshored
and if engineers remaining are subject to downward pressure on pay and benefits?
We support hiring in other countries, but we oppose terminating and replacing
American IBMers to do so. Speaking at the internal meeting, IBM HR Partner Christoph Grandpierre described
how IBMers in many European countries have more protection against offshoring
because of their unions and works councils. "And then we have even situations
where works councils have so-called `co-determination rights,' he said. "That
means that you need to reach an agreement with the works council before you are
actually allowed to implement certain things. That means without the consent of
the employee representative body, you are not allowed to actually deploy a
certain process or to initiate a certain action." He further said, "transfer of
jobs across borders, are one of the key focus areas and items of interest for
these works councils and union delegates." Adopting this resolution puts American IBMers on a more equal footing with
European IBMers. Alternatively, American IBMers could organize to achieve
employment rights that European IBMers have. TO:
Securities and Exchange Commission
Office of the Chief Counsel
Division of Corporation Finance
450 Fifth Street, NW Judiciary Plaza
Washington, DC 20549
202-942-2900
FAX 202 942-9525
From: Michael L Saville
801-254-7136 Regarding:
IBM Stockholder Resolution on "Offshoring" By Michael L Saville [INQUIRY LETTER]
December 28, 2003 Securities and Exchange Commission
Office of the Chief Counsel
Division of Corporation Finance
450 Fifth Street, NW Judiciary Plaza
Washington, DC 20549 Subject: IBM Stockholder Resolution on "Offshoring" by Michael L. Saville
Dear Members of the Office of the Chief Counsel, Division of Corporation
Finance: I intend to respond to IBM's letter dated December 16, 2003 in which IBM
requests permission to omit my resolution. A response is currently being
prepared and will be submitted shortly after January 4. Please wait for my
response before deciding on IBM's request for a no-action letter. Thank you very
much. Sincerely, /s/
Michael L. Saville
[STAFF REPLY LETTER]
February 3, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: International Business Machines Corporation Incoming letter dated December 16, 2003
The proposal requests the board establish a policy that IBM employees will not
lose their jobs as a result of IBM transferring work to lower wage countries.
There appears to be some basis for your view that IBM may exclude the proposal
under rule 14a-8(i)(7), as relating to the Company's ordinary business
operations (i.e., employment decisions and employee relations). Accordingly, we
will not recommend enforcement action to the Commission if IBM 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 bases
for omission upon which IBM relies. Sincerely,
/s/ Daniel Greenspan
Attorney-Advisor
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