Company Name: McKesson Corp.
Public Availability Date: April 1, 2004
Document Sections: INQUIRY LETTER
APPENDIX 1
APPENDIX 2
STAFF REPLY LETTER [INQUIRY LETTER]
March 11, 2004 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: McKesson CorporationOmission of Shareholder Proposal Pursuant to Rule 14a-8
Dear Sir or Madam: We are writing on behalf of our client, McKesson Corporation, a Delaware
corporation (the "Company"), pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to respectfully request
that the Staff of the Division of Corporation Finance (the "Staff") of the
Securities and Exchange Commission (the "SEC") concur with the Company's view
that, for the reasons stated below, the shareholder proposal and supporting
statement (the "Proposal") submitted by the American Federation of State, County
and Municipal Employees, Employees Pension Plan (the "Proponent"), may properly
be omitted from the proxy materials (the "Proxy Materials") to be distributed by
the Company in connection with its 2004 annual meeting of shareholders.
Pursuant to Rule 14a-8(j)(2), we are enclosing six copies of (i) this letter and
(ii) the Proposal and cover letter dated January 27, 2004 (and received by the
Company on February 12, 2004) submitted by the Proponent. In accordance with
Rule 14a-8(j), a copy of this submission is being sent simultaneously to the
Proponent's designated representative, Charles Jurgonis. I. Introduction
The Proponent requests that the Company's Board of Directors (the "Board")
prepare and make available to shareholders a report, disclosing on an annual
basis, actions taken by the Board and its committees in the prior year.
Specifically, the Proposal states: "RESOLVED, that the stockholders of McKesson Corporation ("McKesson") ask the
Board of Directors (the "Board") to prepare and make available to stockholders
on an annual basis a separate report (the "Report") regarding the actions taken
by the Board and all committees thereof (each, a "Committee") in the prior year.
The Report should be prepared at reasonable cost and should omit confidential
and proprietary information. It should also omit information about matters that
are pending at the time the Report is prepared and that have not been disclosed
publicly. Specifically, the Report should disclose: (a) the agenda items on which the Board and each Committee voted; and
(b) the existence of any non-unanimous Board or Committee vote, identifying the
director or directors whose votes were not in accord with the majority."
A copy of the full text of the Proposal is attached hereto as Exhibit A.
As discussed in Section II below, the same Proponent recently submitted to Time
Warner Inc. a proposal (the "Time Warner Proposal") substantially similar to the
Proposal it submitted to the Company. Time Warner, by letter to the Staff dated
December 31, 2003, argued that the Time Warner Proposal was excludable from its
proxy materials pursuant to Rule 14a-8(i)(7) (relating to ordinary business
operations) and Rule 14a-8(i)(10) (substantial implementation). By letter dated
February 13, 2004, the Staff concurred with Time Warner's view that the Time
Warner Proposal was excludable under Rule 14a-8(i)(7), as relating to Time
Warner's ordinary business operations. See Time Warner Inc. (February 13, 2004).
In its February 13, 2004 response, the Staff advised Time Warner: "There appears
to be some basis for your view that Time Warner may exclude the proposal under
rule 14a-8(i)(7) as relating to Time Warner's ordinary business operations (i.e.
reporting on board actions related to Time Warner's ordinary business
operations)." Also, as discussed in Section II below, the Proposal differs in
two immaterial respects from the Time Warner Proposal, which should have no
bearing on the Staff's analysis of excludability under Rule 14a-8(i)(7).
The Company requests that the Staff concur with the Company's view that (i) the
Proposal deals with matters relating to the conduct of ordinary business
operations of the Company and is therefore properly excludable under Rule
14a-8(i)(7), and (ii) the Proposal has been substantially implemented and is
therefore properly excludable under Rule 14a-8(i)(10).
