Company Name: Kerr-McGee Corp.
Public Availability Date: March 1, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
INQUIRY LETTER
APPENDIX 2
APPENDIX 2
APPENDIX 3
INQUIRY LETTER
APPENDIX 4
STAFF REPLY LETTER [INQUIRY LETTER]
March 1, 2004 BY 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: Kerr-McGee CorporationWithdrawal of Request for No-Action Letter Regarding
the Shareholder Proposal of the General Board of Pension and Health Benefits of
The United Methodist Church Ladies and Gentlemen:
On behalf of Kerr-McGee Corporation (the "Company"), we filed a no-action
request, dated January 6, 2004 (the "No-Action Letter"), with the Securities and
Exchange Commission (the "Commission") in connection with the Company's
intention to omit from its proxy statement and form of proxy for its 2004 Annual
Meeting of Stockholders a shareholder proposal and statement in support thereof
(collectively, the "Proposal") received from the General Board of Pension and
Health Benefits of The United Methodist Church (the "Proponent"). The No-Action
Letter and its attachments (except for the GRI Guidelines) are attached hereto
as Exhibit A. The Proponent has formally withdrawn the Proposal as evidenced by the letter
dated February 27, 2004 (attached hereto as Exhibit B). In view of the
Proponent's withdrawal, we hereby notify the Commission that the matter has been
rendered moot and that the Company is withdrawing its No-Action Letter.
A copy of this letter is also being sent to the Proponent informing it of the
Company's withdrawal of its No-Action Letter. * * *
Should you have any questions regarding this matter, please do not hesitate to
contact the undersigned at (202) 662-5307, or David B. H. Martin at (202)
662-5128. Very truly yours, /s/
David H. Engvall Attachments
cc: Mr. Gregory F. Pilcher, Senior Vice President and General Counsel,
Kerr-McGee Corporation (without attachments) Ms. Vidette Bullock Mixon, Director, Corporate Relations and Social Concerns,
General Board of Pension and Health Benefits of The United Methodist Church [APPENDIX 1]
Exhibit A [INQUIRY LETTER]
January 6, 2004 BY 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: Kerr-McGee CorporationShareholder Proposal of the General Board of Pension
and Health Benefits of The United Methodist Church Ladies and Gentlemen:
This letter is to inform you of the intention of our client, Kerr-McGee
Corporation ("Kerr-McGee" or the "Company"), to omit from its proxy statement
and form of proxy for its 2004 Annual Meeting of Stockholders (collectively, the
"Proxy Materials") a shareholder proposal (the "Proposal") and statement in
support thereof (the "Supporting Statement") received from the General Board of
Pension and Health Benefits of The United Methodist Church (the "Proponent").
The Proposal and Supporting Statement, which the Proponent delivered via letter
on December 9, 2003, are attached hereto as Exhibit A. As required in Rule 14a-8(j) under the Securities Exchange Act of 1934 (the
"Exchange Act"), we have enclosed six (6) copies of this letter and its
attachments. Also, we are mailing a copy of this letter and its attachments on
this date to the Proponent, informing it of the Company's intention to omit the
Proposal and Supporting Statement from the Proxy Materials. The Company
presently expects to file its definitive Proxy Materials on or after March 26,
2004. Accordingly, as provided in Rule 14a-8(j), this letter is being submitted
to the Securities and Exchange Commission (the "Commission") no less than 80
calendar days before the Company files its definitive Proxy Materials with the
Commission. [APPENDIX 2]
THE PROPOSAL The resolution included in the Proposal states:
RESOLVED: That shareholders request that the company prepare a sustainability
report (at reasonable cost and omitting proprietary information) based on the
Global Reporting Initiative's sustainability reporting guidelines by October
2004.1 SUMMARY OF REASONS FOR EXCLUSION
We believe that the Company may properly exclude the Proposal and the Supporting
Statement from the Proxy Materials pursuant to the following rules:
I. Rule 14a-8(i)(3), because the Proposal and Supporting Statement are false and
misleading in violation of the proxy rules; II. Rule 14(a)-8(i)(7), because the Proposal deals with matters relating to the
Company's ordinary business operations; and III. Rule 14a-8(i)(10), because the Company has already substantially
implemented the Proposal. On behalf of our client, we hereby respectfully request that the staff of the
Division of Corporation Finance (the "Staff") concur in our view that the
Proposal and Supporting Statement may be excluded from the Proxy Materials on
these bases, as discussed in greater detail below. BACKGROUND
The Proposal requests the Company to prepare a sustainability report that is
based on the Global Reporting Initiative ("GRI") sustainability reporting
guidelines. The Company assumes that the Proposal refers to the guidelines set
forth in the 2002 Sustainability Guidelines (the "GRI Guidelines") published by
GRI. The GRI Guidelines are available at http://www.globalreporting.org/guidelines/2002/GRI_guidelines_print.pdf.
Attached to this letter as Exhibit B is a copy of the GRI Guidelines obtained
from the aforementioned website on December 25, 2003, for the Staff's ease of
reference. The GRI Guidelines are contained in a document that is approximately 100 pages
long. Part C of the GRI Guidelines comprises approximately 20 pages of specific
reporting content. The GRI Guidelines state that there are two ways to "use" the
GRI Guidelines: (i) reporting "in accordance with" the Guidelines; and (ii)
reporting using an "informal approach" by choosing not to cover all of the
content of the Guidelines, but basing the reports on the GRI framework and
incrementally improving report content coverage, transparency, and structure
over time. See GRI Guidelines, pp. 13-14. Part C of the GRI Guidelines, which
specifies the content of reports prepared under the GRI framework, provides for
disclosure of four categories of information regarding a company: (1)
sustainability vision and strategy; (2) an overview of the reporting
organization including information regarding operations, products and services;
(3) governance structure and management systems; and (4) economic, environmental
and social performance indicators. See GRI Guidelines, pp. 35-37.
We strongly believe that the Proposal is excludable from the Company's Proxy
Materials for the reasons described below. EXPLANATION OF REASONS FOR EXCLUSION
I. The Proposal and the Supporting Statement are false and misleading.
Accordingly, the Company may exclude the Proposal pursuant to Rule 14a-8(i)(3).
A proposal is properly excludable under Rule 14a-8(i)(3) when it is contrary to
the Securities and Exchange Commission's (the "Commission") proxy rules,
"including Rule 14a-9, which prohibits materially false or misleading statements
in proxy soliciting materials." The Staff has consistently taken the position
that a company may exclude a proposal pursuant to Rule 14a-8(i)(3) if the
proposal is vague and/or indefinite and, therefore, potentially misleading. A
proposal is sufficiently vague, indefinite and misleading to justify exclusion
where "neither the shareholders voting on the proposal, nor the company in
implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires."
Philadelphia Electric Co. (Jul. 30, 1992) (permitting the exclusion of a
proposal that related to the election of a committee of small stockholders
because it was vague and indefinite). See also Alcoa, Inc. (Dec. 24, 2002)
(permitting the exclusion of a proposal that requested the company to commit "to
the full implementation of" a set of human rights standards); McDonald's Corp.
(Mar. 13, 2001) (same); Bristol-Myers Squibb Co. (Feb. 1, 1999) (permitting the
exclusion of a proposal that required the company to adopt a policy of pursuing
the preservation of unborn children). For the reasons described below, neither the stockholders voting on the
Proposal, nor the Company in implementing the Proposal, would be able to
determine with any reasonable certainty what actions or measures the Proposal
requires. Therefore, the Company respectfully submits that the Proposal is vague
and indefinite to the point of being misleading within the meaning of Rule
14a-9, and is therefore excludable from the Proxy Materials under Rule
14a-8(i)(3). A. The Proposal does not sufficiently inform stockholders of what the Company
would be required to do if the Proposal were approved. Because the Proposal does not contain an adequate description or summary of the
GRI Guidelines, it does not sufficiently inform stockholders of what the Company
would be required to do if the Proposal were approved. While the Proposal and
the Supporting Statement do contain a brief paragraph describing the GRI
Guidelines in very summary fashion, this description is superficial and general
in nature and fails to provide any real detail about the specific content of the
GRI Guidelines.2 The Staff has permitted the exclusion of several similar stockholder proposals
in recent years under Rule 14a-8(i)(3). In Smithfield Foods, Inc. (Jul. 18, 2003), the Staff permitted the exclusion of
a stockholder proposal under Rule 14a-8(i)(3) as vague and indefinite, where the
proposal requested the company to "prepare a report based upon the Global
Reporting Initiative's guidelines describing the environmental, social and
economic impacts of its hog production operations ..." The Staff accepted the
arguments set forth by Smithfield Foods that the proposal was vague and
indefinite because it was "completely devoid of the substantive provisions of
the [GRI] Guidelines and provides no background information on the [GRI]
Guidelines to the shareholders." Although the stockholder proponents in
Smithfield Foods argued that it was "sufficient to inform the shareholders that
a sustainability report is being requested, and to define such a report as one
`describing the environmental, social and economic impacts' of the Company's
operations," these arguments did not persuade the Staff.
Similar stockholder proposals were also permitted to be excluded under Rule
14a-8(i)(3) in Johnson & Johnson (Feb. 7, 2003) and Kohl's Corporation (Mar. 13,
2001). In Johnson & Johnson, the proposal requested a report regarding the
Company's progress concerning "the Glass Ceiling Commission's business
recommendations" including a review of certain specific items. In Kohl's
Corporation, the proposal called for the company to commit to the full
implementation of "the SA8000 Social Accountability Standards" from the Council
of Economic Priorities. In both cases, the Staff permitted the proposals to be
excluded because the proposals did not contain adequate descriptions of the
substantive provisions of the reports called for by the proposals.
The Proposal is very similar to those in Smithfield Foods, Johnson & Johnson and
Kohl's Corporation. The Proposal lacks a meaningful description of the
substantive provisions of the GRI Guidelines. While the Proposal and Supporting
Statement do contain a very brief description of the GRI Guidelines, they do not
convey to the stockholders the extent and complexity of the information that the
GRI Guidelines require. Furthermore, the Proposal does not describe (or even
suggest) the substantial burden on the Company's human resources that would be
involved in complying with the Proposal, or the considerable expense of
compliance, which ultimately would be borne by the Company's stockholders.
The perfunctory reference to, and brief summary of, the GRI Guidelines in the
Proposal is misleading for another reason. Stockholders reading the brief
summary of the GRI Guidelines could be misled into thinking that the Proposal is
a referendum on whether the Company should advance the social objectives in the
categories of information listed in the Proposal. Without a better explanation
of the purpose and content of the GRI Guidelines, the Proposal might be misread
by stockholders as a request for the Company to endorse, or adopt, some or all
of the sustainability objectives referred to in the Guidelines.
The Proposal is also vague and misleading because it does not inform
stockholders that the GRI Guidelines are in a state of fluidity and likely will
change in the near future. The GRI Guidelines were published in August 2002. The
preface to the GRI Guidelines describes the guidelines as a "work in progress"
and indicates that they are to be revised in 2004. See GRI Guidelines, p. ii.
The Proposal does not mention the interim nature of the GRI Guidelines, and
accordingly fails to address the issue of whether the requested report is to be
based on the current version of the GRI Guidelines or, instead, on the version
of the Guidelines in effect when the report is prepared. That omission alone
renders the Proposal impermissibly vague. To the extent that the report is to be
based on future versions of the GRI Guidelines, the Proposal is impermissibly
vague in that it seeks a stockholder vote regarding a version of the Guidelines
that is not yet in existence. Because the Company's stockholders will not understand what they are being asked
to consider based on the text of the Proposal, the Proposal is vague, indefinite
and misleading, and therefore may be excluded under Rule 14a-8(i)(3).
