Company Name: Lowe's Cos., Inc.
Public Availability Date: March 3, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
January 23, 2004 U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of the Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Lowe's Companies, Inc.
Exclusion of Shareholder Proposal Relating to a Report Based on the Global
Reporting Initiatives Sustainability Reporting Guidelines Dear Ladies and Gentlemen:
Lowe's Companies, Inc. (the "Company") hereby requests that the staff of the
Division of Corporation Finance advise the Company that it will not recommend
any enforcement action to the Securities and Exchange Commission (the
"Commission") if the Company excludes the shareholder proposal described below
(the "Proposal") from its proxy materials for its 2004 annual shareholders
meeting. The Proposal was submitted to the Company by Domini Social Investments
(the "Proponent"). As described more fully below, the Proposal is excludible
pursuant to: 1. Rule 14a-8(i)(3) because it is so vague, indefinite and misleading that
neither the shareholders nor the Company would be able to determine with
reasonable certainty exactly what action or measures the resolution requires;
and 2. Rule 14a-8(i)(7) because it deals with matters relating to the Company's
ordinary business operations. In accordance with Rule 14a-8(j), we have enclosed six copies of this letter and
the attachments and have provided a copy of this letter and its attachments to
the Proponent. The Proposal The Proposal calls for the adoption by the Company's shareholders of the
following resolution. "RESOLVED: That the shareholders request that the company prepare a
sustainability report (at reasonable cost and omitting proprietary information)
based on the Global Reporting Initiative's sustainability reporting guidelines
by November 1, 2004." A copy of the complete Proposal and related cover letter is attached hereto as
Exhibit A. Discussion Rule 14a-8 generally requires an issuer to include in its proxy materials
proposals submitted by shareholders that meet prescribed eligibility
requirements and procedures. Rule 14a-8 also provides that an issuer may exclude
shareholder proposals that fail to comply with applicable eligibility and
procedural requirements or that fall within one or more of the thirteen
substantive reasons for exclusion set forth in Rule 14a-8(i). Rule 14a-8(i)(3)
permits an issuer to exclude a shareholder proposal if the proposal is contrary
to any of the SEC's proxy rules, including Rule 14a-9, which prohibits
materially false or misleading statements in proxy soliciting materials. The
Commission's staff has consistently interpreted Rule 14a-8(i)(3) to cover
proposals that are vague and indefinite and, therefore, potentially misleading.
The Proposal requests that the Company prepare a sustainability report based on
the Global Reporting Initiative's ("GRI") sustainability reporting guidelines
(the "Guidelines"). The 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),"
through 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 [Global Reporting Initiative's]
framework and incrementally improve report content coverage, transparency, and
structure over time." A copy of the Guidelines is attached hereto as Exhibit B.
In short, the Guidelines do not provide a clear set of binding standards of
compliance, but rather a vague and indefinite set of "principles" and "guidance"
for the preparation of sustainability reports. As a result, the Proposal is
vague and indefinite because it fails to provide shareholders with a clear
understanding of what they are being asked to approve and what action or
measures the Company would have to take to comply with the Proposal.
The Commission's staff recently issued a no-action letter to Smithfield Foods,
Inc. indicating that it would not recommend any enforcement action if Smithfield
Foods, Inc. omitted from its proxy statement a proposal that was substantially
the same as the Proposal in reliance upon Rule 14a-8(i)(3). See Smithfield
Foods, Inc. (July 23, 2003). The Proposal is excludible from the Company's proxy
materials for many of the same reasons expressed by Smithfield Foods, Inc.
In addition, the Proposal is excludible pursuant to Rule 14a-8(i)(7) because it
deals with matters relating to the Company's ordinary business operations,
including labor practices, financial disclosures not required by generally
accepted accounting principles in the United States, relationships with vendors
and suppliers and the location of, or changes in, the Company's operations. The
Commission's staff has previously taken the position that shareholder proposals
that relate to these matters may be excluded from proxy materials pursuant to
Rule 14a-8(i)(7). Consequently, the Proposal also is excludible pursuant to Rule
14a-8(i)(7). The Proposal is closely analogous to the proposal submitted to and excluded by
Smithfield Foods, Inc. The Commission's staff has previously stated that it would not recommend any
enforcement action if an issuer excluded from its proxy materials a proposal
calling for a management report based upon the Guidelines. Smithfield Foods,
Inc. (July 18, 2003). In Smithfield Foods, Inc., the issuer received a proposal
seeking adoption of the following resolution (the "Smithfield Proposal").
"Resolved: Shareholders request that management, at reasonable cost and omitting
proprietary information, prepare a report based upon the Global Reporting
Initiative guidelines describing the environmental, social and economic impacts
of its hog production operations and alternative technologies and practices to
reduce or eliminate adverse impacts of these operations."
The Proposal and the Smithfield Proposal are substantively similar, and reflect
the same fundamental problem; both proposals call for a sustainability report
based on vague and indefinite provisions contained in the Guidelines. The
primary difference between the two proposals is the additional language in the
Smithfield Proposal that narrows the scope of the requested report to
"describing the environmental, social and economic impacts of [Smithfield's] hog
production operations and alternative technologies and practices to reduce or
eliminate adverse impacts of these operations." The Proposal contains no similar
limiting language and provides no guidance or clarification on whether it calls
for a report regarding all of the impacts of all of the Company's operations or
whether the Company is to determine which impacts from some or all areas of the
Company's operations it will cover in the report. Consequently, the Proposal
provides even less guidance and is even more vague and indefinite than the
Smithfield Proposal, which the Commission's staff indicated was excludible
because it was vague and indefinite. The Company is aware of the Commission's staff letter to Johnson Controls, Inc.
(Nov. 14, 2002), which also related to a sustainability report. The Company
notes that the Commission's staff recognized that the shareholder proposal
submitted to Johnson Controls, Inc. was distinguishable from the Smithfield
Proposal because the Johnson Controls proposal did not refer to the Guidelines
or any other standards upon which that sustainability report should be based.
I. The Proposal is vague, indefinite and misleading because it fails to provide
shareholders with a clear understanding of what they are being asked to approve
and because it fails to provide the Company with a clear understanding of what
actions or measures the Company would have to take to comply with the Proposal.
Rule 14a-8(i)(3) permits exclusion of a shareholder proposal if the proposal is
contrary to any of the SEC's proxy rules, including Rule 14a-9, which prohibits
materially false or misleading statements in proxy soliciting materials. A
proposal is vague and indefinite when "neither the shareholders voting on the
proposal, nor the company in implementing the proposal (if adopted), would be
able to determine with any reasonable certainty exactly what actions or measures
the proposal requires." Philadelphia Electric Co. (July 30, 1992); see also
Alcoa, Inc. (December 24, 2002) and McDonald's Corp. (March 13, 2001). The
Commission's staff has also agreed not to recommend any enforcement action when
a shareholder proposal is excluded because "the shareholders will not understand
what they are being asked to consider from the text of the proposal." Kohl's
Corporation (March 13, 2001). A. The Proposal fails to describe the substantive provisions of the Guidelines.
Shareholder proposals may be excluded from proxy materials where the proposals
call for the preparation of a report based on third party recommendations or
standards and the proposals do not describe the substantive provisions of the
third party recommendations or standards. In Johnson & Johnson (Feb. 7, 2003), a
shareholder proposal called for a report regarding the issuer's progress
concerning business recommendations published by the Glass Ceiling Commission.