II. The Proposal relates to the Company's ordinary business operations and,
therefore, may be omitted from the Company's Proxy Materials pursuant to Rule
14a-8(i)(7). Rule 14a-8(i)(7) under the Exchange Act permits the exclusion from the Company's
Proxy Materials of shareholder proposals relating to "its ordinary business
operations." Similarly, proposals requesting reports or studies may also be
omitted from the Company's Proxy Materials if the subject of the requested
report or study covers a matter related to the Company's ordinary business
operations. See Exchange Act Release No. 34-20091 (August 16, 1983)
("Henceforth, the staff will consider whether the subject matter of the special
report or the committee involves a matter of ordinary business; where it does,
the proposal will be excludable under Rule 14a-8(c)(7)"). Rule 14a-8(c)(7) is
the predecessor of current Rule 14a-8(i)(7). The Proposal seeks an annual report
of every action taken by the Board and each of its committees; the actual votes
cast in favor or against each action; and, for items on which a vote was not
unanimous, the names of the dissenting directors or committee members. This
requested reportcovering all votes taken by the Board and its
committeesinvolves the Company's ordinary business operations and, therefore,
is not an appropriate subject matter for a shareholder proposal.
The Company's business and affairs are managed by its Board of Directors and
committees of the Board. See Section 141(a) of the General Corporation Law of
the State of Delaware (the "DGCL"). In this capacity, the Board and its
committees consider myriad recurring and ordinary matters (such as annual
budget, officer appointments, material contracts, securities offerings,
acquisitions and asset dispositions) that are part of the day-to-day management
of the Company's operations. In addition, they consider actions on a wide range
of subject matters, such as operational strategy, customer relations and
employee compensation, that the Staff has consistently found relate to ordinary
business operations. See The Allstate Corp. (February 19, 2002) (operational
strategy is related to ordinary business operations); Mattel, Inc. (April 1,
2002) (general employee compensation is related to ordinary business
operations); Verizon Communications Inc. (January 9, 2003) (customer relations
are related to ordinary business operations). See also, Telular Corp. (December
5, 2003) (the analysis of non-extraordinary transactions is related to ordinary
business operations); Xcel Energy Inc. (April 1, 2003) (the evaluation of
company risks and benefits is related to ordinary business operations); ResMed,
Inc. (September 4, 2002) (the selection of accounting methods is related to
ordinary business operations); The MONY Group Inc. (March 1, 2004) (the
termination or evaluation of officers or employees are related to ordinary
business operations). If the Proposal sought a report of Board action with
respect to any one of the above items, it would be properly excludable from the
Company's Proxy Materials. Instead, the requested report seeks information on
all actions of the Board and its committees, without regard to the subject
matter. The Company submits that the breadth of the proposal clearly covers many
aspects of the Company's ordinary business operations and, therefore, is
excludable under Rule 14a-8(i)(7). This conclusion is consistent with the
Staff's stated rationale for the ordinary business exclusion, which is to
"confine the resolution of ordinary business problems to management and the
board of directors." Exchange Act Release No. 34-40018 (May 21, 1998).
Further, the determination as to which matters should be presented at meetings
of the Board and its committees is a central function of the Board and
management and, thus, is itself inherently part of the Company's ordinary
business operations. In order for the Board to effectively manage the Company's
business and affairs, it must be afforded the flexibility to set meeting agendas
and vote on individual items without the potential complications of shareholder
review. Indeed, such decisions are inextricably linked to the substance of the
matters being considered. This connection is illustrated by the potential impact
on the Company's business operations it if were required to disclose publicly
the consideration of matters by the Board. For example, the disclosure of a
non-unanimous vote regarding a material contract could give advantage to
interested parties or the Company's competitors who, for the own gain, might
seek to drive a wedge among the Company's directors. A similar disadvantage to
the Company could apply to a non-unanimous vote on a matter of operational
strategy. These situations demonstrate just how closely the information sought by the
Proposal is related to the Company's management of its ordinary business
operations. The Proposal also could have the unintended effect of influencing
the nature and content of meeting agendas. The drafters of such agendas would
need to be mindful of the considerable complications and risk of harm from the
availability of this information to competitors and those having business with
the Company. The effect of these additional considerations on the Board and
committee practices could impact how and when matters are considered. Such a
scenario is not only contrary to the Company's and its shareholders' best
interests, but it is further evidence that the placement and treatment of items
on meeting agendas are part of the Company's ordinary business operations.