B. If the Company's stockholders approve the Proposal, the Company would not
know what action to take to implement the Proposal. Beyond the vagueness of the Proposal for stockholders, there are also serious
questions as to what the Proposal would mean for the Company if it were adopted.
As set forth below, we believe each of these questions provides a sufficient
basis to exclude the Proposal as being impermissibly vague and indefinite.
1. Scope of the Report The Proposal requests that the Company prepare a report "based on" the GRI
Guidelines. The GRI Guidelines allow for two ways to "use" the GRI Guidelines: (i)
reporting in accordance with the GRI Guidelines; and (ii) using an incremental
approach which is short of "full compliance." Accordingly, the Proposal leaves
unclear the extent to which the Company would be required to address the
numerous and extensive disclosures called for by the GRI Guidelines. According
to the GRI's website (http://www.globalreporting.org/guidelines/companies.asp)
as of December 31, 2003, there were about 375 companies which had informed the
GRI Secretariat that they use the Guidelines in preparing their sustainability,
social or environmental report. However, as of December 25, 2003, only 18
companies claimed their reports were "in accordance with" the Guidelines. The
Proposal's use of the words "based on" is vague and leaves open the question of
whether the Company could comply with the Proposal by following the incremental
approach, or whether "full compliance" with the GRI Guidelines is required.
If the Company's stockholders approve the Proposal, the Company would not know
for sure if it were being asked to report "in accordance with" the GRI
Guidelines (and become the 19th company in the world and first headquartered in
the United States to do so), or instead to adopt merely an incremental level of
compliance that falls short of being "in accordance" with the GRI Guidelines.
The vagueness makes it impossible for the Company to know how it should attempt
to comply with the will of the stockholders if they were to approve the
Proposal. Similarly, this vagueness makes it impossible for the Company's stockholders to
know what they are voting on. Some stockholders might interpret the words "based
on" to require full compliance with the GRI Guidelines (i.e., to require a
report prepared "in accordance with" the GRI Guidelines), while other
stockholders might reasonably interpret the same words to permit less than full
compliance. Each interpretation is a reasonable reading of the phrase "based
on," yet the two interpretations carry significantly different consequences for
the Company. 2. Vagueness of the Guidelines
The GRI Guidelines are extremely complex and in many instances the GRI
Guidelines themselves are too vague to provide the Company with sufficient
guidance to be able to compile and disclose the required information. The
following are several examples of items contained in the GRI Guidelines as to
which the Company would have difficulty in determining how to respond:
Criteria/definitions used in any accounting for economic, environmental, and
social costs and benefits (Section 2.18, GRI Guidelines, p. 40);
Reporting organization's approach to managing indirect economic,
environmental, and social impacts resulting from its activities (Section 3.17,
GRI Guidelines, p. 43); and
Programs and procedures pertaining to economic, environmental, and social
performance (Section 3.19, GRI Guidelines, p. 43). The Company would be unable to determine with reasonable certainty what
information it would need to provide in response to these and many other vague
requirements of the GRI Guidelines. For this reason, the Proposal is vague and
indefinite and, therefore, excludable under Rule 14a-8(i)(3).
In addition, the phrase "sustainability" used in the Proposal is, itself, a
vague and misleading term. For example, the concept of sustainability could
reasonably be interpreted to refer to the ongoing sustainability of the Company
and its operations, rather than the sustainability of the environment. There is
little explanation of the concept of sustainability in the Proposal itself or
the Supporting Statement. If the Company's stockholders approve the Proposal,
the Company would not know for sure what concept of "sustainability" it was
being asked to report on. The vagueness makes it impossible for the Company to
know how it should attempt to comply with the will of the stockholders if they
were to approve the Proposal. Similarly, this vagueness makes it impossible for
the Company's stockholders to know what they are voting on.
3. Vagueness Regarding Dissemination of the Report
The Proposal is vague and therefore excludable for another reason. Should the
Proposal be approved by the Company's stockholders and the Company determine to
prepare the report, the Proposal gives no indication what the Company should do
with the report once it is prepared. The Proposal does not request that the
Company publish the report, nor does it ask that the report be sent to
stockholders. The Proposal does not request that the report be posted on the
Company's website. Given the vagueness of the Proposal regarding what the
Company should do with the report after it is prepared, it is very likely that
the Company's stockholders would not have uniform expectations regarding what
they are voting on when reviewing this Proposal. In addition, the Company would
have a difficult time determining what course it should take if the Proposal
were adopted and the Company determined to implement the Proposal. See
Smithfield Foods, Inc. (stockholder proposal that failed to specify what the
company should do with the requested report was properly excluded as vague and
indefinite); Marriott International, Inc. (March 14, 2002) (finding a proposal
not vague and indefinite when it specifies that the report is "to be posted on
the Company's website or sent via written communication to shareowners"). The
Proposal does not give the Company appropriate guidance as to dissemination of
the report and should therefore be excludable as vague and indefinite.
4. Vagueness Regarding Cost of Report
The Proposal requests the Company to prepare a sustainability report at
"reasonable cost and omitting proprietary information." The words "reasonable
cost" do not provide a sufficient level of certainty to the Company, nor the
stockholders, in evaluating the Proposal. If the Proposal were approved by the
Company's stockholders, the Company would not know with any degree of reasonable
certainty the amount of resources it would be expected (or permitted) to expend
in order to prepare the report. Similarly, the Company would not know with
reasonable certainty the extent to which proprietary information could (or
should) be excluded from the report, not is it clear what definition of
"proprietary information" would be appropriate. For these reasons, the Proposal
is vague and indefinite and, therefore, excludable under Rule 14a-8(i)(3).
II. The Proposal deals with matters relating to the ordinary business operations
of the Company. Accordingly, the Company may exclude the Proposal pursuant to
Rule 14a-8(i)(7). Rule 14a-8(i)(7) states that a shareholder proposal may be omitted from a
company's proxy materials if it "deals with a matter relating to the company's
ordinary business operations." The Company believes that it may properly exclude
the Proposal under Rule 14a-8(i)(7) for the reasons discussed below.
The Commission has noted that proposals that request investigations of a
company's business operations or the conduct of its management (or that request
reports covering such subjects) may be omitted under Rule 14a-8(i)(7). In
Release No. 34-20091 (Aug. 16, 1983) (the "1983 Release"), the Commission stated
that "the staff will consider whether the subject matter of the special report
or the committee involves a matter of ordinary business; where it does, the
proposal will be excludable" under Rule 14a-8(i)(7). The Staff consistently
permits the exclusion of proposals seeking the preparation of reports on matters
of ordinary business. See, e.g., AT&T Corp. (Feb. 21, 2001); The Mead
Corporation (Jan. 31, 2001); Wal-Mart Stores, Inc. (Mar. 15, 1999); Nike, Inc.
(Jul. 10, 1997). In Release 34-40018 (May 21, 1998) (the "1998 Release"), the Commission stated
that the underlying policy for having an ordinary business exclusion is "to
confine the resolution of ordinary business problems to management and the board
of directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual shareholders meeting." As noted in the 1998 Release,
there are two central considerations that guide the determination of whether a
stockholder proposal relates to a company's ordinary business operations. The
first consideration is the subject matter of the proposal. The 1998 Release
states that "certain tasks are so fundamental to management's ability to run a
company on a day-to-day basis that they could not, as a practical matter, be
subject to direct shareholder oversight." The 1998 Release provides examples of
certain ordinary business matters, including 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." 3 The second
consideration set forth in the 1998 Release is "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 decision." A proposal is deemed to micro-manage a company if
it "involves intricate detail, or seeks to impose specific time-frames or
methods for implementing complex policies." The GRI Guidelines call for a company to report a wide variety of information,
including, but not limited to, net sales, geographic breakdown of markets, cost
of all goods, materials and services purchased, and "percentage of contracts
that were paid in accordance with agreed terms, excluding agreed penalty
arrangements." See GRI Guidelines, p. 47. The GRI Guidelines also require
disclosure of such items as "average hours of training per year per employee by
category of employee" and "policy and procedures involving information,
consultation, and negotiation with employees over changes in the reporting
organization's operations (e.g., restructuring)." See GRI Guidelines, p. 52-53.
Such matters are inherently in the ordinary course of a company's operations and
do not present any significant policy or economic issues. The Company notes that in 2002 the Staff determined that a stockholder proposal
requesting the preparation of a "report dealing with the social and
environmental issues related to sustainability" could not be excluded under Rule
14a-8(i)(7). See Johnson Controls, Inc. (Nov. 14, 2002). However, the Company
believes that the Proposal is distinguishable from the stockholder proposal in
Johnson Controls, Inc., The proposal in Johnson Controls, Inc. was general,
providing only broad guidelines for preparing a sustainability report, thereby
allowing management to decide how best to implement the proposal, including the
level of detail. Because the Johnson Controls, Inc. stockholder proposal
permitted management to determine for itself how to measure sustainability and
what content to include in a sustainability report, such proposal left to
management's discretion the manner of implementing the proposal. In contrast,
the Proposal does not seek the Company's response on broad policy matters but
instead would require the Company to provide detailed information on a large
number of matters unrelated to significant policy issues, pursuant to the
reporting format of the GRI Guidelines. (Such detailed information would be
required no matter whether the Company prepared a report in "full compliance"
with the GRI Guidelines or it pursued an incremental reporting approach, as
discussed in Section I above.) Whereas the proposal in Johnson Controls, Inc.
called for a macro-level review of issues relating to sustainability, the
Proposal would require a micro-level of review covering many facets of the
Company's ordinary business operations within a detailed reporting framework.
A. The subject matter of the Proposal relates to the Company's ordinary business
operation and is therefore excludable. The Proposal requires that a sustainability report be prepared based on the GRI
Guidelines. Such a report would require reporting on a variety of topics that
relate to the Company's ordinary business operations, including, but not limited
to, labor management, supplier and vendor relationships, products and services,
location of operations and non-GAAP financial information.
1. Labor and Employment Matters One general category of ordinary business matters that would be included in a
report based on the GRI Guidelines relates to labor and employment practices.