Johnson & Johnson argued that the proposal was vague and misleading because it
was "completely devoid of any description of the substantive provisions of the
`Glass Ceiling Report' or the recommendations `flowing from it'." and provided
"no background information to shareholders." In Kohl's Corporation (March 13,
2001), a shareholder proposal called for the implementation of "the SA8000
Social Accountability Standards" from the Council of Economic Priorities. Kohl's
Corporation argued that the proposal was vague, false and misleading in part
because the proposal "fail[ed] to describe or summarize the many principles
embodied in SA8000 in enough depth to fully inform shareholders of what actions
it would require the company to take." In both these instances, the Commission's
staff stated that there appeared to be a basis for excluding a shareholder
proposal pursuant to Rule 14a-8(i)(3). The Proposal is similar to the proposals in Johnson & Johnson and Kohl's
Corporation in that it also does not describe the substantive provisions of the
request. Without a more thorough description of the substantive provisions of
the Guidelines, the Company's shareholders will not be able to discern what they
are being asked to consider. Moreover, the shareholders will not be in a
position to determine whether the proposed sustainability report is worth the
expenditure of management time and the resources necessary to prepare it.
Although the Proposal refers to a website where the Guidelines can be obtained,
it is unreasonable for the Proponent to assume that all of the shareholders will
have access to the internet and will be able to comprehend the complex and
voluminous reporting system called for by the Guidelines. B. The Proposal does not identify a clear set of standards that must be applied.
The Proposal refers to "reporting principles" and "guidance for report content."
The Proposal fails to identify the "reporting principles" set forth in the
Guidelines or the types of discretionary decisions the Company would be required
to make in preparing the report. The Guidelines describe at least two levels of
compliance ranging from "in accordance with the Guidelines," which would require
strict compliance with the principles and guidance or an "incremental approach,"
which would presumably be something less than strict adherence to the principles
and guidance. Absent a clearly defined request, it is difficult for a
shareholder to determine what the content of any report prepared by the Company
would be, whether the report is worth the expenditure of management time and the
financial resources necessary to prepare the report and whether the report would
even be useful to investors or management. Although the shareholders would be the first to struggle with the vague and
indefinite Proposal, if the shareholders were to approve the Proposal, the
Company would be faced with essentially the same problems. Once approved, the
Company would struggle with, among other things, what the report must cover,
which standards must be applied and how the information must be presented. The
Proposal is vague in this respect and the Company cannot look to the Guidelines
to clarify because the Guidelines themselves do not provide adequate guidance,
but instead cover numerous topics and standards and various methods and levels
of reporting. Because of the lack of guidance, the Company is faced with the
potential problem of adopting an incorrect standard and determining what topics
to cover in the report and the degree to which each must be covered. Without
further guidance, it is impossible for the Company to discern how it could
satisfy the new reporting requirement. In addition, the Proposal refers to a "flexible system for sustainability
reporting" and an "incremental approach" that can be adopted when preparing a
report. However, this flexible system actually increases the vagueness and
indefiniteness of the Guidelines and the Proposal, because neither addresses
what content of the report may be omitted or what incremental steps should be
taken or a timeframe for publishing a report "in accordance with" the
Guidelines. Because the Proposal does nothing to clarify the vague Guidelines or
provide guidance on the various interpretations that arise out of the
Guidelines, the Proposal lacks the definiteness of what exactly the shareholders
are being asked to approve or what the Company would be required to do in order
to satisfy the Proposal. Finally, the Proposal fails to provide the Company with any instructions or
guidance regarding publication or dissemination of the report. The Proposal is
completely silent on this point. Even assuming the Company was able to determine
the content of the report, the Company cannot determine whether it would be
required to publish the report and make it publicly available, whether it could
limit the dissemination of the report to key personnel or whether it merely
needs to prepare the report and make it available upon request by certain,
unspecified individuals. Without any clear instructions, management could not
determine what action, if any, management would be required to take after
preparing the report. C. The Guidelines are vague.
The Guidelines are vague and do not adequately explain what information the
Company will be required to report. The Guidelines call for disclosure regarding
many different topics including:
Policies and/or systems for managing upstream and downstream impacts,
including:
Supply chain management as it pertains to outsourcing and suppliers'
environmental and social performance; and
Product and service stewardship initiatives;
Reporting approaches to managing indirect economic, environmental and social
impacts; and
Criteria/definitions used in any accounting for economic, environmental and
social costs and benefits. It would be difficult if not impossible for the Company to determine the type
and extent of information relating to these topics that it would be required to
include in a report. The Proposal does not clarify which of these levels of compliance the
shareholders would be asking the Company to satisfy. Instead, the lack of
guidance from the Proposal, and the Guidelines themselves, makes it unclear
whether the shareholders would be asking the Company to prepare a report that
strictly complies with the Guidelines or a report that merely uses the
Guidelines as an outline. If the Company were to prepare a report "in accordance with the Guidelines," the
Company would be required to invest a significant amount of time and resources.
If a majority of the shareholders approved the Proposal, it would not be clear
to the Company whether it was required to expend the significant time and
resources necessary to prepare a report "in accordance with the Guidelines" or
whether the Company was being asked to use the "incremental report" standard.
Finally, the Guidelines state that the GRI Board of Directors' goal is to
release an updated version of the Guidelines sometime in 2004. See Guidelines,
p. ii. This statement indicates that the Guidelines may be revised before or
after the time that the Company's shareholders request a report. The Proposal
provides no guidance regarding the version of the Guidelines on which the
Company should base its report. Even assuming the Guidelines are updated before
the annual shareholders meeting, the Company's shareholders may not have an
opportunity to evaluate the "updated" Guidelines in time to make an informed
decision about the Proposal. This problem would only be exacerbated if the
Guidelines were revised after the annual shareholders meeting.
II. The Proposal is excludible because it deals with matters relating to the
Company's ordinary business operations. Rule 14a-8(i)(7) permits issuers to exclude shareholder proposals that deal with
matters relating to an issuer's ordinary business operations. The policy behind
Rule 14a-8(i)(7) 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." Release No. 40018 (May 21, 1998). The Commission indicated in Release No. 40018 that the two central
considerations in applying the ordinary business operations exclusion are the
subject matter of the proposal and whether the proposal seeks to "micromanage"
the Company. A proposal seeks to "micro-manage" operations when it probes "too
deeply into matters of a complex nature upon which the shareholders, as a group,
would not be in position to make an informed judgment," including when a
proposal "seeks intricate detail, or seeks specific time-frames or methods for
implementing complex policies." Release No. 40018. The Guidelines solicit discussion of several intricate and complex topics and
methods for implementing complex policies that depend on a wide variety of
factors, including, in addition to those mentioned above:
List of stakeholders, key attributes of each, and relationship to the Company;
Significant changes from previous years in the measurement methods applied to
key economic, environmental and social information;
Major decisions during the reporting period regarding the location of, or
changes in, operations; and
Performance indicators related to economic, environmental and social
performance. Without a thorough discussion of all of the Company's operations, procedures and
policies, shareholders cannot evaluate and make an informed judgment regarding
these topics. A. The Proposal is excludible because it calls for disclosure on topics that
constitute "ordinary business operations." Where one or more of the matters to be covered in a report relates to a
company's ordinary business operations, the Commission's staff has taken the
position that the proposal requesting the report can be excluded in its
entirety. Wal-Mart Store, Inc. (March 15, 1999); Kmart Corporation (March 12,
1999); The Warnaco Group, Inc. (March 12, 1999). In several instances, a company
sought to omit from its proxy materials a proposal requesting that its board of
directors report on the company's actions to ensure that it did not purchase
from suppliers that use forced, convict or child labor or failed to comply with
laws protecting employees' rights. The Commission's staff permitted each company
to exclude the entire proposal despite the fact that each proposal raised
significant social issues. The Commission's staff "noted in particular that,
although the proposal appears to address matters outside the scope of ordinary
business, paragraph 3 of the description of matters to be included in the report
relates to ordinary business operations." See Wal-Mart Stores, Inc. (March 15,
1999); Kmart Corporation (March 12, 1999); The Warnaco Group, Inc. (March 12,
1999). The Guidelines call for disclosure regarding a number of items relating to the
Company's ordinary business operations, any of which would be sufficient to
render the Proposal excludible in its entirety. The following is a discussion of
several of the ordinary business matters covered by the Guidelines.