As noted above, the policy behind the ordinary business exclusion is to confine
the resolution of ordinary business problems to management and the board of
directors. Exchange Act Release No. 34-40018 (May 21, 1998). The Staff has noted
that one central consideration underlying the exclusion's application is "the
degree to which the proposal seeks to `micro-manage' the company by probing too
deeply into matters of a complex nature upon which stockholders, as a group,
would not be in a position to make an informed judgment." Id. The Company
respectfully submits that the Proposal directly seeks to micro-manage the
Company by requesting information about all matters considered by its Board and
committees. The Proposal could, as a practical matter, lead to active
shareholder oversight of large parts of the Company's ordinary business
operations. See Id. ("Certain tasks are so fundamental to management's ability
to run a company on a day-to-day basis that they could not, as a practical
matter, be subject to direct stockholder oversight.")
Providing the requested report also presents the significant risk of shareholder
confusion or misinterpretation of Board and committee actions because many
matters raised at Board and committee meetings require detailed knowledge and
familiarity with the Company's operations, history and business environment not
generally possessed by shareholders. Directors therefore receive detailed
briefing materials and presentations regarding matters considered by the Board
and its committees, which supplement their already existing knowledge of the
Company and its business environment. Moreover, the determinations as to the
timing of the consideration of matters require additional understanding of those
subjects. The Company respectfully submits that its shareholders as a group
would not be in a position to make an informed judgment about the plethora of
matters upon which its Board and committees act in the course of a year, nor an
informed judgment on the timing of the Board's and committees' consideration of
such matters or the votes cast by individual directors. Consequently, the
Company further respectfully submits that the Proposal is appropriately omitted
from the Company's Proxy Materials pursuant to Rule 14a-8(i)(7) based on its
propensity to result in micro-management by shareholders. The Staff has previously indicated that, when applying the ordinary business
operations exclusion, it will consider whether the proposal in question raises
significant "social policy issues." See Exchange Act Release No. 34-40018 (May
21, 1998). See also, American Electric Power Co. (January 27, 2003) (proposal
that each director expend a minimum of twenty hours each month of the year to
attend and prepare for formal monthly board meetings); The Allstate Corp.
(February 19, 2002) (proposal that the company cease operations in Mississippi).
The Company believes that the Proposal does not advance any significant positive
social policy issues. While the Proponent argues in its supporting statement
that the requested report will increase director accountability to shareholders,
it is well established that directors have a fiduciary duty to vote in
furtherance of what they believe to be the best interests of the corporation and
its shareholders. This point is not subject to public debate, and the Proponent
is not suggesting that the Company's directors be held to a different standard.
Moreover, the current disclosure requirements governing actions by a board of
directors strike an important balance between providing shareholders with access
to board action, on the one hand, and preserving management's flexibility to
conduct its ordinary business operations, on the other hand. The Company is
subject to the disclosure requirements of the DGCL and the applicable rules and
regulations of the SEC and the New York Stock Exchange (the "NYSE"). In certain
circumstances, several of which are described in Section III below, these rules
and regulations require the Company to disclose information with respect to
actions by its Board. In other circumstances, the disclosure of Board action is
left to the discretion of the Company. Where disclosure of this information is
not mandatory, the applicable legislative or rulemaking bodies have determined
that either such disclosure is not in the public interest, or else a competing
interest warrants that the Company exercise its judgment as part of its ordinary
business operations. In other words, these bodies have effectively placed such
decisions, as well as the subject matter of the Proposal, within the Company's
ordinary business operations. Finally, the Company respectfully submits that the SEC's recent adoption of
rules on communications between security holders and boards of directors is
relevant to the Staff's consideration of the Proposal's exclusion under the
ordinary business rule. See Exchange Act Release No. 34-48825 (November 24,
2003). In the final rules, the SEC chose not to require companies to describe
how security holders can communicate directly with individual directors. This
modification from the proposed rules responded to the numerous commentators who
noted that such requirement would be inappropriate because "named directors