The GRI Guidelines require reporting on total payroll and benefits, including
wages, pensions, other benefits, and redundancy payments, broken down by country
or region. Part C of the GRI Guidelines includes a section entitled "Social
Performance Indicators: Labor Practices and Decent Work" that requires reporting
on matters including the composition of a company's work force, employee
benefits, labor organization and collective bargaining, safety of working
conditions, training, equal opportunity policies, human rights,
non-discrimination, freedom of association, child and forced labor, and
discipline. See GRI Guidelines, pp. 52-55 (Labor Performance Indication LA1 -
LA17, Human Rights Performance Indicator HR1 - HR14, and Social Performance
Indicator SO1 - SO17).4 The GRI Guidelines also require reporting on the use of
sweatshop labor, which the Staff has previously determined involves ordinary
business matters. See Kmart Corporation (Mar. 12, 1999) and Wal-Mart Stores,
Inc. (Mar. 15, 1999) (permitting the exclusion of a proposal to ensure that the
company does not purchase from suppliers who manufacture items using forced or
child labor and to prepare a report thereon because the proposal related to
reporting on ordinary business matters); The Warnaco Group, Inc. (Mar. 12, 1999)
(permitting exclusion of a report related to labor practices where the
description to be included in the report related to ordinary business
operations). As discussed above, the Commission has stated that proposals pertaining to such
matters as "management of the workforce, such as the hiring, promotion, and
termination of employees, decisions on production quality and quantity, and the
retention of supplies," may be excluded under Rule 14a-8(i)(7) as relating to
the company's ordinary business operations. See 1998 Release; see also Staff
Legal Bulleting No. 14A (Jul. 12, 2002). Consistent with this, the Staff has
stated that proposals relating to general employee compensation matters would be
excludable under Rule 14a-8(i)(7) (see Staff Legal Bulletin No. 14A (Jul. 12,
2002)) and made the same determination with respect to proposals addressing
employee benefits. See, e.g., Wal-Mart Stores, Inc. (Apr. 2, 2002) (proposal
requesting that board implement specified changes involving employee discounts,
company contributions to employee stock purchases, hourly pay, use of company
cards, stock option grants, and employee control of displaying merchandise
excludable because proposal related to "employee benefits, general compensation
matters and employee relations"); AT&T Corp. (Mar. 1, 2002) (proposal requesting
that board revise company's health coverage policy to provide free lifetime
health insurance to retirees excludable because it related to "employee
benefits"). A very significant portion of the subject matter of the GRI Guidelines focuses
on policies and practices relating to overall working conditions, salaries,
benefits, training, health and safety, and other employee relations and
employment matters. Disclosures in these areas would relate to the management of
the Company's workforce and not raise significant social policy issues.
Accordingly, the Proposal is of the type that should properly be regarded as
addressing the Company's ordinary business operations, and therefore, should be
excludable under Rule 14a-8(i)(7). 2. Relationship with Suppliers and Vendors
Another general category of disclosures required in a report based on the GRI
Guidelines is the Company's relationship with its suppliers and vendors, as well
as the conduct of such suppliers and vendors. The GRI Guidelines state that a
report should include the key attributes of a company's suppliers, including the
products and services that are offered as well as their local, national and
international operations. See GRI Guidelines, p. 40.5 The 1998 Release includes "retention of suppliers" as an example of an ordinary
business matter that is 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 stockholder oversight. See 1998 Release. In Hormel Foods Corporation
(Nov. 19, 2002), the Staff permitted the exclusion of a proposal that requested
a report on the use of antibiotics by the company's hog suppliers, and in
Wal-Mart Stores, Inc. (Apr. 10, 1991), the Staff permitted the exclusion of a
proposal that requested information on the company's practices and policies for
selecting suppliers of goods and services. The selection of suppliers and
vendors, and the ongoing maintenance of relationships with such parties,
involves consideration of numerous factors, including, for example, quantity and
quality of products and services offered; price; customer service; location;
distribution and delivery capabilities; environmental and health and safety
practices; and other factors. Evaluating such factors is a key part of the
Company's day-to-day business operations, and cannot, from a practical
standpoint, be subject to direct stockholder oversight. As the Proposal would
require detailed reporting with respect to the Company's selection of, and
relationships with, suppliers and vendors, the Proposal relates to the Company's
ordinary business operations and should therefore be excludable under Rule
14a-8(i)(7). 3. Products and Services of the Company
Another category of ordinary business operations required to be reported on by
the GRI Guidelines relates to a company's products and services. The Commission
and Staff have consistently taken the position that decisions regarding the
products and services offered by a company, and the manner in which a company
provides them, are matters of ordinary business operations. See 1998 Release.
Section 2.2 of the GRI Guidelines requires information on a company's major
products and/or services, including brands if appropriate and "indicate the
nature of its role in providing these products and services, and the degree to
which the organization relies on outsourcing." 6 The 1998 Release states that a company's decisions on "production quality and
quantity" are examples of ordinary business matters. In Alliant Techsystems Inc.
(May 7, 1996), the Staff permitted the exclusion of a proposal that requested
the adoption of a "policy to end all research, development, production and sales
of antipersonnel mines," because the subject matter of the proposal dealt with
the company's ordinary business operations. See also Kmart Corporation (Feb. 23,
1993) (permitting exclusion of proposal that a subsidiary stop selling violent
and/or sexually explicit literature and media); McDonalds Corporation (Mar. 9,
1990) (permitting exclusion of proposal to introduce a "vegetarian entr|pi|qee
whose means of production neither degrades the environment nor exploits other
species.") The Proposal seeks a report that would address myriad details
regarding the Company's products and services. Disclosures in these areas relate
to the management of the Company's operations and do not raise significant
social policy issues. These matters are fundamental to management's ability to
run the Company on a day-to-day basis. Accordingly, the Proposal is of the type
that should properly be regarded as addressing the Company's ordinary business
operations, and therefore, should be excludable under Rule 14a-8(i)(7).
4. Location of the Company's Operations
A report based on the GRI Guidelines would have to provide information regarding
the location of, and changes in, the Company's operations. Specifically, Section
3.18 of the GRI Guidelines requires that information be provided regarding
"major decisions" about the location of, or changes in, Location of operations,
including decisions on "facility or plant closings, expansions, and
contractions." The Staff has consistently viewed decisions regarding the
location of operations as part of a company's ordinary business operations. In
Minnesota Corn Processors, LLC (Apr. 3, 2002), the Staff allowed the exclusion
of a proposal to build a new plant because it related to the company's ordinary
business decision. See also MCI WorldCom, Inc. (Apr. 20, 2000) (permitting the
exclusion of a proposal that requested analysis of the economic impact of
relocating the company's facilities); Tenneco Inc. (Dec. 28, 1995) (permitting
the exclusion of a proposal relating to the determination of the location of the
company's headquarters). As the Proposal seeks a report that would require
disclosure of the location of the company's operations, it should be excludable
as it relates to a company's ordinary business operations.
5. Supplemental Financial Disclosures
A report based on the GRI Guidelines would also require financial disclosures
that surpass those required under U.S. generally accepted accounting principles
("GAAP") and other applicable financial reporting requirements. Specifically,
Part C of the GRI Guidelines calls for disclosures that "have a scope and
purpose that extends beyond that of traditional financial indicators," including
disclosures relating to a company's customers, suppliers, employees, providers
of capital and the public sector.7 The Staff has held that the form, content,
and presentation of financial disclosures in reports to stockholders, outside of
the requirements of GAAP, pertain to ordinary business matters. In American
Stores Company (Apr. 7, 1992), the Staff excluded a proposal to disclose in the
company's annual report the earnings, profits and losses for each of the
company's subsidiaries because such a proposal required disclosures that are not
required under GAAP. See also General Electric Company (Jan. 21, 2003)
(permitting the exclusion of a proposal that sought disclosure in the company's
annual report of a directory of all of the company's businesses, their gross
earnings, profits and losses, assets and liabilities, and their major
investments, activities, and risks, because the proposal related to the
"presentation of financial information.") Because the Proposal seeks to require
a report containing detailed financial information and operating metrics that
would go well beyond that which are required under GAAP, the Proposal relates to
the Company's ordinary business operations and should be excludable pursuant to
Rule 14a-8(i)(7). B. The Proposal seeks to micro-manage the Company's business and is therefore
excludable. By virtue of the depth and level of detail contemplated by the GRI Guidelines,
the Proposal seeks to micromanage the operations of the Company. The 1998
Release indicates that a proposal that "involves intricate detail, or seeks to
impose specific-time frames or methods for implementing complex policies," would
be excludable. The Proposal would have the effect of micro-managing the Company,
as it would require compilation of a significant amount of data, as well as the
review of, and reporting on, a variety of complex policies regarding the
Company's performance in many different areas of ordinary business operations.
Undertaking a program to implement the Proposal would require the review and
testing of the performance of various business units and the Company as a whole
and would constitute a task of tremendous scope that would necessarily involve
large amounts of time and resources. The Proposal thus seeks to insert
stockholders into matters of intricate detail regarding the day-to-day
operations of the Company's business which are more properly left to management.
The Commission has consistently held that proposals seeking to micro-manage the
company's ordinary business operations may be excluded. In the 1998 Release, in
discussing the exclusion of a proposal seeking detailed information regarding
the company's affirmative action policies and procedures in Capital Cities/ABC,
Inc. (Apr. 4, 1991), the Commission stated that "some proposals may intrude
unduly on a company's ordinary business' operations by virtue of the level of
detail that they seek." In Wal-Mart Stores, Inc. (Apr. 10, 1991), the Staff
permitted the exclusion of a proposal that called for disclosures to be made
regarding the company's activities and progress in purchasing goods and services
from business owned by minorities and females, and with respect to equal
employment opportunities, and affirmative action. The Staff stated that the
reason for excluding the proposal was that it involved a "request for detailed
information on the Company's work force and employment practices and policies."
The Proposal would require the Company to compile very detailed information in
response to the GRI Guidelines. This would effectively constitute
micro-management of the Company's day-to-day business operations. For this
reason, we believe the Proposal is properly excludable under Rule 14(a)-8(i)(7).
C. The Proposal may properly be excluded, even if the Proposal also raises
non-ordinary business matters. Although the Proponent may argue that the requested report covers some issues
involving policy matters, the specific requirement to prepare a report based on
the GRI Guidelines means that the Proposal is one that predominantly deals with
the Company's ordinary business matters, as discussed above. The Staff has
consistently taken the position that a proposal may be excluded in its entirety
when it contains elements that relate to a company's ordinary business
operations, even where the proposal also contains elements that relate to
non-ordinary business matters. In E*Trade Group, Inc. (Oct. 31, 2000), the Staff
allowed the exclusion of an entire proposal relating to the formation of a
stockholder committee that would suggest ways to increase stockholder value. The
Staff allowed the entire proposal to be excluded under Rule 14a-8(i)(7), even
though the proposal included two elements that fell within the scope of the
company's ordinary business and two elements that fell outside the scope. In
Z-Seven Fund, Inc. (Nov. 3, 1999), the Staff allowed a proposal to be excluded
in its entirety, stating that "although part of the proposal appears to address
matters outside the scope of ordinary business, certain matters contained in the
proposal refer to ordinary business matters." See also International Business
Machines Corp. (Jan. 9, 2001); The Warnaco Group, Inc. (Mar. 12, 1999); Chrysler
Corporation (Feb. 18, 1998). The Staff has a longstanding policy of not permitting proponents to revise
overly broad stockholder proposals once it is clear that the proposals would be
excludable under Rule 14a-8(i0(7) because they address ordinary business
operations. See, e.g., Staff Legal Bulletin 14 (Jul. 13, 2001) ("when a proposal
and supporting statement will require detailed and extensive editing in order to
bring them into compliance with the proxy rules, we may find it appropriate for
companies to exclude the entire proposal, supporting statement, or both").
Further, it has been the practice of the Staff to not allow for revisions of a
proposal that is deemed excludable under Rule 14a-8(i)(7). The GRI Guidelines
call for disclosure on a range of matters that are related to the Company's
ordinary business operations that would each render the Proposal excludable in
its entirety. III. The Company has already substantially implemented the Proposal.
Accordingly, the Company may exclude the Proposal pursuant to Rule 14a-8(i)(10).
