Company Name: Marriott Int'l., Inc.
Public Availability Date: February 13, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
STAFF REPLY LETTER [INQUIRY LETTER]
January 5, 2004 Direct Dial (202) 530-9569
Fax No. (202) 530-9569
Client No. 58129-00032
VIA HAND DELIVERY Office of the Chief Counsel
Division of Corporation Finance
Securities And Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Shareholder Proposal of David A. Vercellino Securities Exchange Act of 1934
- Rule 14a-8 Dear Ladies and Gentlemen:
This letter is to inform you that it is the intention of our client, Marriott
International, Inc. (the "Company"), to omit from its proxy statement and form
of proxy for the Company's 2004 Annual Meeting of Stockholders (collectively,
the "2004 Proxy Materials") a shareholder proposal and statements in support
thereof (the "Proposal") received from Mr. David A. Vercellino (the
"Proponent"). The Proposal requires that the Company (i) adopt and enforce a
policy at its owned and managed properties that prohibits the sale of
sexually-explicit material (specifically and limited to X, XX or XXX rated
movies, and magazines and books featuring full nudity or rental of X or XXX
rated videos or DVDs) (collectively, "Materials") and cancel any contracts with
vendors of such Materials, (ii) implement a similar policy with respect to any
affiliated companies which own or manage resorts or hotels, and (iii) not do
anything to facilitate the selling of such Materials and encourage adoption of a
similar policy by affiliated hotels and resorts that are not under the Company's
legal or contractual control but are part of the family of "Marriott Hotels."
The Proposal is attached hereto as Exhibit A. On behalf of our client, we hereby notify the Division of Corporation Finance of
the Company's intention to exclude the Proposal from its 2004 Proxy Materials on
the bases set forth below, and we respectfully request that the staff of the
Division (the "Staff") concur in our view that: I. The Proposal is excludable under Rule 14a-8(i)(7), because the Proposal deals
with matters related to the Company's ordinary business operations;
II. The Proposal is excludable under Rule 14a-8(i)(5), because it relates to
operations which account for less than 5 percent of the Company's total assets,
net earnings and gross sales, and is not otherwise significantly related to the
Company's business; III. The Proposal is excludable under Rule 14a-8(i)(1), because it is not a
proper subject for action by stockholders under the laws of the State of
Delaware; and IV. The Proposal is excludable under Rule 14a-8(i)(3), or in the alternative,
must be revised, because the Proposal contains false and misleading statements
in violation of Rule 14a-9. Pursuant to Rule 14a-8(j), enclosed herewith are six (6) copies of this letter
and its attachment. Also in accordance with Rule 14a-8(j), a copy of this letter
and its attachments are being mailed on this date to the Proponent, informing
him of the Company's intention to omit the Proposal from the 2004 Proxy
Materials. The Company intends to file its definitive 2004 Proxy Materials on or
after March 25, 2004. Accordingly, pursuant to Rule 14a-8(j), this letter is
being submitted not less than 80 days before the Company files its definitive
materials and form of proxy with the Securities and Exchange Commission (the
"SEC"). ANALYSIS I. The Proposal May Be Excluded under Rule 14a-8(i)(7) Because the Proposal
Deals with Matters Relating to the Company's Ordinary Business Operations.