Employee Matters Part C (Report Content) of the Guidelines seeks disclosure about labor and
employment practices. The Guidelines call for reporting on total payroll and
benefits, including wages, pension, other benefits, and redundancy payments,
broken down by country or region. See Economic Performance Indicator (EC)5,
Guidelines, p. 47. The section of Part C entitled "Social Performance
Indicators: Labor Practices and Decent Work" solicits disclosure of numerous
items relating to employment practices, including information on the composition
of a company's work force, employee benefits, labor organization and collective
bargaining, safety of working conditions, training, equal opportunity policies,
human rights, non-discrimination, freedom of association, child and forced
labor, and discipline. See Labor Performance Indicator (LA)1-LA17, Human Rights
Performance Indicator (HR)1-HR14, Social Performance Indicator (SO)1-S07,
Guidelines, pp. 52-55. In addition, other items scattered throughout Part C call
for disclosure about employment-related matters.1 Both the Commission and its staff have stated that proposals involving "the
management of the workforce, such as the hiring, promotion, and termination of
employees" and other employment and labor matters relate to ordinary business
operations. Release No. 40018; see also Staff Legal Bulletin No. 14A (July 12,
2002) (citing same); Wal-Mart Stores, Inc. (March 15, 1999); Kmart Corporation
(March 12, 1999); The Warnaco Group, Inc. March 12, 1999). Accordingly, the
Commission's staff has concluded that issuers may exclude proposals relating to
general employee compensation matters in reliance on Rule 14a-8(i)(7). See Staff
Legal Bulletin No. 14A (July 12, 2002); see also, e.g., Xerox Corporation (March
31, 2000) (proposal requesting that company provide its employees competitive
compensation and benefits excludible because proposal related to "general
employee compensation matters"). The Commission's staff reaches this conclusion
not only with respect to general employee compensation matters, but also with
respect to proposals addressing employee benefits.2 In addition, the Guidelines focus on the Company's policies and practices
relating to overall working conditions, salaries and benefits, training, health
and safety, and other employment issues. These disclosures relate to the
management of the Company's workforce and do not raise significant social policy
issues. Accordingly, the Proposal, which requests a report "based upon" the
Guidelines, constitutes the type of proposal that continues to be regarded as
addressing ordinary business, as contemplated by the Commission in Release No.
40018. Selection of Suppliers/Vendors
The Guidelines also call for disclosure about the Company's relationships with,
and the conduct of, the Company's suppliers and vendors. More specifically, the
Guidelines seek disclosure about the key attributes of a company's suppliers,
including information about the products and services provided by suppliers and
the suppliers' local, national and international operations. See Section 2.9,
Guidelines, p. 40.3 Both the Commission and the Commission's staff have taken
the position that proposals relating to a company's relationships with suppliers
and vendors are excludible because they address matters of ordinary business
operations. Release No. 40018 As set forth in Release No. 40018, an example of a task that is "so fundamental
to management's ability to run a company on a day-to-day basis" that it cannot,
"as a practical matter, be subject to direct shareholder oversight" is
"retention of suppliers." Consistent with the considerations underlying Rule
14a-8(i)(7), the Commission's staff has permitted the exclusion of proposals
that addresses the practices of a company's suppliers. See, e.g., Seaboard
Corporation (March 3, 2003) (permitting exclusion of proposal requesting report
on use of antibiotics by company's hog suppliers); Hormel Foods Corporation
(November 19, 2002) (permitting exclusion of proposal requesting report on use
of antibiotics by company's meat suppliers). Similarly, the Commission's staff has permitted the exclusion of proposals
requesting information on a company's practices relating to the selection of
vendors and suppliers. In Wal-Mart Stores, Inc. (April 10, 1991), for example,
the Commission's staff took a no-action position with respect to a proposal
requesting a report on the issuer's efforts to purchase goods and services from
minority and female-owned businesses. In doing so, the Commission's staff
"particularly noted that the proposal involves a request for detailed
information on ... the Company's practices and policies for selecting suppliers
of goods and services." See also Wal-Mart Stores, Inc. (April 10, 1992)
(permitting exclusion of proposal involving request for detailed information on,
among other things, "relationships with suppliers and other businesses").
The Company considers numerous factors in selecting and retaining its suppliers
and vendors, including, but not limited to, the quality of products and/or
services offered; location; competitive pricing; distribution capabilities;
environmental, health and safety performance; and human resources practices.
Evaluating these considerations is an integral part of the Company's daily
business operations and cannot, from a practical standpoint, be subject to
direct shareholder oversight. Because the report sought by the Proponents calls
for disclosure "based upon" items in the Guidelines that involve the Company's
selection of, and relationships with, its vendors and suppliers, the Proposal
addresses matters that relate to the Company's ordinary business operations and
is therefore excludible under Rule 14a-8(i)(7). Products and services offered by the Company.
In addition to disclosure relating to other aspects of the ordinary business
operations of the Company, the Guidelines also seek disclosure about the
Company's decisions regarding the selection of products and the manner of
production. The Commission's staff has consistently taken the position that
decisions regarding the products and services that a company provides, and the
manner in which a company furnishes such products and services, are matters of
ordinary business. Section 2.2 of the Guidelines, entitled "Major products and/or services,
including brands if appropriate," states that the reporting organization should
"indicate the nature of its role in providing these products and services, and
the degree to which the organization relies on outsourcing." See Guidelines, p.
39. Various other items throughout Part C (Report Content) of the Guidelines
would call for other disclosures relating to the Company's products and
services.4 Decisions regarding the location of, or changes in, the Company's operations.
In seeking disclosure "based upon" the Guidelines, the Proposal also calls for
disclosure about decisions regarding the location of, and changes in, the
Company's operations. Section 3.18 of the Guidelines provides that reporting
organizations should "explain major decisions" during the reporting period
regarding the location of, or changes in, operations, including decisions such
as "facility or plant openings, closings, expansion, and contractions."
Proposals relating to decisions about the location of office or operating
facilities, including decisions about whether to build new facilities or cease
operations in a particular location, have been consistently viewed, by the
Commission's staff, as matters of ordinary business. See e.g., MCI WORLDCOM,
Inc. (April 20, 2000) (determination of the location of office or operating
facilities); Minnesota Corn Processors, LLC (April 3, 2002) (decisions relating
to location of corn processing plants); The Allstate Corporation (February 19,
2002) (decision to cease operations in a particular location); Termeco Inc.
(December 28, 1995) (determination of location of corporate headquarters).
The Company routinely makes decisions about where to locate stores, and where to
expand or contract various segments of its business. The Company continuously
researches sites for potential future expansion nation wide. These types of
decisions involve complex considerations and are best left to the expertise of
the Company's management. Because the report sought by the Proponents calls for
disclosure about the location of the Company's operations and changes in the
Company's operations, the Proposal addresses matters that relate to the
Company's ordinary business operations. Financial Disclosure
In seeking disclosure "based upon" the Guidelines, the Proposal also calls for
various financial disclosures. Part C (Report Content) in the Guidelines calls
for "Economic Performance Indicators" that "have a scope and purpose that
extends beyond that of traditional financial indicators." In particular, the
Guidelines call for detailed financial information about customers, suppliers,
employees, providers of capital and the public sector not traditionally required
by generally accepted accounting principles ("GAAP") or by disclosure standards
under applicable law.5 The Commission's staff has consistently concurred that proposals addressing
financial reporting and accounting policies not required by GAAP or by
disclosure standards under applicable law may be excluded as relating to a
company's ordinary business operations. Certain of the additional financial
disclosures called for by the Guidelines, which the Proponent is consequently
requesting, are not required by either GAAP or by any other law applicable to
which the Company is subject. In connection with a proposal requiring the
registrant to prepare current cost basis financial statements for the registrant
and its subsidiaries, the Commission's staff has stated that "the determination
to make financial disclosure not required by law" is considered to be a matter
relating to a company's ordinary business operations. Santa Fe Southern Pacific
Corp. (January 30, 1986). See also American Stores Company (April 7, 1992)
(reporting information not required by GAAP or disclosure standards under
applicable law); Minnesota Mining & Manufacturing Company (March 23, 1988)
(determination to include disclosure in company's annual report not required by
generally accepted accounting principles or disclosure standards established
under applicable law); The Chase Manhattan Corporation (March 4, 1999)
(disclosure in financial reports); NiSource Inc. (March 10, 2003) (presentation
of financial information); General Electric Company (January 21, 2003)
(presentation of financial information). The detailed financial information required by the Guidelines regarding
customers, suppliers, employees, providers of capital and the public sector do
not raise significant social policy issues. Because the report sought by the
Proponents calls for financial disclosures, the Proposal addresses matters that
relate to the Company's ordinary business operations. B. The Proposal seeks to micro-manage the Company's business and therefore the
Proposal is excludible. The Proposal clearly seeks to micro-manage the Company. Proposals that seek to
impose "methods for implementing complex policies" are excludible. See Release
No. 40018. This is precisely what the Proposal seeks, i.e., the imposition of a
requirement to review complex management policies regarding the Company's
performance in different areas of the Company's ordinary business operations.