The Company may exclude the Proposal under Rule 14a-8(i)(10) because the Company
has already substantially implemented the Proposal. Therefore, the Proposal is
moot. The 1983 Release provides that a proposal may be excluded pursuant to Rule
14a-8(i)(10) in circumstances where it has been "substantially implemented by
the issuer." The 1983 Release also provides that Rule 14a-8(i)(10) does not
require the proposal to have been "fully effected." In determining whether a
proposal has been substantially implemented, the company's policies, practices
and procedures should "compare favorably with the guidelines of the proposal"
and there is no need to have a precise implementation of the proposal. See
Texaco, Inc. (Mar. 28, 1991); Cisco Systems, Inc. (Aug. 11, 2003). The Staff
will consider a proposal to be substantially implemented under Rule 14a-8(i)(10)
in cases where a company has already established procedures that relate to the
subject matter of the proposal or in cases where the company has implemented the
essential objectives of the proposal. See The Talbots Inc. (Apr. 5, 2002)
(permitting the exclusion of a proposal that required the establishment of a
code of corporate conduct regarding human rights because the company had an
existing Standard for Business Practice and code of conduct); The Gap, Inc.
(Mar. 16, 2001) (permitting the exclusion of a proposal that requested a report
on child labor practices of the company's vendors because the company had
already established a code of vendor conduct, monitored vendor compliance and
published the related information); Kmart Corporation (Feb. 23, 2000);
Nordstrom, Inc. (Feb. 8, 1995). The fact that the Company has not delivered a report to stockholders does not
preclude the Company from excluding the Proposal. As long as the information
called for by the requested report is made available to stockholders, a company
need not have actually distributed a report to stockholders to have
substantially complied with a stockholder proposal seeking such report. See
Kmart Corporation (Feb. 23, 2000). The Proposal requests that the Company provide a sustainability report based on
the GRI Guidelines. The GRI Guidelines, in turn, set out a variety of general
and specific content requirements relating to governance matters and economic,
environmental and social indicators. The Company has issued reports that
contain, and otherwise made available to the public, information which is
responsive to the Proposal insofar as it requests macro-level disclosures about
the Company's governance, and with respect to the Company's performance on
social, environmental, and economic sustainability measures. The Company is
continually in the process of further developing such measures. A significant
amount of information on these subjects is made available to the Company's
stockholders and the public generally on the Company's website
(http://www.kerr-mcgee.com) and through other sources. In other words, the
Company has substantially implemented, and continues to substantially implement,
a program for reporting on macro-level sustainability issues comparable to those
contemplated by the GRI reporting framework. The Company's activities in this area are discussed in more detail below.
1. Corporate Vision and Governance
The GRI Guidelines apparently contemplate disclosure of a variety of information
regarding a company's "vision and strategy," "organisational profile," and
"governance structure and management systems." See GRI Guidelines, pp. 38 - 43.
The Company has already substantially implemented reporting practices similar to
those apparently contemplated by the Proposal, as demonstrated by the following:
The Company's mission and corporate vision are described in great detail in
various of the Company's publicly available documents, including its annual
report to stockholders and its Code of Business Conduct and Ethics, which is
available to the Company's stockholders on the Company's web site.
As noted above, the Company has adopted a Code of Business Conduct and Ethics
which is delivered to and acknowledged by all employees and which is publicly
available on the Company's website.
Information regarding the Company's organizational structure and management is
provided to stockholders and the public generally on the Company's website and
in its public reports, proxy statements, and filings with the Commission.
Information regarding corporate governance is provided by the Company on its
website and in its public reports, proxy statements and filings with the
Commission. These disclosures include extensive discussion regarding the
Company's board of directors, committees, and their respective oversight
responsibilities.
As a company with securities listed on the New York Stock Exchange (the
"NYSE"), the Company must comply with the NYSE's corporate governance listing
standards, including the required disclosure of a method for interested parties
(including stockholders) to communicate directly with non-management directors,
by no later than the date of its 2004 Annual Meeting of Stockholders.
Under current policies, the Company's stockholders may communicate both
directly and indirectly with the non-management members of the Company's Board
of Directors in a variety of ways, including via a toll-free hotline
administered up by the Company, via the Company's corporate secretary and at the
Annual Meeting of Stockholders. Stockholders also may write non-management
members of the Board of Directors in care of the Company using the Company's
corporate address, which may be obtained from the Company's corporate website.
Thus, the Company enables direct communications on corporate governance matters
through a variety of means. 2. Economic Performance
The GRI Guidelines apparently contemplate disclosure of various "Economic
Performance Indicators." See GRI Guidelines, pp. 45-48. The Company already
provides extensive financial information to the public, including its
stockholders, through a variety of means, including, but not limited to, the
following (all of which are available to the public through the Company's
website):
Annual Report to Stockholders and annual report on Form 10-K filed with the
Commission. These reports contain audited annual financial statements prepared
in accordance with GAAP, as well as certain other financial and operating
metrics not required by GAAP.
Quarterly earnings releases summarizing the Company's financial and operating
performance on a quarterly basis, and quarterly reports on Form 10-Q filed with
the Commission.
Quarterly and interim teleconferences conducted by senior management to review
the prior period's financial and operating performance, which are open to the
public.
Current reports on Form 8-K filed with the Commission.
Registration statements filed with the Commission.
Press releases regarding significant operational and financial developments.
Presentations at investor and analyst conferences. 3. Environmental Performance
The GRI Guidelines apparently contemplate disclosure of various "Environmental
Performance Indicators." See GRI Guidelines, pp. 48-51. The Company has already
substantially implemented these disclosure requirements, as evidenced by the
following:
The Company clearly states its commitment to environmental and social
responsibility in the "Commitment" section of the 2002 Annual Report and
describes specific activities in which it participates in support of this
commitment.
The Company prepares, and posts on its website, a Report on Environmental and
Safety Activities. This report contains detailed information on the Company's
key safety and environmental policies and practices. The report covers many of
the Company's specific initiatives to manage safety and environmental
stewardship as key elements of its daily operations.
The Company prepares and publishes annually a North Sea Environmental
Performance Report, which contains statistics on waste management, produced
water, oil spills, atmospheric emissions (including greenhouse gases) and
chemicals usage. This report is available to the public upon request.
The Company participates in a voluntary greenhouse gas emission management
program as a member of the Business Roundtable, American Petroleum Institute and
American Chemistry Council.
The Company submits "Title V" air emissions data to the American Chemistry
Council for consolidated reporting to the public under the American Chemistry
Council's Responsible Care program.
The Company prepares an annual Toxics Release Inventory ("TRI") report,
covering releases of toxic constituents to the air, water or land. The U.S.
Environmental Protection Agency ("EPA") makes this information available to the
public on its TRI website.
In the Netherlands, the Company files an Annual Environmental Report, which
covers emissions to the air, solid waste issues, energy consumption and water
consumption. A summary of this report is available to the public upon request
through an advertised, industry organized clearinghouse.
The Company files restoration plans with appropriate governmental agencies,
and such plans generally are available to the public.
Many of the Company's chemical operating facilities are either ISO 14001 or
ISO 9000 certified. The ISO 14001 designation certifies that a company
effectively operates a formal environmental management system in accordance with
the London-based Bureau Veritas Quality International stringent guidelines. The
ISO 9000 designation certifies that a company operates a formal quality
management system.
The Company is in compliance with reporting requirements under the Resource
Conservation Recovery Act, the Clean Water Act, the Toxic Substance Control Act
and the Comprehensive Environmental Responsibility Compensation and Liability
Act. Reports are submitted quarterly, semi annually, or annually and address
issues including desolved solids, oil and grease, toxicity, volume of hazardous
materials and total hazardous materials on location. EPA's Enforcement and
Compliance History Online web site provides information regarding performance
under permits responsive to these Acts. The Company has been publicly recognized for its performance in the area of
environmental sustainability. Recent honors include:
U.S. Department of Interior's Minerals Management Service SAFE award that has
been awarded three of the past six years. The Company was a finalist all six
years. The SAFE award is presented to the safest environmental steward among
"highly active" oil and gas operators in the Gulf of Mexico.
Platt/Business Week Energy Engineering Project of the Year Award for using
leading-edge technology (truss spar) to develop the Nansen and Boomvang fields
in the deepwater Gulf of Mexico, which award recognizes the contribution made by
engineers to a strong and sustainable energy future.
Natural Gas STAR Partner of the Year awarded by the U.S. Environmental
Protection Agency. The recognition was for outstanding performance in reducing
methane emissions, identifying and implementing new practices and supporting the
EPA's outreach program. 4. Social Performance
The GRI Guidelines also apparently contemplate disclosure regarding various
"Social Performance Indicators." See GRI Guidelines, pp. 51-56. The Company has
already substantially implemented these disclosure requirements, as it has
publicly disclosed, in its annual reports to stockholders, website and press
releases, the following:
Pursuant to its Code of Business Conduct and Ethics, the Company provides
information with respect to, and sets standards for employees to follow
regarding, social issues, including policies and practices regarding human
rights, bribery and corruption, and political contributions.
The Company has been active on issues of social responsibility, and makes
available an extensive amount of information about its social responsibility
programs in its annual report.
The Company provides financial support to the Rocky Mountain Raptor Program to
ensure assistance and rehabilitation for birds of prey in Colorado.
The Company supports the Wildlife Rehab & Education nonprofit organization.
The Company helped sponsor a three-year project in Scotland to research the
changing distribution and behavior of the bottlenose dolphins along the
northeast coast.
The Company provides financial support to conservation programs and
organizations, including The Conservation Fund, Environmental Federation of
Oklahoma, and others. The Company's social sustainability performance extends to its extensive
philanthropic activity. As a philosophical matter, the Company strongly believes
that it has an obligation to participate in the development of the communities
in which it operates. Examples of the Company's commitment in this regard
include the following: (i) participation in school adoptions and tutoring
programs in the cities of Oklahoma City, OK, Henderson, NV, Savannah, GA,
Hamilton, MS, and Aberdeen Scotland; (ii) participation in the INROADS program
through summer internships and scholarships, which trains and develops
ethnically diverse students for professional careers, (iii) sponsorship of a
swim club for boys and girls ages 8 to 18 in the Central Oklahoma area, which
offers the participants the chance to strengthen skills, enhance confidence and
compete on a national level, (iv) providing matching donations for employee
donations to institutions of higher learning, (v) providing financial and other
support to the United Way and March of Dimes, and (vi) providing college
scholarships through various corporate programs. The Company has been publicly recognized for its performance in the area of
social sustainability. Recent honors include:
The Company won the 2002 Corporate Health Achievement Award from the American
College of Occupational and Environmental Medicine for its dedication to
providing excellent health care to all employees.
The Company was named to the "2001 Catalyst Blue Ribbon Board of Fortune 1000
Companies with Multiple Women Directors." Only 317 of the Fortune 1000
companies, including the Company, had boards of directors in 2001 with two or
more women.
Third Place among Fortune Magazine's Most Admired Companies in corporate
America in the category of "Mining, Crude-Oil Production" in 2002. The rating
was based on eight criteria, including innovation, financial soundness, employee
talent, use of corporate assets, long-term investment value, social
responsibility, quality of management and quality of products and services.
2003 Australian Petroleum Production and Exploration Association safety award
in the category of exploration companies for the Company's successful training
program for the company's drilling activities in Australia.
Star Worksite Banner, which is highest recognition under the Voluntary
Protection Program of OSHA, for 10 of the companies' 13 chemical operations in
the U.S.
During 2002, the company operated with 75% fewer injuries and occupational
illnesses than the U.S.-based industry overall. Although the information described above and already made available by the
Company does not track in identical fashion the various items of information
required under the GRI Guidelines, the disclosures made by the Company are
broadly responsive to the Proposal. Moreover, consistent with the incremental
approach to reporting that is expressly permitted by the GRI Guidelines, the
Company intends to continue working to enhance the quality and quantity of its
disclosures. As substantial implementation does not require the entire
implementation of the precise details of the Proposal, we believe that the
Company has substantially implemented the Proposal by already having implemented
reporting procedures similar to those apparently contemplated by the Proposal.