The Proposal may be properly omitted pursuant to Rule 14a-8(i)(7) because the
Proposal encompasses matters relating to the Company's ordinary business
operations. Specifically, the Proposal seeks the establishment and enforcement
of a policy prohibiting sales of Materials and the cancellation of all contracts
with vendors who supply the Company with Materials. As more fully explained
below, there is strong precedent that stockholder proposals addressing the sale
of a particular product or service come within the ambit of ordinary business
operations. Rule 14a-8(i)(7) permits the omission of stockholder proposals dealing with
matters relating to the Company's "ordinary business" operations. According to
the Commission's Release accompanying the 1998 amendments to Rule 14a-8, the
underlying policy of the 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 meeting." Release No. 34-40018 (May 21, 1998) (the
"1998 Release"). The 1998 Release contemplated that "[c]ertain tasks are so
fundamental to management's ability to run a company on a day-to-day basis" that
they are not proper subjects for stockholder proposals. The Company is a worldwide operator and franchisor of hotels and related lodging
facilities. An integral part of its business is selecting the products, services
and amenities to be offered at its hotels and lodging facilities. The ability to
make such decisions is fundamental to management's ability to control the
operations of the Company, and is not appropriately delegated to the Company's
stockholders. The Staff has consistently agreed with this assessment and taken
the position that the sale or distribution of a particular category of products
and services, whether considered controversial or not, is part of a company's
ordinary business operations. See, e.g., Johnson & Johnson (Dominican Sisters)
(avail. Feb. 7, 2003) (proposal to disclose incentive payments made in order to
influence the selection of a particular drug excludable as relating to the sale
and advertising of particular products). More specifically, the Staff has
previously granted no-action relief with respect to shareholder proposals
related to the sale or distribution of sexually-explicit material. In Kmart
Corporation (avail. Feb. 23, 1993) (proposal to terminate sale of adult media
products) and Kmart Corporation (avail. Mar. 13, 1992) (proposal to terminate
sale of periodicals containing certain content), the Staff concurred that such
proposals could be excluded because they related to the sale of a particular
product. See also USX Corporation (avail. Jan. 26, 1990) (proposal to cease
sales of adult products). In AT&T Corp. (avail. Feb. 21, 2001), a company
subsidiary engaged in cable television programming and aired sexually explicit
programming material. The Staff concurred that the company could omit a
shareholder proposal that requested a report on the company's policies regarding
sexually explicit materials, stating in particular that the proposal related to
the company's "ordinary business operations (i.e., the nature, presentation and
content of cable television programming)". AT&T recognizes that decisions
regarding which products to broadcast on cable television are ordinary business
matters; the Company makes similar decisions with respect to the television
programming at its hotels and lodging facilities. See also, The Walt Disney
Company (Nov. 10, 1997) (proposal dealing with, among other things, the
influence on young people of tobacco uses in television shows omitted because
television programming relates to the company's ordinary business operations).
We do not believe that the Proposal raises a significant social policy issue of
the type that is excluded from the scope of Rule 14a-8(i)(7). However, even if
products such as Materials were deemed to involve a significant policy issue,
the Proposal nevertheless is excludable with respect to the Company because it
implicates the Company's ordinary business operations as they relate to the
selection of products and services offered to customers. For example, the Staff
has granted no-action relief under the ordinary business exception for the
exclusion of proposals related to sales of other potentially controversial
subject matters, such as drug marketing, tobacco, handguns and landmines. See
Johnson & Johnson (Dominican Sisters) (avail. Feb. 7, 2003) (proposal to
disclose incentive payments made in order to influence the selection of a
particular drug found to be related to sale and advertising of particular
products); Wal-Mart Stores, Inc. (avail. Mar. 9,2001) (proposal to stop selling
handguns and ammunition); Albertson's, Inc. (avail. Mar. 18, 1999) (proposal to
stop selling, advertising or promoting tobacco products) and Alliant Techsystems
Inc. (avail. May 7, 1996) (proposal to end all research, development, production
and sales of antipersonnel mines). Furthermore, with respect to proposals
dealing with tobacco, firearms and other products that may be deemed to raise
significant policy issues, the Staff consistently has drawn a distinction
between the manufacturer and the vendor of products, time after time taking the
position that proposals regarding the selection of products for sale, including
tobacco products, relate to a company's ordinary business operations and thus
are excludable from the company's proxy materials pursuant to Rule 14a-8(i)(7).
Compare Wal-Mart Stores, Inc. (avail. Mar. 9, 2001) (granting no-action relief
under Rule 14a-8(i)(7) for a proposal requesting that the board adopt a policy
refusing to sell handguns and their accompanying ammunition and requiring the
return of product inventories to their manufacturers) and Sturm, Ruger &
Company, Inc. (avail. Mar. 5, 2001) (denying no-action relief under Rule
14a-8(i)(7) with respect to a proposal seeking a report on company policies
aimed at "stemming the incidence of gun violence in the United States" where the
company's "principal business continues to be the manufacture and sale of
firearms". See also Albertson's, Inc. (avail. Mar. 18, 1999) ("relat[es] to
Albertson's ordinary business operations (i.e., the sale of a particular
product)"); J.C. Penney Co. (avail. Mar. 2, 1998) ("the proposal is directed at
matters relating to the conduct of the Company's ordinary business operations
(i.e., the sale of a particular product)"); Walgreen Co. (avail. Sept. 29, 1997)
(proposal that retailer stop selling cigarettes was excludable because it
involved "the sale of a particular product"); Kmart Corp. (avail. Mar. 11, 1994)
(proposal to review sale of firearms was excludable under the ordinary business
exception). As Marriott is not a manufacturer or publisher of Materials but
instead offers customers the opportunity to purchase Materials as merely one
aspect of the products, services and amenities that are available through the
Company's hotels and lodging facilities, we believe that the Proposal may be
omitted from the 2004 Proxy Materials pursuant to Rule 14a-8(i)(7).