Moreover, the Commission has also stated that "some proposals may intrude unduly
on a company's ordinary business operations by virtue of the level of detail
that they seek." Release No. 40018; see also Capital Cities/ABC, Inc. (April 4,
1991) and Wal-Mart Stores, Inc. (April 10, 1991). Because the establishment of a
program that tests the performance of various business units and the Company as
a whole is a task of tremendous scope that necessarily involves large amounts of
detail for a business the size of the Company, by seeking to insert the
shareholders into the Company's review of its operations, the Proposal probes
too deeply into matters of a complex nature upon which shareholders as a group
are not in a position to make an informed judgment. C. The Proposal does not raise a significant social policy.
The Commission stated in Release No. 40018, as reiterated in Staff Legal
Bulletin No. 14A, that proposals that focus on "sufficiently significant social
policy issues" are not excludible because they "transcend the day-to-day
business matters." The Company is not aware of an instance where the
Commission's staff has concluded that the retail sale of consumer products
raises significant social policy issues. Consistent with this statement, on many
occasions, the Commission's staff has concluded that decisions regarding the
sales and/or development of particular products, including landmines and
sexually explicit literature and media, relate to a company's ordinary business
operations and do not raise significant social or policy issues. See Alliant
Techsystems Inc. (May 7, 1996); Kmart Corporation (February 23, 1993); and
McDonald's Corporation (March 9, 1990). The Company's business involves retail
sale of home improvement products and equipment. It is difficult to see how the
Company's products or operations raise significant social or policy issues when
landmines and sexually explicit literature and media do not.
Conclusion The Proposal should be excluded pursuant to Rule 14a-8(i)(3) because it is vague
and indefinite and, therefore misleading. In addition, the Proposal is properly
excludible pursuant to Rule 14a-8(i)(7) because it deals with matters relating
to the Company's ordinary business operations. We respectfully request your
confirmation that the Division of Corporation Finance will not recommend any
enforcement action to the Commission if the Proposal is omitted from the
Company's proxy statement for the reasons stated above. Please feel free to call Dumont Clarke at 704.331.1051 or Tom O'Donnell at
704.331.3542 if you have any questions or comments. Yours truly,
MOORE & VAN ALLEN PLLC /s/
Thomas H. O'Donnell, Jr. Encls.
-----FOOTNOTES----- 1 See, e.g., Section 2.8, Guidelines, p. 39 (number of employees: breakdown of
employees by country/region); Section 2.9, Guidelines, p. 40 (key attributes of
stakeholders, including trade unions (relation to workforce and reporting
organization), and direct and indirect workforce (size, diversity, relationship
to reporting organization)). 2 See, e.g., Wal-Mart Stores, Inc. (April 2, 2002) (proposal requesting that
board implement specified changes involving employee discounts, company
contributions to employee stock purchases, hourly pay, use of company gift
cards, stock option grants, and employee control of displaying merchandise
excludible because proposal related to "employee benefits, general compensation
matters ... and employee relations"); AT&T Corp. (March 1, 2002) (proposal
requesting that board revise company's health coverage policy to provide free
lifetime health insurance to retirees excludible because proposal related to
"employee benefits"); Hilton Hotels Corporation (March 14, 2003) (proposal
urging the board to provide an accounting of all executive retirement benefits,
including but not limited to all forms of deferred compensation and supplemental
retirement and retention plan excludible because it related to "general employee
benefits"). 3 See also, e.g., Section 3.16, Guidelines, p. 43 (policies and systems for
managing upstream and downstream impacts, including supply chain management as
it pertains to outsourcing and supplier environmental and social performance);
EC11, Guidelines, p. 47 (supplier breakdown by organization and country,
including a list of all suppliers from which purchases in the reporting period
represent 10% or more of total purchases in that period and all countries where
total purchasing represent 5% or more of gross domestic product); EN33,
Guidelines, p. 50 (supplier performance relative to environmental components of
programs and procedures for managing upstream and downstream impacts described
in Section 3.16). 4 See, e.g., Section 2.8, Guidelines, p. 39 (quantity or volume of products
produced/services offered; breakdowns of major products and/or identified
services); Section 3.16, Guidelines, p. 43 (policies and/or systems for managing
upstream and downstream impacts, including product and service stewardship
initiatives (including efforts to improve product design to minimize negative
impacts associated with manufacturing, use and final disposal)); Economic
Performance Indicator (EC)13, Guidelines, p. 48 (major externalities associated
with the reporting organization's products and services); Environmental
Performance Indicator (EN) 14, Guidelines, p. 50 (significant environmental
impacts of principal products and services); EN15, 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,
Guidelines, p. 49 (energy consumption footprint (i.e., annualized lifetime
energy requirements) of major products); Social Performance Indicator: Product
Responsibility (PR)2, Guidelines, p. 55 (description of policy,
procedures/management systems, and compliance mechanisms related to product
information and labeling); PR7, Guidelines, p. 55 (number and types of instances
of non-compliance with regulations concerning product information and labeling,
including any penalties or fines assessed for non-compliance).
5 See, e.g., Economic Performance Indicator (EC)2, Guidelines, p. 47 (geographic
breakdown of markets); EC4, Guidelines, p. 47 (percentage of contracts that were
paid in accordance with agreed terms, excluding agreed penalty arrangements);
EC8, Guidelines, p. 48 (total sum of taxes of all types paid broken down by
country). [APPENDIX 1]
EXHIBIT A December 8, 2003 Corporate Secretary
Lowe's Companies Inc.
1605 Curtis Bridge Road
Wilkesboro, North Carolina 28697 Dear Secretary:
I am writing to you on behalf of Domini Social Investments, the manager of a
socially responsible family of funds based on the Domini 400 Social Index,
including the Domini Social Equity Fund, the nation's oldest and largest
socially and environmentally screened index fund. Our funds' portfolio holds
more than 200,000 shares of Lowe's. In early November, we wrote to Mr. Tillman and to Lowe's Investor Relations
department, encouraging the company to pursue standardized sustainability
reporting as described in the Global Reporting Initiative (GRI) Sustainability
Reporting Guidelines. To date, we have received no response. We are therefore
submitting the enclosed shareholder proposal for inclusion in the 2004 proxy.
The attached proposal is submitted for inclusion in the next proxy statement in
accordance with Rule 14a-8 of the General Rules and Regulations of the
Securities Act of 1934. We intend to maintain ownership of the required number
of shares through the date of the next stockholder's annual meeting. A letter
verifying our ownership of Lowe's shares from Investors Bank and Trust,
custodian of our Portfolio, is forthcoming under separate cover. A
representative of Domini will attend the stockholders' meeting to move the
resolution as required by the SEC Rules. We look forward to hearing from you and to discussing our proposal further. I
can be reached at (212) 217-1027 and at akanzer@domini.com.