For the reasons set forth above, the Company believes that it may omit the
Proposal from the Proxy Materials pursuant to Rule 14a-8(i)(10) because the
Proposal has been substantially implemented. * * * *
For the foregoing reasons, we believe that the Proposal may be omitted from the
Proxy Material and respectfully request that the Staff confirm that it will not
recommend any enforcement action if the Proposal and the Supporting Statement
are excluded. The Company anticipates that the Proxy Materials will be finalized
for printing on or about March 26, 2004. Accordingly, your prompt review of this
matter would be greatly appreciated. Should you have any questions regarding
this matter, please do not hesitate to contact the undersigned at (202)
662-5307, or David B.H. Martin at (202) 662-5128. Very truly yours,
/s/ David H. Engvall
Attachments cc: Mr. Gregory F. Pilcher
Ms. Vidette Bullock Mixon -----FOOTNOTES-----
1 The Proposal also includes a number of "WHEREAS" clauses preceding the
resolution, which are not reproduced here. See Exhibit A. 2 The Proposal provides that the GRI Guidelines "provide companies with (1) a
set of reporting principles essential to producing a balanced and reasonable
report and (2) guidance for report content, including performance against core
indicators in six categories (direct economic impacts, environmental, labor
practices and decent work conditions, human rights, society, and product
responsibility)." 3 The 1998 Release, however, states that proposals relating to the
above-described matters that focus "sufficiently on significant social policies
(e.g. discrimination matters) generally would not be considered to be
excludable, because the proposals would transcend the day-to-day business
matters and raise policy issues so significant that it would be appropriate for
a shareholder vote." 4 See, e.g., GRI Section 2.8, Guidelines, p. 39 (number of employees: breakdown
of employees by country/region); Section 2.9, GRI Guidelines, p. 40 (key
attributes of stakeholders, including trade unions (relation to workforce and
reporting organization), and direct and indirect workforce (size, diversity,
relationship to reporting organization)). 5 GRI Guidelines, Section 2.9. See also Section 3.16, GRI Guidelines, p. 43
(policies and systems for managing upstream and downstream impacts, including
supply chain management as it pertains to outsourcing and supplier environmental
and social performance); ECI1, GRI Guidelines, p. 47 (supplier breakdown by
organization and country, including a list of all suppliers from which purchases
in the reporting period represent 10% or more of total purchases in that period
and all countries where total purchasing represent 5% or more of gross domestic
product); EN33, GRI Guidelines, p. 50 (supplier performance relative to
environmental components of policies and procedures for managing upstream and
downstream impacts described in Section 3.16). 6 See, e.g., Section 2.8, GRI Guidelines, p. 39 (quantity or volume of products
produced/services offered; breakdowns of major products and/or identified
services); Section 3.16, GRI Guidelines, p. 43 (policies and/or systems for
managing upstream and downstream impacts, including product and service
stewardship initiatives (including efforts to improve product design to minimize
negative impacts associated with manufacturing, use and final disposal));
Economic Performance Indicator (EC) 13, GRI Guidelines, p. 48 (major
externalities associated with the reporting organization's products and
services); Environmental Performance Indicator (EN) 14, GRI Guidelines, p. 50
(significant environmental impact of principal products and services); EN 15,
GRI Guidelines, p. 50 (percentage of weight of products sold that is recyclable
or reusable at the end of the products' useful life and percentage that is
actually recycled or reused); EN18, GRI Guidelines, p. 49 (energy consumption
footprinti.e., annualized lifetime energy requirements of major products);
Product Responsibility Indicator (PR)2, GRI Guidelines, p. 55 (description of
policy, procedures/management systems, and compliance mechanisms related to
product information and labeling); PR7, GRI Guidelines, p. 55 (number and types
of instances of non-compliance with regulations concerning product information
and labeling, including any penalties or fines assessed for noncompliance).
7 See, e.g., Economic Performance Indicator (EC)2, GRI Guidelines, p. 47
(geographic breakdown of markets); Economic Performance Indicator (EC)4, GRI
Guidelines, p. 47 (percentage of contracts that were paid in accordance with
agreed terms, excluding agreed penalty arrangements); Economic Performance
Indicator (EC)8, GRI Guidelines, p. 48 (total sum of taxes of all types paid
broken down by country). [APPENDIX 2]
December 2, 2003 Luke R. Corbett
Chief Executive Officer
Kerr McGee Corporation
Kerr McGee Center
123 Robert S. Kerr Avenue
Okalahoma City, OK 73102 Dear Mr. Corbett:
The General Board of Pension and Health Benefits of The United Methodist Church
has the responsibility for administering and investing pension funds in excess
of $11 billion for over 67,000 of its active and retired participants. The
General Board is committed to being a socially responsible investor, and
endeavors to invest in funds and corporations that have a positive impact on
society. In such capacity, the General Board has an investment position of
128,345 shares of common stock in Kerr McGee Corporation. The General Board recognizes that Kerr McGee is the largest US-based independent
oil exploration and production company. Our company has significant social and
environmental impacts. We appreciate the company providing its Environmental and
Safety Activities report on its website. We urge management to pursue
standardized sustainability reporting as described in the Global Reporting
Initiative (GRI) Sustainability Reporting Guidelines at www.globalreporting.org.
The Guidelines provide companies with (1) a set of reporting principles (such as
transparency, inclusivity, completeness, relevance, and comparability) essential
to producing a balanced and reasonable report and (2) guidance for report
content, including the company's profile, vision and strategy, governance
structure and management systems, and performance against core indicators in six
categories (direct economic impacts, environmental, labor practices and decent
work conditions, human rights, society, and product responsibility).
More than 300 companies from around the world, including Agilent Technologies,
Baxter International, BASF, British Telecom, Bristol-Myers Squibb, Danone,
Electrolux, Ford, General Motors, Interface, KLM, NEC, Nike, Nokia, and
Volkswagen, already have undertaken sustainability reporting using the
Guidelines. Because of the value we place on public reporting, we are presenting
this shareholder proposal. Therefore, I am hereby authorized to notify you of our intention to file this
resolution for consideration and action by the stockholders at the 2004 Annual
Meeting. We also request that the resolution and our support of it be noted in
the proxy statement in accordance with Rule 14-A-8 of the General Rules and
Regulations of the Securities and Exchange Act of 1934. The General Board has held a number of Kerr McGee shares, with a value of at
least $2,000 for at least twelve months prior to the filing date of this
proposed 2004 shareholder resolution. Proof of the General Board's ownership of
these shares is enclosed. It is our intent to maintain ownership of this stock
through the date of the Annual Meeting. Representatives of the General Board welcome the opportunity to dialogue with
management on this matter. Sincerely,
/s/ Vidette Bullock Mixon
Director of Corporate Relations
And Social Concerns [APPENDIX 3]
RESOLUTION TO DISCLOSE SUSTAINABILITY PERFORMANCE Whereas:
We believe that the global economy presents corporations with the challenge of
creating sustainable business relationships by participating in the sustainable
development of the communities in which they operate; According to the Dow Jones Sustainability Group, sustainability includes:
Encouraging long lasting social well being in communities where they operate,
interacting with different stakeholders (e.g. clients, suppliers, employees,
government, local communities, and non-governmental organizations) and
responding to their specific and evolving needs thereby securing a long-term
`license to operate,' superior customer and employee loyalty, and ultimately
superior financial returns. (www.sustainability-index.com; March 2000);
We believe the linkage between sustainability performance and long-term
shareholder value is awakening mainstream financial companies to new tools for
understanding and predicting value in capital markets. Major firms, including
ABN-AMRO, Neuberger Berman, Schroders, T. Rowe Price, and Zurich Scudder,
subscribe to information on social and environmental risks and opportunities to
help make investment decisions, according to Innovest, an environmental
investment research consultant; Companies increasingly recognize that transparency and dialogue with
stakeholders about sustainability are key to business success. For example, 3M
Company reports that its long-term success depends upon implementing principles
of sustainable development and "stewardship to the environment." Likewise,
Alliant Energy states that tomorrow's investors will support energy companies
"that have demonstrated the ability to minimize their impact on the
environment"; We belive sustainability reporting will foster this dialogue and provide
non-financial information that contributes to long-term shareholder value. The
Dow Jones Sustainability Index World (DJSI World), which analyzes financial
performance and the economic, environmental, and social performance of included
companies, has outperformed the Dow Jones Global Index from 1994 through 2002;
We believe sustainability reporting can also warn of trouble spots and signal
cost-saving opportunities to management and shareholders. Disclosure of energy
consumption allows companies and shareholders to assess environmental
performance, potential regulatory actions, and reputational risk associated with
business activities; The Global Reporting Initiative (GRI) (www.globalreporting.org) is an
international standard-setting organization with representatives from business,
environmental, human-rights and labor communities. The GRI Sustainability
Reporting Guidelines (the Guidelines), created by the GRI, provide companies
with (1) a set of reporting principles essential to producing a balanced and
reasonable report and (2) guidance for report content, including performance
against core indicators in six categories (direct economic impacts,
environmental, labor practices and decent work conditions, human rights,
society, and product responsibility); The Guidelines provide a flexible system for sustainability reporting that
permits a company to use an "incremental approach" where a company may omit some
content requested by the Guidelines but "base their reports on the GRI framework
and incrementally improve report content coverage, transparency, and structure
over time."; More than 300 companies worldwide, including Agilent Technologies, Baxter
International, BASF, British Telecom, Bristol-Myers Squibb, Danone, Electrolux,
Ford, General Motors, Interface, KLM, NEC, Nike, Nokia, and Volkswagen, use the
Guidelines for sustainability reporting; RESOLVED:
That shareholders request that the company prepare a sustainability report (at
reasonable cost and omitting proprietary information) based on the Global
Reporting Initiative's sustainability reporting guidelines by October 2004. [INQUIRY LETTER]
January 6, 2004 BY 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: Kerr-McGee CorporationShareholder Proposal of the General Board of Pension
and Health Benefits of The United Methodist Church Ladies and Gentlemen:
This letter is to inform you of the intention of our client, Kerr-McGee
Corporation ("Kerr-McGee" or the "Company"), to omit from its proxy statement
and form of proxy for its 2004 Annual Meeting of Stockholders (collectively, the
"Proxy Materials") a shareholder proposal (the "Proposal") and statement in
support thereof (the "Supporting Statement") received from the General Board of
Pension and Health Benefits of The United Methodist Church (the "Proponent").