II. The Proposal May Be Excluded under Rule 14a-8(i)(5) Because it Relates to
Operations Which Account for Less than 5 Percent of the Company's Total Assets,
Net Earnings and Gross Sales, and is Not Otherwise Significantly Related to the
Company's Business. Rule 14a-8(i)(5) permits exclusion of a proposal which relates to operations
which (i) account for less than 5 percent of the company's total assets at the
end of its most recent fiscal year, (ii) account for less than 5 percent of its
net earnings for the most recent fiscal year, (iii) account for less than 5
percent of its gross sales for its most recent fiscal year, and (iv) is not
otherwise significantly related to the company's business.
The Proposal relates to the sale of Materials by the Company. The Company's
operations involving the sale of Materials account for less than 5% of its
assets at the end of its most recent fiscal year, less than 5% of its net
earnings for its most recent fiscal year and less than 5% of its net revenues
for its most recent fiscal year. The Company has no future plans that will
significantly alter these percentages. As such, the relation of the Proposal to
the Company's operations does not meet any of the economic tests provided by
Rule 14a-8(i)(5). The Staff has recognized that "certain proposals, while relating to only a small
portion of the issuer's operations, raise policy issues of significance to the
issuer's business." Exchange Act Release No. 19,135 (avail. Oct. 14, 1982). This
can occur where a particular corporate policy "may have a significant impact on
other segments of the issuer's business or subject the issuer to significant
contingent liabilities." Id. The Company's business segments include
full-service lodging, select-service lodging, extended-stay lodging, timeshare
and synthetic fuel. The sale of Materials does not have a significant impact on
any segment of the Company's business and could not reasonably be expected to
"subject the Company to significant contingent liabilities."
Even where a proposal raises a policy issue, the policy must be more than
ethically or socially "significant in the abstract." It must have a "meaningful
relationship to the business" of the company in question. See Lovenheim v.
Iroquois Brands, Ltd., 618 F. Supp. 554, 561 & n.16 (D.D.C. 1985). See, also
J.P. Morgan & Co. Incorporated (avail. Feb. 5, 1999) (in which the Staff
concurred that the company could rely on Rule 14a-8(i)(5) to omit a proposal
asking it to discontinue banking services with Swiss entities until all claims
made by victims of the Holocaust and their heirs are settled and total
restitution made, because the company's operations related to Switzerland were
less than five percent and the proposal was not otherwise significantly related
to the company's business). The Proposal does not on its face raise a significant policy issue for the
Company. The Staff's interpretation of Rule 14a-8(i)(5) recognizes that some
issues that are of social significance are not necessarily of concern to a
company's shareholders because of the minimal impact those issues have on the
company's business. In Kmart Corp. (avail. Feb. 28, 1995), the Staff found that
the sale of "books, magazines and videos ... that depict or describe sexual
activity between adults and minor children or between minor children" fell below
the 5% threshold and was "not otherwise significantly related" to the company's
business. See also, American Stores Co. (avail. Mar. 25, 1994) (sale of tobacco
products by one of nation's leading food and drug retailers was "not otherwise
significantly related to" its business) and Kmart Corp. (avail. Mar. 11, 1994)
(sale of firearms in Kmart stores bore no significant relationship to business
of Kmart Corporation due to the diversity of the company's product mix). The
Proposal requests that the Company not sell or offer Materials and cancel
contracts with vendors of such Materials. The Company is in the business of
operating and franchising hotels and related lodging facilities. The sale of
Materials is not integral to the Company's business. Thus, even if the Proposal
is considered to raise a policy issue that might be considered "significant in
the abstract," that issue has "no meaningful relationship" to the Company's
business. For the reasons set forth above, as well as the reasons set forth in the
Company's discussion of Rule 14a-8(i)(7) relating to its ordinary business
operations, the Company believes the Proposal may be omitted from the 2004 Proxy
Materials pursuant to Rule 14a-8(i)(5). III. The Proposal May Be Excluded under Rule 14a-8(i)(1) Because it is Not a
Proper Subject for Action by Stockholders Under the Laws of the State of
Delaware. The Company believes that it may exclude the Proposal in its entirety because it
is not a proper subject for action by stockholders under the laws of Delaware,
the jurisdiction of the Company's organization. The Proposal is stated in
mandatory rather than precatory language. Section 141(a) of the Delaware General
Corporation Law (the "DGCL") vests management of the business and affairs of the
Company in the Board, except as otherwise provided in Chapter 1 of the DGCL or
the Company's Third Amended and Restated Certificate of Incorporation. Neither
Chapter 1 of the DGCL nor the Company's Third Amended and Restated Certificate
of Incorporation restricts the Board in a way relevant to the requirements of
the Proposal. In fact, Section 122(8) of the DGCL specifically provides that
every corporation has the power to conduct its business and carry on its
operations within or without the state of Delaware and Article III, Section 3.3
of the Company's Amended and Restated Bylaws states that the business of the
Corporation shall be managed by its Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by the Bylaws directed or required to be
exercised or done by the stockholders. Each resolution in the Proposal is phrased using mandatory language:
The first resolution requires the Company to adopt and enforce a policy at its
owned and managed properties that prohibits the sale of Materials and requires
the Company to cancel any contracts with vendors of such Materials.