could then be targeted for inappropriate correspondence." The SEC also decided
not to require companies to describe any material action taken by boards as a
result of security holder communications, citing the numerous difficulties in
implementing such a requirement. The Company believes that these same complications are presented by the
Proposal. The requirement that the Company disclose the names of directors who
did not vote in accord with the majority could expose these individuals to
inappropriate correspondence. Also, the Board could face significant
difficulties responding to the multitude of public questions and objections that
would inevitably follow the Company's release of the requested report. The
Company respectfully submits that the SEC's reasons for revising its new
disclosure requirements also support the exclusion of the Proposal from the
Company's Proxy Materials under Rule 14a-8(i)(7). As discussed in Section I above, the Proposal varies from the Time Warner
Proposal in two immaterial respects. First, the Proponent has removed from the
Time Warner Proposal the requirement that the requested annual report disclose
"the agenda items on which a Board or Committee vote was deferred, along with a
general statement of the reason for the deferral." Second, the Proponent has
added to the Proposal a statement (not included in the Time Warner Proposal)
that the requested annual report "should also omit information about matters
that are pending at the time the Report is prepared and have not been disclosed
publicly." With respect to the first variation from the Time Warner Proposal, a discussion
in the requested report relating to agenda items which have been deferred would
constitute a relatively minor portion of the report. The agendas for Board and
committee meetings are carefully planned, and the instances in which a vote on
an agenda item is deferred are relatively rare. Accordingly, the Proposal would
require the requested report to address virtually every agenda item. Moreover,
the numerous authorities and precedents cited in Section II pertain to actions
taken or to be taken by a company, as distinguished from matters upon which
action was deferred. The second variation from the Time Warner Proposal constitutes a distinction
without a difference. The Time Warner Proposal provides that the "Report should
... omit confidential and proprietary information." The same provision is
contained in the Proposal. Thus, the additional language in the Proposal that
the report should omit information "about matters that are pending at the time
the Report is prepared and have not been disclosed publicly" is simply a subset
of the previously stated provision that the report omit "confidential and
proprietary information." This variation from the Time Warner Proposal would
have no effect on the type of information to be included in the requested report
in the event the Proposal were to be implemented. For the foregoing reasons, the Company believes that the Proposal involves
matters relating to the Company's ordinary business operations and, therefore,
it may properly omit the Proposal from the Proxy Materials pursuant to Rule
14a-8(i)(7). III. Certain of the information called for by the Proposal is already available
to shareholders under the statutes, rules and regulations of the State of
Delaware, the SEC and the NYSE and, therefore, the Proposal is excludable from
the Company's Proxy Materials under Rule 14a-8(i)(10). Rule 14a-8(i)(10) allows the Company to exclude a shareholder proposal from its
Proxy Materials if it has already "substantially implemented" the proposal. See
Exchange Act Release No. 34-20091 (August 16, 1983); Puerto Rican Cement Co.,
Inc., (March 25, 2002); Niagara Mohawk Power Corp. (February 16, 1995). The
Proposal calls upon the Company to make available for inspection certain
information about its Board and committee meetings. However, a mechanism for
obtaining this information, in appropriate instances, is already provided for
under the laws of the Company's state of incorporation. Additionally, the rules
and regulations promulgated by both the SEC and the NYSE require the Company to
disclose certain material information, which would include certain aspects of
its Board and committee meetings and votes. The Company therefore believes that
the Proposal is properly excludable as substantially implemented under Rule
14a-8(i)(10) because these statutes, rules and regulations already provide for
the disclosure, in carefully considered circumstances, of the information that
the Proponent seeks. The Company is a Delaware corporation. Section 220 of the DGCL gives
shareholders the right, upon satisfaction of certain procedural requirements and
for a "proper purpose," to inspect the books and records of the Company. Section
220 defines a "proper purpose" as one "reasonably related to such person's
interest as a stockholder." This important safeguard allows management to
protect the Company, and its shareholders as a class, from improper or unlawful
inspections. The Delaware courts have established that the agendas and voting records of the
Company's Board and committee meetings are part of its "books and records." See
e.g., Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961 (Del. Ch.