The Proposal and Supporting Statement, which the Proponent delivered via letter
on December 9, 2003, are attached hereto as Exhibit A. As required in Rule 14a-8(j) under the Securities Exchange Act of 1934 (the
"Exchange Act"), we have enclosed six (6) copies of this letter and its
attachments. Also, we are mailing a copy of this letter and its attachments on
this date to the Proponent, informing it of the Company's intention to omit the
Proposal and Supporting Statement from the Proxy Materials. The Company
presently expects to file its definitive Proxy Materials on or after March 26,
2004. Accordingly, as provided in Rule 14a-8(j), this letter is being submitted
to the Securities and Exchange Commission (the "Commission") no less than 80
calendar days before the Company files its definitive Proxy Materials with the
Commission. THE PROPOSAL The resolution included in the Proposal states:
RESOLVED: That shareholders request that the company prepare a sustainability
report (at reasonable cost and omitting proprietary information) based on the
Global Reporting Initiative's sustainability reporting guidelines by October
2004.1 SUMMARY OF REASONS FOR EXCLUSION
We believe that the Company may properly exclude the Proposal and the Supporting
Statement from the Proxy Materials pursuant to the following rules:
I. Rule 14a-8(i)(3), because the Proposal and Supporting Statement are false and
misleading in violation of the proxy rules; II. Rule 14(a)-8(i)(7), because the Proposal deals with matters relating to the
Company's ordinary business operations; and III. Rule 14a-8(i)(10), because the Company has already substantially
implemented the Proposal. On behalf of our client, we hereby respectfully request that the staff of the
Division of Corporation Finance (the "Staff") concur in our view that the
Proposal and Supporting Statement may be excluded from the Proxy Materials on
these bases, as discussed in greater detail below. BACKGROUND
The Proposal requests the Company to prepare a sustainability report that is
based on the Global Reporting Initiative ("GRI") sustainability reporting
guidelines. The Company assumes that the Proposal refers to the guidelines set
forth in the 2002 Sustainability Guidelines (the "GRI Guidelines") published by
GRI. The GRI Guidelines are available at
http://www.globalreporting.org/guidelines/2002/GRI_guidelines_print.pdf.
Attached to this letter as Exhibit B is a copy of the GRI Guidelines obtained
from the aforementioned website on December 25, 2003, for the Staff's ease of
reference. The GRI Guidelines are contained in a document that is approximately 100 pages
long. Part C of the GRI Guidelines comprises approximately 20 pages of specific
reporting content. The GRI Guidelines state that there are two ways to "use" the
GRI Guidelines: (i) reporting "in accordance with" the Guidelines; and (ii)
reporting using an "informal approach" by choosing not to cover all of the
content of the Guidelines, but basing the reports on the GRI framework and
incrementally improving report content coverage, transparency, and structure
over time. See GRI Guidelines, pp. 13-14. Part C of the GRI Guidelines, which
specifies the content of reports prepared under the GRI framework, provides for
disclosure of four categories of information regarding a company: (1)
sustainability vision and strategy; (2) an overview of the reporting
organization including information regarding operations, products and services;
(3) governance structure and management systems; and (4) economic, environmental
and social performance indicators. See GRI Guidelines, pp. 35-37.
We strongly believe that the Proposal is excludable from the Company's Proxy
Materials for the reasons described below. EXPLANATION OF REASONS FOR EXCLUSION
I. The Proposal and the Supporting Statement are false and misleading.
Accordingly, the Company may exclude the Proposal pursuant to Rule 14a-8(i)(3).
A proposal is properly excludable under Rule 14a-8(i)(3) when it is contrary to
the Securities and Exchange Commission's (the "Commission") proxy rules,
"including Rule 14a-9, which prohibits materially false or misleading statements
in proxy soliciting materials." The Staff has consistently taken the position
that a company may exclude a proposal pursuant to Rule 14a-8(i)(3) if the
proposal is vague and/or indefinite and, therefore, potentially misleading. A
proposal is sufficiently vague, indefinite and misleading to justify exclusion
where "neither the shareholders voting on the proposal, nor the company in
implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires."
Philadelphia Electric Co. (Jul. 30, 1992) (permitting the exclusion of a
proposal that related to the election of a committee of small stockholders
because it was vague and indefinite). See also Alcoa, Inc. (Dec. 24, 2002)
(permitting the exclusion of a proposal that requested the company to commit "to
the full implementation of" a set of human rights standards); McDonald's Corp.
(Mar. 13, 2001) (same); Bristol-Myers Squibb Co. (Feb. 1, 1999) (permitting the
exclusion of a proposal that required the company to adopt a policy of pursuing
the preservation of unborn children). For the reasons described below, neither the stockholders voting on the
Proposal, nor the Company in implementing the Proposal, would be able to
determine with any reasonable certainty what actions or measures the Proposal
requires. Therefore, the Company respectfully submits that the Proposal is vague
and indefinite to the point of being misleading within the meaning of Rule
14a-9, and is therefore excludable from the Proxy Materials under Rule
14a-8(i)(3). A. The Proposal does not sufficiently inform stockholders of what the Company
would be required to do if the Proposal were approved. Because the Proposal does not contain an adequate description or summary of the
GRI Guidelines, it does not sufficiently inform stockholders of what the Company
would be required to do if the Proposal were approved. While the Proposal and
the Supporting Statement do contain a brief paragraph describing the GRI
Guidelines in very summary fashion, this description is superficial and general
in nature and fails to provide any real detail about the specific content of the
GRI Guidelines.2 The Staff has permitted the exclusion of several similar stockholder proposals
in recent years under Rule 14a-8(i)(3). In Smithfield Foods, Inc. (Jul. 18, 2003), the Staff permitted the exclusion of
a stockholder proposal under Rule 14a-8(i)(3) as vague and indefinite, where the
proposal requested the company to "prepare a report based upon the Global
Reporting Initiative's guidelines describing the environmental, social and
economic impacts of its hog production operations ..." The Staff accepted the
arguments set forth by Smithfield Foods that the proposal was vague and
indefinite because it was "completely devoid of the substantive provisions of
the [GRI] Guidelines and provides no background information on the [GRI]
Guidelines to the shareholders." Although the stockholder proponents in
Smithfield Foods argued that it was "sufficient to inform the shareholders that
a sustainability report is being requested, and to define such a report as one
`describing the environmental, social and economic impacts' of the Company's
operations," these arguments did not persuade the Staff.
Similar stockholder proposals were also permitted to be excluded under Rule
14a-8(i)(3) in Johnson & Johnson (Feb. 7, 2003) and Kohl's Corporation (Mar. 13,
2001). In Johnson & Johnson, the proposal requested a report regarding the
Company's progress concerning "the Glass Ceiling Commission's business
recommendations" including a review of certain specific items. In Kohl's
Corporation, the proposal called for the company to commit to the full
implementation of "the SA8000 Social Accountability Standards" from the Council
of Economic Priorities. In both cases, the Staff permitted the proposals to be
excluded because the proposals did not contain adequate descriptions of the
substantive provisions of the reports called for by the proposals.
The Proposal is very similar to those in Smithfield Foods, Johnson & Johnson and
Kohl's Corporation. The Proposal lacks a meaningful description of the
substantive provisions of the GRI Guidelines. While the Proposal and Supporting
Statement do contain a very brief description of the GRI Guidelines, they do not
convey to the stockholders the extent and complexity of the information that the
GRI Guidelines require. Furthermore, the Proposal does not describe (or even
suggest) the substantial burden on the Company's human resources that would be
involved in complying with the Proposal, or the considerable expense of
compliance, which ultimately would be borne by the Company's stockholders.
The perfunctory reference to, and brief summary of, the GRI Guidelines in the
Proposal is misleading for another reason. Stockholders reading the brief
summary of the GRI Guidelines could be misled into thinking that the Proposal is
a referendum on whether the Company should advance the social objectives in the
categories of information listed in the Proposal. Without a better explanation
of the purpose and content of the GRI Guidelines, the Proposal might be misread
by stockholders as a request for the Company to endorse, or adopt, some or all
of the sustainability objectives referred to in the Guidelines.
The Proposal is also vague and misleading because it does not inform
stockholders that the GRI Guidelines are in a state of fluidity and likely will
change in the near future. The GRI Guidelines were published in August 2002. The
preface to the GRI Guidelines describes the guidelines as a "work in progress"
and indicates that they are to be revised in 2004. See GRI Guidelines, p. ii.
The Proposal does not mention the interim nature of the GRI Guidelines, and
accordingly fails to address the issue of whether the requested report is to be
based on the current version of the GRI Guidelines or, instead, on the version
of the Guidelines in effect when the report is prepared. That omission alone
renders the Proposal impermissibly vague. To the extent that the report is to be
based on future versions of the GRI Guidelines, the Proposal is impermissibly
vague in that it seeks a stockholder vote regarding a version of the Guidelines
that is not yet in existence. Because the Company's stockholders will not understand what they are being asked
to consider based on the text of the Proposal, the Proposal is vague, indefinite
and misleading, and therefore may be excluded under Rule 14a-8(i)(3).
B. If the Company's stockholders approve the Proposal, the Company would not
know what action to take to implement the Proposal. Beyond the vagueness of the Proposal for stockholders, there are also serious
questions as to what the Proposal would mean for the Company if it were adopted.
As set forth below, we believe each of these questions provides a sufficient
basis to exclude the Proposal as being impermissibly vague and indefinite.
1. Scope of the Report The Proposal requests that the Company prepare a report "based on" the GRI
Guidelines. The GRI Guidelines allow for two ways to "use" the GRI Guidelines:
(i) reporting in accordance with the GRI Guidelines; and (ii) using an
incremental approach which is short of "full compliance." Accordingly, the
Proposal leaves unclear the extent to which the Company would be required to
address the numerous and extensive disclosures called for by the GRI Guidelines.
According to the GRI's website
(http://www.globalreporting.org/guidelines/companies.asp) as of December 31,
2003, there were about 375 companies which had informed the GRI Secretariat that
they use the Guidelines in preparing their sustainability, social or
environmental report. However, as of December 25, 2003, only 18 companies
claimed their reports were "in accordance with" the Guidelines. The Proposal's
use of the words "based on" is vague and leaves open the question of whether the
Company could comply with the Proposal by following the incremental approach, or
whether "full compliance" with the GRI Guidelines is required.
If the Company's stockholders approve the Proposal, the Company would not know
for sure if it were being asked to report "in accordance with" the GRI
Guidelines (and become the 19th company in the world and first headquartered in
the United States to do so), or instead to adopt merely an incremental level of
compliance that falls short of being "in accordance" with the GRI Guidelines.
The vagueness makes it impossible for the Company to know how it should attempt
to comply with the will of the stockholders if they were to approve the
Proposal. Similarly, this vagueness makes it impossible for the Company's stockholders to
know what they are voting on. Some stockholders might interpret the words "based
on" to require full compliance with the GRI Guidelines (i.e., to require a
report prepared "in accordance with" the GRI Guidelines), while other
stockholders might reasonably interpret the same words to permit less than full
compliance. Each interpretation is a reasonable reading of the phrase "based
on," yet the two interpretations carry significantly different consequences for
the Company. 2. Vagueness of the Guidelines
The GRI Guidelines are extremely complex and in many instances the GRI
Guidelines themselves are too vague to provide the Company with sufficient
guidance to be able to compile and disclose the required information. The
following are several examples of items contained in the GRI Guidelines as to
which the Company would have difficulty in determining how to respond:
Criteria/definitions used in any accounting for economic, environmental, and
social costs and benefits (Section 2.18, GRI Guidelines, p. 40);
Reporting organization's approach to managing indirect economic,
environmental, and social impacts resulting from its activities (Section 3.17,
GRI Guidelines, p. 43); and
Programs and procedures pertaining to economic, environmental, and social
performance (Section 3.19, GRI Guidelines, p. 43). The Company would be unable to determine with reasonable certainty what
information it would need to provide in response to these and many other vague
requirements of the GRI Guidelines. For this reason, the Proposal is vague and
indefinite and, therefore, excludable under Rule 14a-8(i)(3).