Sincerely, /s/ Adam Kanzer
Adam Kanzer
General Counsel and Director of Shareholder Advocacy Encl. [APPENDIX 2]
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 communities in which they operate; According to the Dow Jones Sustainability Group, sustainability includes:
Encouraging long tasting 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 believe 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 November 1, 2004.
[INQUIRY LETTER]
February 25, 2004 Securities and Exchange Commission
Office of Chief Counsel
Division of Corporate Finance
450 Fifth Street NW
Washington, DC 20549 Re: Lowe's Companies, Inc.
Shareholder Proposal of Domini Social Investments Requesting a Sustainability
Report based on the Global Reporting Initiative (GRI) Guidelines
Dear Ladies and Gentlemen: I am writing on behalf of Domini Social Investments LLC in response to a letter
written by attorneys representing Lowe's Companies, Inc. ("the Company") dated
January 23, 2003, notifying the Commission of the Company's intention to omit
the above-referenced shareholder proposal ("the Proposal," attached as Exhibit
A) from the Company's proxy materials. In its letter ("the No-action request,"
attached as Exhibit B), the Company argues that the Proposal may properly be
excluded from the Company's materials for two reasons: first, because it is so
vague, indefinite and misleading that neither shareholders nor the Company would
be able to determine what the Proposal requires (Rule 14a-8(i)(3)), and second,
because it relates to the Company's ordinary business operations (Rule
14a-8(i)(7). We disagree with both these arguments, and respectfully request
that the Company's request for no-action relief be denied.
Background Lowe's Companies, Inc. operates retail building supply and home improvement
stores. According to the Company's website, it currently has 950 home
improvement stores in 45 states and employs more than 130,000 people. The
Company is one of the world's largest retailers, and the nation's second largest
appliance retailer. Retailers like Lowe's have significant social and environmental impacts, and
disclosure on these issues is important to a growing number of stakeholders,
including shareholders, community groups, and employees. Some of these issues,
such as employee relations and energy use, are important for all large
corporations; others, such as the community impact of "big box" retail sites,
are specific to Lowe's sector. As investors, we believe that disclosure on these
issues provides insight into how companies are prepared to deal with potential
controversies, regulation or litigation, as well as reputation and brand risk.
We therefore consider such information material to our investment decisions. In
common with a growing number of investors and companies, we also believe that
social and environmental reporting should become more standardized, in order to
allow investors and other stakeholders to compare companies with their peers.
To advance this process of standardization, the Global Reporting Initiative
(GRI) was founded in 1997 by the Coalition for Environmentally Responsible
Economies. In 2002, the GRI became independent. Based in Amsterdam, it is now an
official collaborating center of the United Nations Environment Programme and
works in cooperation with UN Secretary-General Kofi Annan's Global Compact.
Incorporating the active participation of representatives from business,
accountancy, investment, environmental, human rights, research and labor
organizations from around the world, the GRI develops and disseminates globally
applicable Sustainability Reporting Guidelines for voluntary use by
organizations wishing to report on the economic, environmental, and social
dimensions of their activities, products, and services. The GRI's independent, multi-stakeholder process has won it widespread respect,
and over 400 organizations worldwide now issue sustainability reports using the
GRI guidelines. The 50 US reporters include a number of leading corporations,
among them AT&T, Chevron-Texaco, Chiquita, Citigroup, Ford, General Motors,
Hewlett-Packard, IBM, Intel, Johnson & Johnson, Nike, Procter and Gamble, and
Bristol-Myers Squibb. In the retail sector, to which Lowe's belongs, there are
14 GRI reporters worldwide, including J. Sainsbury and Safeway in the United
Kingdom, as well as the largest retailer in Europe, Carrefour. The GRI format
allows great flexibility to reporters, who can choose the GRI indicators they
wish to include in a report based on the GRI Guidelines. Even organizations
reporting "in accordance" with the GRI, which do list every indicator in their
reports, need not report on every indicator, as long as they explain why they
have chosen not to do so. (For more information, see the GRI website at
www.globalreporting.org.) We address each of the Company's arguments below, including its claim that the
Proposal does not raise a significant social policy issue. However, to place
this proposal in context, we thought it worth highlighting a point from that
section at the outset. In its no-action request, the Company argues that: "The
Company's business involves retail sale of home improvement products and
equipment. It is difficult to see how the Company's products or operations raise
significant social or policy issues" (No-action request at 11). This statement
is disingenuous. In a social responsibility brochure posted to the Company's
website, which discusses the Company's charitable giving and also mentions some
diversity and energy-saving initiatives (see
www.lowes.com/lkn?action=pg&p=AboutLowes /responsibility.html&rn=none), Robert
Tillman, the Chairman and CEO of Lowe's, states: Every day, our employees make decisions that will affect their communities, the
environment, their co-workers and customers, and our company ....
Act as a responsible environmental steward. This is our promise to the planet,
and to all of us who live here. Environmental issues will only continue to grow
more complex, and Lowe's is working diligently to anticipate these issues and
leave a light footprint. The brochure includes numerous other statements that indicate that the Company
acknowledges that its products and operations do have an impact on society and
the environment, and therefore, arguably raise significant social policy issues.
We believe the Company would benefit from expanding and improving the quality of
its social and environmental reporting by issuing a report based on the GRI
Guidelines. I. The Proposal is not Vague, Indefinite or Misleading
The Company makes the following five assertions in support of its claim that the
Proposal is vague, indefinite and misleading: 1) the Proposal is closely analogous to the GRI proposal excluded under Rule
14a-8(i)(3) at Smithfield Foods in 2003; 2) the Proposal fails to provide shareholders with a clear understanding of what
they are being asked to approve, and fails to make clear to the Company what it
would have to do to comply with the Proposal; 3) the Proposal fails to describe the substantive provisions of the GRI;
4) the Proposal does not identify a clear set of standards that must be applied;
and 5) the GRI guidelines are themselves vague.
In what follows, we will address the first three claims individually, and the
last two together. 1. The Proposal is significantly different from the proposal excluded at
Smithfield Foods Our Proposal, unlike the proposal excluded in Smithfield Foods (July 18, 2003),
clearly communicates to the reader what the GRI guidelines are and why we would
like the company to issue a report using them. The GRI proposal that was
excluded at Smithfield Foods in 2003 contained no description of the GRI
guidelines and no discussion of the importance of sustainability reporting
generally. All but one of the resolved clauses focused exclusively on the
business risks posed by the company's hog production operations. The sole
mention of the GRI, other than in the resolved clause, came in the last whereas
clause, which stated, "We believe a report based upon the Global Reporting
Initiative's (www.globalreporting.org) guidelines can help both management and
investors better understand such risks." While investors seeking to learn about
the GRI could have consulted the website cited in this clause, there was no
other information in the text of the proposal itself to explain what the GRI
guidelines are, how they may be used, or what the benefits of their use might
be. In addition, although the hog production industry does have a significant
social and environmental impact, the GRI guidelines do not specifically address
"hog production." Although we support the need for Smithfield to issue a GRI
report, arguably an investor reviewing the proposal might have difficulty
connecting this aspect of the company's business to the GRI guidelines. It might
also be unclear to an investor why a broad-based sustainability report would be
required in order to address the specific issues raised by hog production.