2003); Freund v. Lucent Technologies, Inc., 2003 Del. Ch. LEXIS 3 (Del. Ch.
2003); Security First Corp. v. U.S. Die Casting and Development Co., 687 A.2d
563 (Del. 1997). Therefore, the Company already is obligated to make this
information available to shareholders who comply with the requirements of
Section 220. In this sense, the Proponent is seeking certain information that it
already has a right to receive upon compliance with Section 220.
Additionally, both the SEC and the NYSE regulate disclosure by companies to
ensure that shareholders and potential investors have sufficient information to
make informed decisions about such companies. The rules and regulations
promulgated by the SEC require the disclosure of material information, which
includes board and committee actions, in circumstances determined by the SEC to
merit disclosure in the interests of investors. For example, in connection with
certain business combination transactions, the SEC rules require a company's
board to disclose to shareholders the reasons for its approval of the
transaction. See Item 1012 of Regulation M-A; Item 4(a)(2) of Form S-4.
Additionally, the SEC proxy rules require that a company disclose certain
actions by its Audit, Nominating and Compensation Committees. See Item 7 of
Regulation 14A; Items 306 and 402(k) of Regulation S-K. The NYSE rules state
that listed companies are "expected to release quickly to the public any news or
information which might reasonably be expected to materially affect the market
for its securities." See Rule 202.05. Finally, the Company is implementing the
SEC's new disclosure standards with regard to security holders' communications
with Board members. The Company complies with all applicable disclosure rules,
including where such disclosure rules require the disclosure of information that
would be presented in the report contemplated by the Proposal.
The SEC and NYSE rules require the Company to disclose material information to
its shareholders. To the extent these rules do not require disclosure of
information covered by the Proposal, the applicable rulemaking bodies have
determined that either such disclosure is left to the discretion of the board of
directors as part of its ordinary business operations, or a compelling reason
(e.g. confidentiality) warrants that it should not be provided. In such
circumstances, the Company's shareholders still have access to the information
requested by the Proposal provided they comply with the requirements of Section
220 of the DGCL. The Proponent does not assert that the Company has failed to
comply with regulatory disclosure requirements, or that it has denied proper
Section 220 requests. Rather, the Proponent appears to seek the requested
information in spite of the Company's disclosure obligations and its inspection
rights under Delaware law. The Company respectfully submits that the rules
promulgated by the SEC and NYSE, combined with Section 220 of the DGCL, render
substantially implemented the access to the information that the Proposal seeks.
To the extent the Proposal seeks access to information that would not otherwise
be provided to shareholders in compliance with the disclosure and access rules
described above, it can only be an attempt to circumvent such rules.
Based on the foregoing, it is the Company's view that the Proposal is properly
excludable under Rule 14a-8(i)(10) as having been substantially implemented by
existing statutes, rules and regulations. IV. Conclusion
For the reasons discussed above, the Company respectfully requests that the
Staff concur with the Company's view that the Proposal may properly be omitted
from the Proxy Materials under Rule 14a-8(i)(7), because the Proposal relates to
the Company's ordinary business operations, and under Rule 14a-8(i)(10), because
the Proposal has been substantially implemented. Should the Staff disagree with
the Company's position or require any additional information, we would
appreciate the opportunity to confer with the Staff concerning these matters
prior to the issuance of its response. If the Staff has any questions or comments regarding the foregoing, please
contact the undersigned at (212) 735-3360. Very truly yours,
/s/ Daniel E. Stoller
Enclosures cc: Ivan D. Meyerson, Esq., Senior Vice President, General Counsel and
Secretary, McKesson Corporation Mr. Charles Jurgonis [APPENDIX 1]
Exhibit A January 27, 2004 Via Overnight Mail and Facsimile (415) 983-7160
McKesson Corporation
One Post Street
San Francisco, CA 94101 Attention: Ivan D. Meyerson, Senior Vice President, General Counsel and
Corporate Secretary Dear Mr. Meyerson:
On behalf of the AFSCME Employees Pension Plan (the "Plan"). I write to give
notice that pursuant to the 2003 proxy statement of McKesson Corporation (the
"Company"), the Plan intends to present the attached proposal (the "Proposal")
at the 2004 annual meeting of stockholders (the "Annual Meeting"). The Plan is
the beneficial owner of 2.965 shares of voting common stock (the "Shares") of
the Company, and has held the Shares for over one year. In addition, the Plan
intends to hold the Shares through the date on which the Annual Meeting is held.