In addition, the phrase "sustainability" used in the Proposal is, itself, a
vague and misleading term. For example, the concept of sustainability could
reasonably be interpreted to refer to the ongoing sustainability of the Company
and its operations, rather than the sustainability of the environment. There is
little explanation of the concept of sustainability in the Proposal itself or
the Supporting Statement. If the Company's stockholders approve the Proposal,
the Company would not know for sure what concept of "sustainability" it was
being asked to report on. The vagueness makes it impossible for the Company to
know how it should attempt to comply with the will of the stockholders if they
were to approve the Proposal. Similarly, this vagueness makes it impossible for
the Company's stockholders to know what they are voting on.
3. Vagueness Regarding Dissemination of the Report
The Proposal is vague and therefore excludable for another reason. Should the
Proposal be approved by the Company's stockholders and the Company determine to
prepare the report, the Proposal gives no indication what the Company should do
with the report once it is prepared. The Proposal does not request that the
Company publish the report, nor does it ask that the report be sent to
stockholders. The Proposal does not request that the report be posted on the
Company's website. Given the vagueness of the Proposal regarding what the
Company should do with the report after it is prepared, it is very likely that
the Company's stockholders would not have uniform expectations regarding what
they are voting on when reviewing this Proposal. In addition, the Company would
have a difficult time determining what course it should take if the Proposal
were adopted and the Company determined to implement the Proposal. See
Smithfield Foods, Inc. (stockholder proposal that failed to specify what the
company should do with the requested report was properly excluded as vague and
indefinite); Marriott International, Inc. (March 14, 2002) (finding a proposal
not vague and indefinite when it specifies that the report is "to be posted on
the Company's website or sent via written communication to shareowners"). The
Proposal does not give the Company appropriate guidance as to dissemination of
the report and should therefore be excludable as vague and indefinite.
4. Vagueness Regarding Cost of Report
The Proposal requests the Company to prepare a sustainability report at
"reasonable cost and omitting proprietary information." The words "reasonable
cost" do not provide a sufficient level of certainty to the Company, nor the
stockholders, in evaluating the Proposal. If the Proposal were approved by the
Company's stockholders, the Company would not know with any degree of reasonable
certainty the amount of resources it would be expected (or permitted) to expend
in order to prepare the report. Similarly, the Company would not know with
reasonable certainty the extent to which proprietary information could (or
should) be excluded from the report, nor is it clear what definition of
"proprietary information" would be appropriate. For these reasons, the Proposal
is vague and indefinite and, therefore, excludable under Rule 14a-8(i)(3).
II. The Proposal deals with matters relating to the ordinary business operations
of the Company. Accordingly, the Company may exclude the Proposal pursuant to
Rule 14a-8(i)(7). Rule 14a-8(i)(7) states that a shareholder proposal may be omitted from a
company's proxy materials if it "deals with a matter relating to the company's
ordinary business operations." The Company believes that it may properly exclude
the Proposal under Rule 14a-8(i)(7) for the reasons discussed below.
The Commission has noted that proposals that request investigations of a
company's business operations or the conduct of its management (or that request
reports covering such subjects) may be omitted under Rule 14a-8(i)(7). In
Release No. 34-20091 (Aug. 16, 1983) (the "1983 Release"), the Commission stated
that "the staff will consider whether the subject matter of the special report
or the committee involves a matter of ordinary business; where it does, the
proposal will be excludable" under Rule 14a-8(i)(7). The Staff consistently
permits the exclusion of proposals seeking the preparation of reports on matters
of ordinary business. See, e.g., AT&T Corp. (Feb. 21, 2001); The Mead
Corporation (Jan. 31, 2001); Wal-Mart Stores, Inc. (Mar. 15, 1999); Nike, Inc.
(Jul. 10, 1997). In Release 34-40018 (May 21, 1998) (the "1998 Release"), the Commission stated
that the underlying policy for having an ordinary business exclusion is "to
confine the resolution of ordinary business problems to management and the board
of directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual shareholders meeting." As noted in the 1998 Release,
there are two central considerations that guide the determination of whether a
stockholder proposal relates to a company's ordinary business operations. The
first consideration is the subject matter of the proposal. The 1998 Release
states that "certain tasks are so fundamental to management's ability to run a
company on a day-to-day basis that they could not, as a practical matter, be
subject to direct shareholder oversight." The 1998 Release provides examples of
certain ordinary business matters, including 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." 3 The second
consideration set forth in the 1998 Release is "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 decision." A proposal is deemed to micro-manage a company if
it "involves intricate detail, or seeks to impose specific time-frames or
methods for implementing complex policies." The GRI Guidelines call for a company to report a wide variety of information,
including, but not limited to, net sales, geographic breakdown of markets, cost
of all goods, materials and services purchased, and "percentage of contracts
that were paid in accordance with agreed terms, excluding agreed penalty
arrangements." See GRI Guidelines, p. 47. The GRI Guidelines also require
disclosure of such items as "average hours of training per year per employee by
category of employee" and "policy and procedures involving information,
consultation, and negotiation with employees over changes in the reporting
organization's operations (e.g., restructuring)." See GRI Guidelines, p. 52-53.
Such matters are inherently in the ordinary course of a company's operations and
do not present any significant policy or economic issues. The Company notes that in 2002 the Staff determined that a stockholder proposal
requesting the preparation of a "report dealing with the social and
environmental issues related to sustainability" could not be excluded under Rule
14a-8(i)(7). See Johnson Controls, Inc. (Nov. 14, 2002). However, the Company
believes that the Proposal is distinguishable from the stockholder proposal in
Johnson Controls, Inc.. The proposal in Johnson Controls, Inc. was general,
providing only broad guidelines for preparing a sustainability report, thereby
allowing management to decide how best to implement the proposal, including the
level of detail. Because the Johnson Controls, Inc. stockholder proposal
permitted management to determine for itself how to measure sustainability and
what content to include in a sustainability report, such proposal left to
management's discretion the manner of implementing the proposal. In contrast,
the Proposal does not seek the Company's response on broad policy matters but
instead would require the Company to provide detailed information on a large
number of matters unrelated to significant policy issues, pursuant to the
reporting format of the GRI Guidelines. (Such detailed information would be
required no matter whether the Company prepared a report in "full compliance"
with the GRI Guidelines or it pursued an incremental reporting approach, as
discussed in Section I above.) Whereas the proposal in Johnson Controls, Inc.
called for a macro-level review of issues relating to sustainability, the
Proposal would require a micro-level of review covering many facets of the
Company's ordinary business operations within a detailed reporting framework.
A. The subject matter of the Proposal relates to the Company's ordinary business
operation and is therefore excludable. The Proposal requires that a sustainability report be prepared based on the GRI
Guidelines. Such a report would require reporting on a variety of topics that
relate to the Company's ordinary business operations, including, but not limited
to, labor management, supplier and vendor relationships, products and services,
location of operations and non-GAAP financial information.
1. Labor and Employment Matters One general category of ordinary business matters that would be included in a
report based on the GRI Guidelines relates to labor and employment practices.
The GRI Guidelines require reporting on total payroll and benefits, including
wages, pensions, other benefits, and redundancy payments, broken down by country
or region. Part C of the GRI Guidelines includes a section entitled "Social
Performance Indicators: Labor Practices and Decent Work" that requires reporting
on matters including the composition of a company's work force, employee
benefits, labor organization and collective bargaining, safety of working
conditions, training, equal opportunity policies, human rights,
non-discrimination, freedom of association, child and forced labor, and
discipline. See GRI Guidelines, pp. 52-55 (Labor Performance Indication LA1 -
LA17, Human Rights Performance Indicator HR1 - HR14, and Social Performance
Indicator SO1 - SO17).4 The GRI Guidelines also require reporting on the use of
sweatshop labor, which the Staff has previously determined involves ordinary
business matters. See Kmart Corporation (Mar. 12, 1999) and Wal-Mart Stores,
Inc. (Mar. 15, 1999) (permitting the exclusion of a proposal to ensure that the
company does not purchase from suppliers who manufacture items using forced or
child labor and to prepare a report thereon because the proposal related to
reporting on ordinary business matters); The Warnaco Group, Inc. (Mar. 12, 1999)
(permitting exclusion of a report related to labor practices where the
description to be included in the report related to ordinary business
operations). As discussed above, the Commission has stated that proposals pertaining to such
matters as "management of the workforce, such as the hiring, promotion, and
termination of employees, decisions on production quality and quantity, and the
retention of supplies," may be excluded under Rule 14a-8(i)(7) as relating to
the company's ordinary business operations. See 1998 Release; see also Staff
Legal Bulleting No. 14A (Jul. 12, 2002). Consistent with this, the Staff has
stated that proposals relating to general employee compensation matters would be
excludable under Rule 14a-8(i)(7) (see Staff Legal Bulletin No. 14A (Jul. 12,
2002)) and made the same determination with respect to proposals addressing
employee benefits. See, e.g., Wal-Mart Stores, Inc. (Apr. 2, 2002) (proposal
requesting that board implement specified changes involving employee discounts,
company contributions to employee stock purchases, hourly pay, use of company
cards, stock option grants, and employee control of displaying merchandise
excludable because proposal related to "employee benefits, general compensation
matters and employee relations"); AT&T Corp. (Mar. 1, 2002) (proposal requesting
that board revise company's health coverage policy to provide free lifetime
health insurance to retirees excludable because it related to "employee
benefits"). A very significant portion of the subject matter of the GRI Guidelines focuses
on policies and practices relating to overall working conditions, salaries,
benefits, training, health and safety, and other employee relations and
employment matters. Disclosures in these areas would relate to the management of
the Company's workforce and not raise significant social policy issues.
Accordingly, the Proposal is of the type that should properly be regarded as
addressing the Company's ordinary business operations, and therefore, should be
excludable under Rule 14a-8(i)(7). 2. Relationship with Suppliers and Vendors
Another general category of disclosures required in a report based on the GRI
Guidelines is the Company's relationship with its suppliers and vendors, as well
as the conduct of such suppliers and vendors. The GRI Guidelines state that a
report should include the key attributes of a company's suppliers, including the
products and services that are offered as well as their local, national and
international operations. See GRI Guidelines, p. 40.5 The 1998 Release includes "retention of suppliers" as an example of an ordinary
business matter that is 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 stockholder oversight. See 1998 Release. In Hormel Foods Corporation
(Nov. 19, 2002), the Staff permitted the exclusion of a proposal that requested
a report on the use of antibiotics by the company's hog suppliers, and in
Wal-Mart Stores, Inc. (Apr. 10, 1991), the Staff permitted the exclusion of a
proposal that requested information on the company's practices and policies for
selecting suppliers of goods and services. The selection of suppliers and
vendors, and the ongoing maintenance of relationships with such parties,
involves consideration of numerous factors, including, for example, quantity and
quality of products and services offered; price; customer service; location;
distribution and delivery capabilities; environmental and health and safety
practices; and other factors. Evaluating such factors is a key part of the
Company's day-to-day business operations, and cannot, from a practical
standpoint, be subject to direct stockholder oversight. As the Proposal would
require detailed reporting with respect to the Company's selection of, and
relationships with, suppliers and vendors, the Proposal relates to the Company's
ordinary business operations and should therefore be excludable under Rule
14a-8(i)(7). 3. Products and Services of the Company
Another category of ordinary business operations required to be reported on by
the GRI Guidelines relates to a company's products and services. The Commission
and Staff have consistently taken the position that decisions regarding the
products and services offered by a company, and the manner in which a company
provides them, are matters of ordinary business operations. See 1998 Release.