Our Proposal, in contrast, focuses almost entirely on a discussion of
sustainability reporting generally and the GRI format in particular. The first
six whereas clauses define sustainability and explain why we believe
sustainability performance and sustainability reporting contribute to long-term
shareholder value. The seventh, eighth and ninth whereas clauses clearly
describe what the GRI guidelines are, state which core content areas their
indicators cover, and explain that companies using the guidelines need not
report on all these indicators, but may take a flexible and incremental approach
to GRI reporting. We also provide examples of some companies already using the
GRI. Thus, even without consulting the GRI website (which we also cite) any
shareholder reading our proposal would have a clear understanding of why we
think sustainability reporting is advantageous for Lowe's shareholders, what the
GRI guidelines are, and how Lowe's could issue a sustainability report using
them. Because of its focus on sustainability reporting, in fact, our Proposal bears a
greater resemblance to the sustainability reporting proposal submitted to
Johnson Controls in 2002 than to the GRI proposal excluded at Smithfield in
2003. In Johnson Controls (November 14, 2002), the Staff ruled that the proposal
could not be excluded in reliance on Rule 14a-8(i)(3). In its no-action request, the Company mentions the Johnson Controls precedent,
but argues that "the Commission's staff recognized that the shareholder proposal
submitted to Johnson Controls, Inc. was distinguishable from the Smithfield
Proposal because the Johnson Controls proposal did not refer to the Guidelines
or any other standards upon which that sustainability report should be based."
(No action request at 3.) However, as the Staff merely stated that there
"appears to be some basis" for the view that company could exclude the proposal
as vague and indefinite, we believe it is incorrect for Lowe's to state that
"the Commission's staff recognized" that the presence or absence of a reference
to a particular reporting format was a crucial difference between the two
proposals, or for the Company to imply that a reference to the GRI guidelines
could in itself be a reason for exclusion. The Company apparently seeks to imply that proposals such as ours, which do
mention a particular set of guidelines, are excludable, while those that do not
specify standards upon which a sustainability report should be based are
permissible. We find this line of argument puzzling. The Company argues that our Proposal, like the Smithfield proposal, is
inappropriately vague, but here asserts that the specificity of the GRI
reporting request led to the exclusion of the Smithfield proposal (and by
implication, should make ours excludable as well). It seems to us that a
proposal may be either too vague or too specific; the Company cannot have it
both ways. Although the Staff did not provide a rationale for its decision in
Smithfield, we believe it is far more plausible to assume that the Staff based
its decision on the factors discussed abovethe Proposal filed in Smithfield
provided very little information about the GRI format. We can find no authority
to support the Company's creative reading of the Smithfield letter, and the
Company has provided none. We are aware that Smithfield Foods argued in its no-action request that the GRI
proposal it faced was different from the sustainability proposal submitted to
Johnson Controls a year earlier because the latter proposal, which did not
mention any particular guidelines, left the company enough flexibility to avoid
reporting on matters of ordinary business, while the former, which mentioned the
GRI, did not. (See 2002 SEC No-Act. LEXIS 636, the Smithfield Foods no-action
letter of July 18, 2003, 16-17). Whether or not this particular argument formed
the basis for the Staff's decision in Smithfield, our Proposal is still clearly
distinguishable in this respect from that submitted to Smithfield. Although the
Smithfield Proposal did not provide any detail on the flexibility of the GRI
format, our Proposal does, in the eighth whereas clause. (We discuss this issue
again below, in response to the Company's ordinary business arguments.)
The Company also asserts that the Proposal is even more vague and indefinite
than the proposal filed at Smithfield, because the current proposal is not
limited in scope (No-action request at 3). This also appears to us to be a
curious reading of the Smithfield letter. Smithfield specifically listed the
limitation of scope to hog production as a basis for its argument that the
proposal was vague and indefinite (Smithfield Foods, 2003 SEC No-Act.LEXIS 636,
11 ["Is this report only supposed to discuss the Company's hog production
operations and alternative technologies and ignore the remainder of the
Company's operations including its meat processing operations?"]). If the Staff
accepted Smithfield's reasoning, then it must reject Lowe's argument. One
proposal cannot be vague and indefinite because it is limited in scope and
another even more vague and indefinite because it is not limited in scope.
2. The Proposal does in fact provide shareholders with a clear understanding of
what they are being asked to approve, and makes clear to the Company what it
would have to do to comply As noted above, the seventh, eighth and ninth whereas clauses of the Proposal
clearly describe what the GRI guidelines are, state which core content areas
their indicators cover, and explain that companies using the guidelines need not
report on every indicator, but may take a flexible and incremental approach to
GRI reporting. A shareholder reading the Proposal would understand that the GRI
is, as we state, "an international standard-setting organization" for
sustainability reporting; that it provides guidelines for reporting on "direct
economic impacts, environmental, labor practices and decent work conditions,
human rights, society, and product responsibility;" and that we are asking the
Company to issue a report using these guidelines, The Proposal also makes clear
to the Company, in turn, that in order to comply with the Proposal it would
issue a sustainability report based on the Guidelines, but not necessarily
including content for every one of its indicators. The precedents the company cites in support of its contention that our proposal
is unclear on these points are inapposite. In Philadelphia Electric (July 30,
1992), the proposal excluded for vagueness requested "that a Committee of small
stockholders be elected ... to consider and refer to the Board of Directors a
plan or plans that will in some measure equate with the gratuities bestowed on
Management, Directors and other employees." The request did not specify in any
way what the subject or purpose of the requested plan would be. In Alcoa
(December 24, 2002), the proposal's resolved clause requested "full
implementation of these human rights standards," but did not clearly define what
was meant by "these standards." In McDonald's (March 13, 2001) and Kohl's (March
13, 2001), the proposals requested the "full implementation" of the SA8000
Social Accountability Standards, but only described a few points of the
standards. Shareholders in these cases would not have been able to judge from
the proposal what the full implementation of these standards would have
entailed. Our Proposal is very different. We clearly describe all the major content areas
of the GRI Guidelines, and make it clear that the report we are requesting would
not require the company to report on every subject the Guidelines address.
It should be noted that our Proposal is in this respect similar to a number of
proposals requesting codes of conduct "based on" the ILO conventions. These
proposals, which described the ILO conventions but did not cite every one of
them individually, have survived challenges under 14-a 8(i)(3). See Revlon,
Inc.(April 5, 2002); TJX Companies (April 5, 2002); Target Corporation (April 1,
2002); E.I du Pont de Nemours (March 11, 2002); and PPG Industries (January 22,
2001). 3. The Proposal does indeed describe the substantive provisions of the GRI
As noted above, our proposal explains that the content of the GRI focuses on the
following six areas: "direct economic impacts, environmental, labor practices
and decent work conditions, human rights, society, and product responsibility."
Here again, our proposal can clearly be distinguished from the precedents the
Company cites to support its claim that our proposal is inappropriately vague.
In Johnson & Johnson (Feb 7, 2003), the Proposal requested a report on the
company's progress "concerning the Glass Ceiling Commission's business
recommendations," but did not explain what the Glass Ceiling Commission was. In
Kohl's, (March 13, 2001), as noted above, the proposal discussed only several
points from the SA 8000 Social Accountability standards the company was asked to
fully adopt. Our Proposal, in contrast, fairly characterizes, within the
constraints of the 500-word limit, the entirety of the GRI Guidelines, and makes
clear that the Company need not report on every aspect of them.
4. Both the Proposal and the GRI guidelines adequately describe the standards to
be applied We believe that one of the strengths of the GRI Guidelines is their flexibility.
While they contain many specific indicators within the six core categories, the
Guidelines are designed to be adapted to individual situations. Companies that
issue reports based on the GRI often report on only some of the indicators in
the report, choosing what they consider most relevant to their business. (Even
"in accordance" reporters, who report on every indicator in the Guidelines, may
still choose not to provide any information for certain indicators, as long as
they include a rationale for doing so.) In addition, reporting companies are
also encouraged to exercise a certain amount of discretion in determining
exactly how to provide information on the indicators they choose to use. These
aspects of the Guidelines are widely seen as positive characteristics, since
they allow companies to tailor their GRI reports to the nature of their business
and the interests of their particular stakeholders, while avoiding the
disclosure of proprietary information. While the Company seeks to describe these
aspects of flexibility as vagueness, we believe this is a mischaracterization.
The Company also claims to be confused about whether we are requesting an "in
accordance" report or one that takes an incremental approach to using the GRI.