The second resolution requires the Company to implement a similar policy with
respect to any affiliated companies which own or manage resorts or hotels.
The third resolution requires the Company to not do anything to facilitate the
selling of such material and adopt a similar policy with respect to affiliated
hotels and resorts not under the Company's legal or contractual control.
Therefore, the Proposal gives no discretion to the Company and its board. As
such, the Proposal would require the Company to take actions that, under
Delaware law, are reserved for the judgment and discretion of the Company's
Board. The Staff has permitted the exclusion of proposals phrased so as to be binding
on the company. In Longview Fibre Co. (avail. Dec. 10, 2003), the Staff
concluded that a proposal requiring the board of directors to split a
corporation into three separate and distinct entities was excludable pursuant to
Rule 14a-8(i)(1) and in PG&E Corp. (avail. Feb. 8, 2003), the Staff concluded
that a proposal mandating that the board of directors report to shareholders on
topics related to the company's emissions of carbon dioxide, sulfur dioxide,
nitrogen oxide, and mercury was excludable pursuant to Rule 14a-8(i)(1).
Alternatively, in Staff Legal Bulletin No. 14 (July 13, 2001), the Staff stated
that "[w]hen a proposal would be binding on the company if approved by
shareholders, [the Staff] may permit the shareholder to revise the proposal to a
recommendation or a request...." In both Longview Fibre Co. and PG&E Corp. the
Staff allowed the proponents to recast the proposals as recommendations or
requests to the board of directors within seven days and stated it would not
recommend enforcement action if the proposals were not revised within that time
period and were excluded from the company's proxy materials.
For the reasons set forth above, the Company believes the Proposal may be
omitted from the 2004 Proxy Materials pursuant to Rule 14a-8(i)(1). In the
alternative, even if the Staff concludes that the Proposal is not properly
excludable under Rule 14a-8(i)(1), we believe that the Staff should nonetheless
require the Proposal to be revised as a recommendation or request.
IV. The Proposal May Be Excluded under Rule 14a-8(i)(3) Because the Proposal is
Materially False or Misleading in Violation of Rule 14a-9.
A shareholder proposal may be excluded under Rule 14a-8(i)(3) where it is
"contrary to any of the Commission's proxy rules, including Rule 14a-9, which
prohibits materially false or misleading statements in proxy soliciting
materials." The Staff has allowed registrants to omit proposals from their proxy
materials if the proposal is so vague and indefinite that shareholders voting on
the proposal would be unable to determine what actions or measures the
registrant would take if the proposal were adopted. See Nynex Corp. (avail. Jan.
12, 1990) and U.S. Industries (avail. Feb. 17, 1983). The second and third resolutions presented in the Proposal may be excluded in
their entirety under Rule 14a-8(i)(3) because they are vague and indefinite. The
second resolution requires that "for any affiliated company which owns or
manages a hotel or resort, including, but not limited to Host Marriott, the
Company shall work to have a similar policy adopted by such affiliated company
through a new Corporate Resolution or otherwise." The Proposal does not provide
guidance as to what constitutes an "affiliated company." In particular, it
should be noted that the Company does not consider Host Marriott to be an
affiliated company, and it is not clear what other entities are intended to be
covered by this provision. The third resolution requires that "for any
affiliated hotel or resort not under the Company's legal or contractual control
(i.e. third party owners) but part of the `family of Marriott Hotels', the
Company shall do nothing to facilitate the selling of [Materials] and shall
encourage those hotels and resorts to adopt a similar policy against the selling
of [Materials]." The Proposal (a) does not provide guidance as to what
constitutes a "hotel or resort not under the Company's legal or contractual
control (i.e. third party owners) but part of the `family of Marriott Hotels'"
and (b) does not explain what specific measures the Company would be required to
take to satisfy the Proposal's requirement of "encouraging" such hotels and
resorts to adopt a similar policy. Given the vague language of the second and
third resolutions presented in the Proposal, it is impossible for shareholders
to determine what specific entities the Company would be required to take action
with respect to, and given the vague language of the third resolution presented
in the Proposal, it is impossible for shareholders to determine what the Company
is expected to do to implement such resolution, if adopted.