Section 2.2 of the GRI Guidelines requires information on a company's major
products and/or services, including brands if appropriate and "indicate the
nature of its role in providing these products and services, and the degree to
which the organization relies on outsourcing." 6 The 1998 Release states that a company's decisions on "production quality and
quantity" are examples of ordinary business matters. In Alliant Techsystems Inc.
(May 7, 1996), the Staff permitted the exclusion of a proposal that requested
the adoption of a "policy to end all research, development, production and sales
of antipersonnel mines," because the subject matter of the proposal dealt with
the company's ordinary business operations. See also Kmart Corporation (Feb. 23,
1993) (permitting exclusion of proposal that a subsidiary stop selling violent
and/or sexually explicit literature and media); McDonalds Corporation (Mar. 9,
1990) (permitting exclusion of proposal to introduce a "vegetarian entr|pi|qee
whose means of production neither degrades the environment nor exploits other
species.") The Proposal seeks a report that would address myriad details
regarding the Company's products and services. Disclosures in these areas relate
to the management of the Company's operations and do not raise significant
social policy issues. These matters are fundamental to management's ability to
run the Company on a day-to-day basis. Accordingly, the Proposal is of the type
that should properly be regarded as addressing the Company's ordinary business
operations, and therefore, should be excludable under Rule 14a-8(i)(7).
4. Location of the Company's Operations
A report based on the GRI Guidelines would have to provide information regarding
the location of, and changes in, the Company's operations. Specifically, Section
3.18 of the GRI Guidelines requires that information be provided regarding
"major decisions" about the location of, or changes in, location of operations,
including decisions on "facility or plant closings, expansions, and
contractions." The Staff has consistently viewed decisions regarding the
location of operations as part of a company's ordinary business operations. In
Minnesota Corn Processors, LLC (Apr. 3, 2002), the Staff allowed the exclusion
of a proposal to build a new plant because it related to the company's ordinary
business decision. See also MCI WorldCom, Inc. (Apr. 20, 2000) (permitting the
exclusion of a proposal that requested analysis of the economic impact of
relocating the company's facilities); Tenneco Inc. (Dec. 28, 1995) (permitting
the exclusion of a proposal relating to the determination of the location of the
company's headquarters). As the Proposal seeks a report that would require
disclosure of the location of the company's operations, it should be excludable
as it relates to a company's ordinary business operations.
5. Supplemental Financial Disclosures
A report based on the GRI Guidelines would also require financial disclosures
that surpass those required under U.S. generally accepted accounting principles
("GAAP") and other applicable financial reporting requirements. Specifically,
Part C of the GRI Guidelines calls for disclosures that "have a scope and
purpose that extends beyond that of traditional financial indicators," including
disclosures relating to a company's customers, suppliers, employees, providers
of capital and the public sector.7 The Staff has held that the form, content,
and presentation of financial disclosures in reports to stockholders, outside of
the requirements of GAAP, pertain to ordinary business matters. In American
Stores Company (Apr. 7, 1992), the Staff excluded a proposal to disclose in the
company's annual report the earnings, profits and losses for each of the
company's subsidiaries because such a proposal required disclosures that are not
required under GAAP. See also General Electric Company (Jan. 21, 2003)
(permitting the exclusion of a proposal that sought disclosure in the company's
annual report of a directory of all of the company's businesses, their gross
earnings, profits and losses, assets and liabilities, and their major
investments, activities, and risks, because the proposal related to the
"presentation of financial information.") Because the Proposal seeks to require
a report containing detailed financial information and operating metrics that
would go well beyond that which are required under GAAP, the Proposal relates to
the Company's ordinary business operations and should be excludable pursuant to
Rule 14a-8(i)(7). B. The Proposal seeks to micro-manage the Company's business and is therefore
excludable. By virtue of the depth and level of detail contemplated by the GRI Guidelines,
the Proposal seeks to micromanage the operations of the Company. The 1998
Release indicates that a proposal that "involves intricate detail, or seeks to
impose specific-time frames or methods for implementing complex policies," would
be excludable. The Proposal would have the effect of micro-managing the Company,
as it would require compilation of a significant amount of data, as well as the
review of, and reporting on, a variety of complex policies regarding the
Company's performance in many different areas of ordinary business operations.
Undertaking a program to implement the Proposal would require the review and
testing of the performance of various business units and the Company as a whole
and would constitute a task of tremendous scope that would necessarily involve
large amounts of time and resources. The Proposal thus seeks to insert
stockholders into matters of intricate detail regarding the day-to-day
operations of the Company's business which are more properly left to management.
The Commission has consistently held that proposals seeking to micro-manage the
company's ordinary business operations may be excluded. In the 1998 Release, in
discussing the exclusion of a proposal seeking detailed information regarding
the company's affirmative action policies and procedures in Capital Cities/ABC,
Inc. (Apr. 4, 1991), the Commission stated that "some proposals may intrude
unduly on a company's ordinary business' operations by virtue of the level of
detail that they seek." In Wal-Mart Stores, Inc. (Apr. 10, 1991), the Staff
permitted the exclusion of a proposal that called for disclosures to be made
regarding the company's activities and progress in purchasing goods and services
from business owned by minorities and females, and with respect to equal
employment opportunities, and affirmative action. The Staff stated that the
reason for excluding the proposal was that it involved a "request for detailed
information on the Company's work force and employment practices and policies."
The Proposal would require the Company to compile very detailed information in
response to the GRI Guidelines. This would effectively constitute
micro-management of the Company's day-to-day business operations. For this
reason, we believe the Proposal is properly excludable under Rule 14(a)-8(i)(7).
C. The Proposal may properly be excluded, even if the Proposal also raises
non-ordinary business matters. Although the Proponent may argue that the requested report covers some issues
involving policy matters, the specific requirement to prepare a report based on
the GRI Guidelines means that the Proposal is one that predominantly deals with
the Company's ordinary business matters, as discussed above. The Staff has
consistently taken the position that a proposal may be excluded in its entirety
when it contains elements that relate to a company's ordinary business
operations, even where the proposal also contains elements that relate to
non-ordinary business matters. In E*Trade Group, Inc. (Oct. 31, 2000), the Staff
allowed the exclusion of an entire proposal relating to the formation of a
stockholder committee that would suggest ways to increase stockholder value. The
Staff allowed the entire proposal to be excluded under Rule 14a-8(i)(7), even
though the proposal included two elements that fell within the scope of the
company's ordinary business and two elements that fell outside the scope. In
Z-Seven Fund, Inc. (Nov. 3, 1999), the Staff allowed a proposal to be excluded
in its entirety, stating that "although part of the proposal appears to address
matters outside the scope of ordinary business, certain matters contained in the
proposal refer to ordinary business matters." See also International Business
Machines Corp. (Jan. 9, 2001); The Warnaco Group, Inc. (Mar. 12, 1999); Chrysler
Corporation (Feb. 18, 1998). The Staff has a longstanding policy of not permitting proponents to revise
overly broad stockholder proposals once it is clear that the proposals would be
excludable under Rule 14a-8(i0(7) because they address ordinary business
operations. See, e.g., Staff Legal Bulletin 14 (Jul. 13, 2001) ("when a proposal
and supporting statement will require detailed and extensive editing in order to
bring them into compliance with the proxy rules, we may find it appropriate for
companies to exclude the entire proposal, supporting statement, or both").
Further, it has been the practice of the Staff to not allow for revisions of a
proposal that is deemed excludable under Rule 14a-8(i)(7). The GRI Guidelines
call for disclosure on a range of matters that are related to the Company's
ordinary business operations that would each render the Proposal excludable in
its entirety. III. The Company has already substantially implemented the Proposal.
Accordingly, the Company may exclude the Proposal pursuant to Rule 14a-8(i)(10).
The Company may exclude the Proposal under Rule 14a-8(i)(10) because the Company
has already substantially implemented the Proposal. Therefore, the Proposal is
moot. The 1983 Release provides that a proposal may be excluded pursuant to Rule
14a-8(i)(10) in circumstances where it has been "substantially implemented by
the issuer." The 1983 Release also provides that Rule 14a-8(i)(10) does not
require the proposal to have been "fully effected." In determining whether a
proposal has been substantially implemented, the company's policies, practices
and procedures should "compare favorably with the guidelines of the proposal"
and there is no need to have a precise implementation of the proposal. See
Texaco, Inc. (Mar. 28, 1991); Cisco Systems, Inc. (Aug. 11, 2003). The Staff
will consider a proposal to be substantially implemented under Rule 14a-8(i)(10)
in cases where a company has already established procedures that relate to the
subject matter of the proposal or in cases where the company has implemented the
essential objectives of the proposal. See The Talbots Inc. (Apr. 5, 2002)
(permitting the exclusion of a proposal that required the establishment of a
code of corporate conduct regarding human rights because the company had an
existing Standard for Business Practice and code of conduct); The Gap, Inc.
(Mar. 16, 2001) (permitting the exclusion of a proposal that requested a report
on child labor practices of the company's vendors because the company had
already established a code of vendor conduct, monitored vendor compliance and
published the related information); Kmart Corporation (Feb. 23, 2000);
Nordstrom, Inc. (Feb. 8, 1995). The fact that the Company has not delivered a report to stockholders does not
preclude the Company from excluding the Proposal. As long as the information
called for by the requested report is made available to stockholders, a company
need not have actually distributed a report to stockholders to have
substantially complied with a stockholder proposal seeking such report. See
Kmart Corporation (Feb. 23, 2000). The Proposal requests that the Company provide a sustainability report based on
the GRI Guidelines. The GRI Guidelines, in turn, set out a variety of general
and specific content requirements relating to governance matters and economic,
environmental and social indicators. The Company has issued reports that
contain, and otherwise made available to the public, information which is
responsive to the Proposal insofar as it requests macro-level disclosures about
the Company's governance, and with respect to the Company's performance on
social, environmental, and economic sustainability measures. The Company is
continually in the process of further developing such measures. A significant
amount of information on these subjects is made available to the Company's
stockholders and the public generally on the Company's website
(http://www.kerr-mcgee.com) and through other sources. In other words, the
Company has substantially implemented, and continues to substantially implement,
a program for reporting on macro-level sustainability issues comparable to those
contemplated by the GRI reporting framework. The Company's activities in this area are discussed in more detail below.
1. Corporate Vision and Governance
The GRI Guidelines apparently contemplate disclosure of a variety of information
regarding a company's "vision and strategy," "organisational profile," and
"governance structure and management systems." See GRI Guidelines, pp. 38 - 43.
The Company has already substantially implemented reporting practices similar to
those apparently contemplated by the Proposal, as demonstrated by the following:
The Company's mission and corporate vision are described in great detail in
various of the Company's publicly available documents, including its annual
report to stockholders and its Code of Business Conduct and Ethics, which is
available to the Company's stockholders on the Company's web site.
As noted above, the Company has adopted a Code of Business Conduct and Ethics
which is delivered to and acknowledged by all employees and which is publicly
available on the Company's website.
Information regarding the Company's organizational structure and management is
provided to stockholders and the public generally on the Company's website and
in its public reports, proxy statements, and filings with the Commission.
Information regarding corporate governance is provided by the Company on its
website and in its public reports, proxy statements and filings with the
Commission. These disclosures include extensive discussion regarding the
Company's board of directors, committees, and their respective oversight
responsibilities.
As a company with securities listed on the New York Stock Exchange (the
"NYSE"), the Company must comply with the NYSE's corporate governance listing
standards, including the required disclosure of a method for interested parties
(including stockholders) to communicate directly with non-manageme |