The Proposal is attached. I represent that the Plan or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal.
Please direct all questions or correspondence regarding the Proposal to Charles
Jurgonis at 202-429-1007. Sincerely,
/s/ GERALD W. McENTEE
Chairman GWMcE:jhk enclosure [APPENDIX 2]
RESOLVED, that the stockholders of McKesson Corporation ("McKesson") ask the
Board of Directors (the "Board") to prepare and make available to stockholders
on an annual basis a separate report (the "Report") regarding the actions taken
by the Board and all committees thereof (each, a "Committee") in the prior year.
The Report should be prepared at reasonable cost and should omit confidential
and proprietary information. It should also omit information about matters that
are pending at the time the Report is prepared and that have not been disclosed
publicly. Specifically, the Report should disclose: (a) the agenda items on which the Board and each Committee voted; and
(b) the existence of any non-unanimous Board or Committee vote, identifying the
director or directors whose votes were not in accord with the majority.
SUPPORTING STATEMENT In recent years, increased attention has been focused on the need for corporate
boards of directors to be accountable to stockholders and to advance stockholder
interests. To that end, the Securities and Exchange Commission has proposed
rules which would give stockholders the right to nominate director candidates on
company proxy statements, under certain circumstances. Corporate governance
ratings services evaluate the performance of boards as a whole, relying on data
regarding board composition, company governance practices and other factors.
It is still difficult, however, for stockholders to evaluate the effectiveness
of individual directors. Very rarely, a director will indicate publicly that he
or she disagrees with a board decision, but in the vast majority of cases
stockholders have no way of knowing about dissent within a board. In our
opinion, the paucity of public information on the board's agenda items and votes
thereon prevents stockholders from making full use of their rights to withhold
votes from individual directors, select directors for replacement with a "short
slate" advanced through a stockholder's separate proxy materials, and, if the
SEC's proposed rules take effect, target directors for challenge in the
company's own proxy materials. We believe there are compelling reasons that McKesson stockholders might want to
learn more about the ways in which individual company directors are representing
stockholder interests. McKesson's performance has been dismal since the merger
with HBO and Co. in 1999. According to McKesson's most recent proxy statement,
$100 invested in McKesson stock on March 31, 1998, nearly a year before the
merger with HBO, would have been worth only $45.12 on March 31, 2003, while the
same amount invested in an index of peer group companies would have been worth
$108.09. In June 2003, Charles McCall, the former chairman of McKesson HBOC, was
charged by the SEC with financial reporting fraud in 1999 that cost shareholders
$9 billion. And on January 2, 2004, Bear Stearns downgraded McKesson to peer
perform, stating that McKesson is stuck in long-term contracts that will prevent
pharmaceutical-distribution operating margin expansion in fiscal 2005.
We urge stockholders to vote for this proposal!
[STAFF REPLY LETTER]
April 1, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: McKesson Corporation Incoming letter dated March 11, 2004
The proposal requests that the board of directors prepare a report to
stockholders on an annual basis regarding the actions taken by the board and all
committees thereof in the prior year, disclosing the agenda items on which the
board and each committee voted and the existence of any non-unanimous board or
committee vote, identifying the director or directors whose votes were not in
accord with the majority. There appears to be some basis for your view that McKesson may exclude the
proposal under rule 14a-8(i)(7), as relating to McKesson's ordinary business
operations (i.e., reporting on board actions related to McKesson's ordinary
business operations). Accordingly, we will not recommend enforcement action to
the Commission if McKesson omits the proposal from its proxy materials in
reliance on rule 14a-8(i)(7). In reaching this position, we have not found it
necessary to address the alternative basis for omission upon which McKesson
relies. Sincerely, /s/
Keir D. Gumbs
Special Counsel
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