For the reasons stated above, the Proposal should be omitted pursuant to Rule
14a-8(i)(3), due to its inherently vague and indefinite nature and its violation
of Rule 14a-9. In the alternative, even if the Staff concludes that the Proposal
is not properly excludable under Rule 14a-8(i)(3), we believe that the Staff
should nonetheless require the Proponent to make the revisions necessary to
bring the Proposal within the requirements of the proxy rules.
CONCLUSION Based on the foregoing, we hereby respectfully request that the Staff not
recommend any enforcement action if the Proposal is excluded from the Company's
2004 Proxy Materials. Should you disagree with the conclusions set forth in this
letter, we respectfully request the opportunity to confer with you prior to the
determination of the Staff's final position. We would be happy to provide you
with any additional information and answer any questions that you may have
regarding this subject. Please do not hesitate to call me at (202) 955-8671, or
Dorothy M. Ingalls, the Company's corporate counsel, at (301) 380-8999, if we
can be of any further assistance in this matter. Sincerely,
/s/ Ronald O. Mueller
Attachment cc: Dorothy M. Ingalls, Marriott International, Inc.
David A. Vercellino [APPENDIX 1]
Marriott Shareholder Proposal from David A. Vercellino 11/20/03
WHEREAS, the Company does not nor will it support the inappropriate exploitation
of women and others by either directly or indirectly offering or facilitating
the offering of pornography at any hotel or resort owned, managed or affiliated
with the Company. The Company believes that this offensive material is not
consistent with the Company's culture and values (for example, pornography is
not allowed to be viewed in Company offices and corporate conference rooms), and
does not show the appropriate amount of respect to the diverse groups of people
who use its facilities, such as families. RESOLVED, the Company shall issue and enforce a corporate policy against any of
its hotels or resorts which it owns or manages from selling or offering to sell
any sexually explicit material through in-room pay per view movies (specifically
and limited to X, XX or XXX rated movies) or through its gift shop (specifically
and limited to magazines or books featuring full nudity or rental of X or XXX
rated videos or DVDs) ("Sexually Explicit Material") and will work to legally
and without penalty cancel as soon as possible any contracts the Company has
with vendors to provide such material to the Company's hotels or resorts or
hotels or resorts owned or managed by any of the Company's affiliates including
Host Marriott; FURTHER RESOLVED, for any affiliated company which owns or manages a hotel or
resort, including, but not limited to Host Marriott, the Company shall work to
have a similar policy adopted by such affiliated company through a new Corporate
Resolution or otherwise; FURTHER RESOLVED, for any affiliated hotel or resort not under the Company's
legal or contractual control (i.e. third party owners) but part of the "family
of Marriott Hotels", the Company shall do nothing to facilitate the selling of
Sexually Explicit Material and shall encourage those hotels and resorts to adopt
a similar policy against the selling of Sexually Explicit Material. [APPENDIX 2]
November 20, 2003 Ms. Dottie Ingalls, Secretary
Marriott Corporation
Dept 52/862
Marriott Drive
Washington, D.C., 20058 Re: Shareholder Proposal
Dear Madam Secretary, Please find attached a shareholder proposal regarding the company's offering of
pornographic material. I have owned one hundred (100) shares in Marriott since March of 2000 and intend
to hold the shares through 2004. Enclosed is a copy of my brokerage statement
demonstrating ownership. Thank you for your consideration.
Most Sincerely, /s/
David A. Vercellino
1974 E. Stewart
Midland, MI 48640
989-430-3582
[STAFF REPLY LETTER]
February 13, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Marriott International, Inc. Incoming letter dated January 5, 2004
The proposal requests that the company issue and enforce a corporate policy
against any of its hotels or resorts which it owns or manages from selling or
offering to sell any sexually explicit materials through pay-per-view or in its
gift shop. The proposal also requests that the company cancel any contracts with
vendors to provide such material. There appears to be some basis for your view that Marriott may exclude the
proposal under rule 14a-8(i)(7), as relating to ordinary business matter (i.e.,
the sale and display of a particular product and the nature, content and
presentation of programming). Accordingly, we will not recommend enforcement
action to the Commission if Marriott omits the proposal from its proxy materials
in reliance on rule 14a-8(i)(7). In reaching this conclusion, we have not found
it necessary to address the alternative bases for omission upon which Marriott
relies. Sincerely, /s/
Keir D. Gumbs
Special Counsel
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