We believe it is clear from our resolved clause, which requests a report "based
on" the Guidelines, and from our eighth whereas clause, which describes the
flexibility of the reporting framework, that we are leaving this decision up to
the Company. In fact, the concept of "in accordance" reporting is not mentioned
in the Proposal. Nevertheless, the Company argues that if a majority of
shareholders approved the Proposal, it would not be clear whether they were
requesting an "in accordance" report or an "incremental report." Because the
proposal clearly discusses "incremental reporting," and does not mention the
concept of "in accordance" reporting, it seems clear to us that a majority vote
would indicate support for an "incremental" report. It is also important to note
here that the Company mischaracterizes what GRI means by "in accordance"
reporting. As noted above, while "in accordance" reports list every indicator in
the GRI, a company may still choose not to report information on some
indicators, so long as it provides an explanation for these choices. (For an
example of an `in accordance' report, see Ford Motor Company's recent GRI report
at
www.ford.com/en/company/about/corporateCitizenship/principlesProgressPerformance/default.htm.)
Finally, the Company argues that the pending revision of the Guidelines makes it
unclear whether we are requesting a report based on the 2002 or the forthcoming,
2004 version of the GRI Guidelines. However, because we are requesting a report
"based on," and not "in accordance," with the GRI, this question is moot. If the
Company chose to report on the indicators it believed most relevant to its
business from either the 2002 or 2004 version of the Guidelines, the report
would fulfill the request in our Proposal. In addition, it would seem reasonable
to us to assume that if the Proposal were to receive a majority vote, the
Company could assume that shareholders had approved a report based on the set of
guidelines that were in existence at the time of the vote, whether or not those
guidelines were subject to change in the future. We certainly could not expect
shareholders to authorize the production of a report based on guidelines that
have not yet been issued. As for the Company's argument that the Proposal is misleading because it does
not provide guidance regarding publication or dissemination of the report
(No-action request at 5), the Proposal provides the Company with flexibility in
this area. If the Company would prefer, we would be pleased to amend the
resolved clause to include the words "to shareholders."
II. The Proposal does not relate to the Company's ordinary business operations
a) The Company's argument is logically flawed
The Company states that "where one or more matters to be covered in a report
relates to a company's ordinary business operations, the Commission's staff has
taken the position that the proposal requesting the report can be excluded in
its entirety" (No-action request at 7). The Company then goes on to state that
employee matters, the selection of suppliers and vendors, the products and
services offered by the Company, decisions regarding the location of or changes
in the Company's operations, and financial disclosure are all issues covered by
the GRI guidelines, and that some proposals addressing each of these matters
have previously been excluded by the Staff in reliance on Rule 14a-8(i)(7).
Therefore, the Company concludes, because our proposal requests a report that
may include elements that relate to ordinary business operations, the Proposal
should be excluded. This chain of reasoning, however, is flawed for two reasons.
One, it is based on the false assumption that our Proposal requests a report
including information on every one of the GRI indicators. In fact, we request a
report "based on" the Guidelines, in which the company could choose which
indicators to include. Moreover, as explained above, even if the Company chose
to issue an "in accordance" report including all the GRI indicators, it could
still omit information on any indicators it chose provided it noted its reasons
for doing so. In other words, any kind of GRI report would allow the Company to
avoid, if it chose, discussion of anything it believed fell within the realm of
ordinary business. The Proposal makes this very clear in the eighth whereas
clause. Second, the business areas listed by the Company are not areas exclusively
covered by the ordinary business exemption, as some proposals in these areas may
have important social policy implications. b) The Company's use of precedents is inapposite
The Company repeatedly cites proposals that, unlike our Proposal, requested a
report on some specific piece of information that the Staff judged to be a
matter of ordinary business. At the same time, the Company accompanies these
precedents with general statements that create the impression that all proposals
on a certain topic, such as employee matters or vendor selection, impinge on
matters of ordinary business. In fact, in many of these areas there are examples
of proposals which have survived ordinary business challenges, and been judged
to address issues of significant social policy. To illustrate that when one matter to be covered in a report pertains to
ordinary business, a proposal requesting the report may be excluded, the Company
cites three precedents: Wal-Mart Stores, Inc. (March 15, 1999); Kmart
Corporation (March 12, 1999); and Warnaco Group, Inc. (March 12, 1999). All
three precedents relate to very similar vendor standards proposals that
specifically requested data on, inter alia, the wages paid to the workforce. In
its no-action letters, the Staff specifically pointed to the issue of wages as a
matter of ordinary business whose inclusion in the requested report made the
proposals excludable. These precedents are not applicable. The present proposal
does not request that the Company generate a report including wage information.
The Company also ignores the fact that proposals regarding vendor standards or
workplace codes of conduct that did not discuss the issue of wages in the
resolved clause have consistently survived ordinary business challenges. See,
e.g., TJX Companies, Inc. (April 5, 2002); Kmart Corporation (March 16, 2001);
McDonald's Corporation (March 16, 2001); PPG Industries, Inc. (January 22,
2001); Oracle Corporation (August 15, 2000); Kohl's Corporation (March 31,
2000); Nordstrom, Inc. (March 31, 2000); and The Warnaco Group, Inc (March 14,
2000). c) Employee matters In its discussion of employee matters, the Company cites Staff Release No.
400018 to the effect that proposals involving "the management of the workforce,
such as hiring, promotion, and termination of employees" relate to ordinary
business. As precedents, the Company here refers to the Wal-Mart, Kmart and
Warnaco precedents already discussed, as well as Xerox Corporation (March 31,
2000) (where a proposal asking the company to pay its employees wages equal to
or greater than those paid by competitors was excluded as ordinary business). In
addition to these four precedents in which the key reason for exclusion was the
proposal's mention of employee wages, the Company also cites in a footnote three
proposals concerning employee benefits which were excluded under Rule
14a-8(i)(7): Wal-mart Stores, Inc. (April 2, 2002); AT&T Corp. (March 1, 2002)
and Hilton Hotels Corporation (March 14, 2003). The Company next states that the
GRI Guidelines address "overall working conditions, salaries and benefits,
training, health and safety, and other employment issues... [which] do not raise
significant policy issues" and should be considered ordinary business in
accordance with Release 40018. On its face, it is absurd to argue that "overall working conditions, salaries
and benefits, training, health and safety, and other employment issues" never
raise "significant policy issues." This line of argument also significantly
misrepresents the import of Release 40018. That Release conveyed the
Commission's intention to return to a case-by-case evaluation of whether or not
employment-related proposals should be considered ordinary business, and
explicitly stated that proposals relating to [employment] matters but focusing on sufficiently
significant social policy issues (e.g., significant discrimination matters)
generally would not be considered to be excludable, because the proposals would
transcend the day-to-day business matters and raise policy issues so significant
that it would be appropriate for a shareholder vote. (Release 34-40018 [May 21,
1998]). Since the Release was issued, Staff has ruled that numerous employment-related
proposals, including proposals on sexual orientation discrimination issues, pay
disparity, and equal employment opportunity raise significant social issues. The
GRI Guidelines, as a result, contain indicators for matters that would likely be
considered significant policy issues by the Staff, as well as some that might be
considered ordinary business. As previously discussed, because our proposal does
not request that the Company report on every indicator in the GRI, it cannot be
excluded on ordinary business grounds. d) Selection of suppliers/vendors
Regarding vendor standards, the Company states that "proposals relating to a
company's relationships with suppliers and vendors are excludible because they
address matters of ordinary business operations." In support of this statement,
the Company cites two no-action letters excluding proposals that asked for
reports on antibiotic use by companies' meat suppliers (Seaboard Corporation
[March 3, 2003], and Hormel Foods Corporation, [November 19, 2002]). As noted
above, the Company ignores the many vendor standards proposals requesting
workplace codes of conduct that have survived ordinary business challenges in
recent years. See, e.g., TJX Companies, Inc. (April 5, 2002); Kmart Corporation
(March 16, 2001); McDonald's Corporation (March 16, 2001); PPG Industries, Inc.
(January 22, 2001); Oracle Corporation (August 15, 2000); Kohl's Corporation
(March 31, 2000); Nordstrom, Inc. (March 31, 2000); and The Warnaco Group, Inc.
(March 14, 2000). e) Products and services offered by the Company
Without citing precedents, the Company argues here that Staff has "consistently
taken the position that decisions regarding the products and services that a
company provides, and the manner in which a company furnishes such products and
services, are matters of ordinary business," and that the GRI covers such
matters. This incredibly broad statement is difficult to rebut without any
specific citations. Where a Company represents that Staff has "consistently"
taken a position, we believe it should be incumbent on them to cite at least one
authority to that effect. Numerous shareholder proposals have appeared on
corporate proxy statements that could arguably fall into this very broad
category. In addition, we reiterate that a report "based on" the GRI could
cover, and omit, material at the Company's discretion. f) Decisions regarding the location of, or changes in, the Company's operations
The Company cites four precedents in which decisions about the location of
operations were judged to be matters of ordinary business: MCI WORLDCOM, Inc.
(April 20, 2000) (a proposal requesting a "fairness opinion" to accompany future
relocation plans); Minnesota Corn Processors, LLC (April 3, 2002, a proposal
requesting that particular conditions be fulfilled before building a new plant);
The Allstate Corporation (February 19, 2002)(a proposal requesting that the
company cease operations in Mississippi); and Tenneco Inc. (December 28,
1995)(proposal requesting a report on costs of relocation of headquarters).
However, we note that Staff has also ruled that corporate land procurement may
raise significant social policy issues. See, e.g., Costco Wholesale Corp.
(December 10, 2003) (proposal requesting a land procurement policy that
incorporated social and environmental factors was not excludable under Rule
14a-8(i)(7)). g) Financial disclosure
Citing seven precedents, the Company argues that proposals addressing financial
reporting and accounting policies not acquired by GAAP or disclosure standards
under applicable law may be excluded in reliance on Rule 14a-8(i)(7), and that
the Guidelines cover such policies. Again, we repeat that the type of GRI report
our proposal requests would allow the company to exercise its own discretion in
deciding which information to report. In sum, while the Company cites various no-action letters where proposals
requesting a particular piece of information have been judged to concern
ordinary business, it cites no precedents in which proposals like ours that
request general sustainability reports have been excluded on this basis. We note
that in Johnson Controls (November 14, 2002), Staff refused to exclude a
sustainability proposal under Rule 14a-8(i)(7) although the company argued that
"environmental, economic and even social matters are integral parts of the
Company's day-to-day operations." (2002 SEC No-Act. LEXIS 790, Johnson Controls
no-action letter of November 14, 2002, 12). We believe that our Proposal, like
the proposal in Johnson Controls, provides the Company adequate flexibility to
avoid disclosure of any matters it deems part of ordinary business operations.
h) The Proposal does not seek to micro-manage the Company
The Company argues that the Proposal seeks to micromanage the company, requests
an inappropriate level of detail, and impermissibly seeks to impose "methods for
implementing complex policies." As noted above, the type of GRI report we
request would allow the Company to determine the particular content and the
level of detail it wished to include in the report. We also note that the Staff
rejected precisely this argument in Johnson Controls (November 14, 2002), where
the Staff refused to exclude the sustainability proposal under Rule 14a-8(i)(7)
although the company argued that the Proposal represented the "imposition of a
requirement to review complex management policies regarding the Company's
performance in different areas of the Company's ordinary business operations"
(2002 SEC No-Act. LEXIS 790, Johnson Controls no-action letter of November 14,
2002, 13). Both of the precedents cited by the Company in support of this argument have
been overruled: Wal-Mart Stores, Inc. (April 10, 1991) and Capital Cities/ABC
(April 4, 1991). The United States District Court for the Southern District of
New York subsequently determined that the Staff ruling in the Wal-Mart letter
had been erroneous and issued an injunction requiring Wal-Mart to include the
proposal in its proxy statement. See Amalgamated Clothing and Textile Workers
Union et. al. v. Wal-Mart Stores, Inc., 821 F. Supp.877 (S.D.N.Y. 1993). The
Capital Cities/ABC case was discussed in the release reversing the Cracker
Barrel decision in 1998. In that release, the Commission specifically stated
that the Capital Cities/ABC decision should not be taken to mean that similar
proposals would now automatically be considered ordinary business (Release
34-40018 [May 21, 1998], footnote 47). i)The proposal raises significant social policy issues
Finally, the Company argues that because its business involves the retail sale
of home improvement products and equipment, "it is difficult to see how the
Company's products or operations raise significant social or policy issues."
This is an alarming statement from one of the world's largest retailers, and
underscores the need for the Company to produce a sustainability report.
Examples of retail companies that have taken steps to address their social and
environmental impact abound. Lowe's decision to adopt a policy regarding the
sourcing of old-growth wood is one such example (see
www.wri.org/press/lowes.html). Fortunately for Lowe's shareholders, the Company
does not appear to believe this statement that its operations raise no social or
policy issues. Indeed, as noted above, the Company has made a number of other public statements
that indicate its awareness of the social and environmental impact of its
products and operations. For example, the Company's social responsibility
brochure, "In Good Conscience" (see
www.lowes.com/lkn?action=pg&p=AboutLowes/responsibility.html&rn=none) includes
the following statements: "As Lowe's continues our aggressive expansion, we're
keeping an eye on our environmental responsibilities and pursuing policies that
minimize our impact. We're using our vast purchasing power to become a more
responsible retailer.... Lowe's builds new stores with innovative systems to
increase energy efficiency, reduce water use and minimize overall environmental
impact." Lowe's wood sourcing policy followed a much-publicized announcement by
the Home Depot to phase out the use of old-growth wood. The Company reports in
its brochure that it has adopted this policy "so that the world's forests will
remain for future generations." These statements and numerous others in this
brochure clearly demonstrate that the Company recognizes that its operations
have a significant social and environmental impact, and that its performance in
these areas therefore has the potential to raise significant social policy
issues. The Company also states that it is "not aware of any instance where the
Commission's staff has concluded that the retail sale of consumer products
raises significant social policy issues." It is difficult to rebut this
incredibly broad statement, as it is not clear when Staff would have had an
opportunity to make such a claim. We can certainly point to social policy
proposals filed with retail companies that have passed muster with the
Commission's Staff, but this appears to us to be an unnecessary and costly
exercise. The Company appears to assert that retail companies do not raise
significant social policy issues. We believe this to be false, and as detailed
above, we do not believe the Company believes this statement either.
We also note that Johnson Controls also argued that the proposal at issue did
not raise a sufficiently significant social policy issue (2002 SEC No-Act. LEXIS
790, Johnson Controls no-action letter of November 14, 2002, 16-17). The Staff
seems to have been unconvinced by this claim, and should reject the same
argument here. For all of the reasons above, we respectfully request that the Company's request
for no-action relief be denied. Respectfully submitted,
/s/ Adam Kanzer
General Counsel and Director of Shareholder Advocacy
Encl. cc: Thomas H. O'Donnell, Jr., Moore & VanAllen PLLC
[STAFF REPLY LETTER]
March 3, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Lowe's Companies, Inc.
Incoming letter dated January 23, 2004 The proposal requests that the company prepare a sustainability report based on
the "Global Reporting Initiative guidelines" by November 1, 2004.
There appears to be some basis for your view that Lowe's may exclude the
proposal under rule 14a-8(i)(3) as vague and indefinite. Accordingly, we will
not recommend enforcement action to the Commission if Lowe's omits the proposal
from its proxy materials in reliance on rule 14a-8(i)(3). In reaching this
position, we have not found it necessary to address the alternative basis for
omission upon which Lowe's relies. Sincerely,
/s/ John J. Mahon
Attorney Adviser
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