Company Name: Merrill Lynch & Co., Inc.
Public Availability Date: February 6, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
APPENDIX 3
STAFF REPLY LETTER [INQUIRY LETTER]
December 18, 2003 Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, DC 20549 Re: Securities Exchange Act of 1934Rule 14a-8 Shareholder Proposal Submitted by
the International Brotherhood of Teamsters Ladies and Gentlemen:
Merrill Lynch & Co., Inc. ("Merrill Lynch") has received the cover letter and
shareholder proposal attached as Exhibit 1 hereto (the "Proposal") from the
International Brotherhood of Teamsters (the "Teamsters"), on behalf of the
International Brotherhood of Teamsters General Fund (the "Fund"), for inclusion
in the proxy materials for, and submission to a vote of the shareholders of
Merrill Lynch at, the 2004 annual meeting of shareholders (the "2004 Annual
Meeting"). The Proposal urges that the Board of Directors (the "Board") of Merrill Lynch
"amend the by-laws to require that an independent director who has not served as
the chief executive of [Merrill Lynch] serve as Board Chair."
For each of the independently sufficient reasons set forth below, Merrill Lynch
intends to omit the proposal from its proxy materials for the 2004 Annual
Meeting pursuant to the following provisions of Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended:
Rule 14a-8(i)(4), because the Proposal relates to the redress of a personal
claim or grievance against Merrill Lynch and is designed to further a personal
interest of the Teamsters, which is not shared by the other shareholders at
large;
Rule 14a-8(i)(8), because the Proposal deals with a matter relating to an
election for membership on Merrill Lynch's Board; and
Rule 14a-8(i)(3), because substantial portions of the supporting statement to
the Proposal are false and/or misleading with respect to material facts, and the
supporting statement omits to state material facts necessary in order to make
the supporting statement not false or misleading. We respectfully request the concurrence of the Staff (the "Staff") of the
Division of Corporation Finance of the Securities and Exchange Commission (the
"Commission") that it will not recommend any enforcement action if Merrill Lynch
omits the Proposal from its proxy materials for the 2004 Annual Meeting. Our
explanation, with supporting authority, of why we believe Merrill Lynch may
properly exclude the Proposal is set forth below. The Proposal Relates to the Redress of a Grievance and the Furtherance of a
Personal Interest Rule 14a-8(i)(4) permits a company to omit a shareholder proposal if the
proposal "relates to the redress of a personal claim or grievance against the
company or any other person, or if it is designed to result in a benefit to [the
shareholder submitting the proposal], or to further a personal interest, which
is not shared by the other shareholders at large." On November 17, 2003, we received a letter from the Teamsters purporting to
submit the Proposal "on behalf of" the Fund. The letter was signed by Mr. C.
Thomas Keegel as General Secretary-Treasurer of the Teamsters and requests that
all questions concerning the Proposal be directed to the Teamsters Corporate
Governance Advisor. The letter does not explain the affiliation between the
Teamsters and the Fund or the basis on which the Teamsters have the authority to
act on behalf of the Fund. After our receipt of the Proposal, several of our pension fund clients who
manage union funds contacted us after their union clients voiced concerns
prompted by a letter attached as Exhibit 2 hereto (the "Campaign Letter") from
Mr. Keegel, again signing as General Secretary-Treasurer of the Teamsters. In
the Campaign Letter, addressed to Teamsters Local Unions, Mr. Keegel singles out
Merrill Lynch as supporting companies such as Safeway, Krogers and Albertsons in
their position that "cutting health and pension benefits for workers is in the
interest of shareholders." In particular, Mr. Keegel accuses a Merrill Lynch
research analyst of taking a "fundamentally anti-worker and anti-union"
position, from which he draws the conclusion that "Merrill Lynch's perception of
shareholder value is in direct conflict with [that of the Teamsters]." Mr.
Keegel concludes by calling for Teamster pension fund and health and welfare
fund trustees, especially those whose funds use Merrill Lynch services, to
communicate to Merrill Lynch their concerns regarding Merrill Lynch's allegedly
anti-union stance. Attached as Exhibit 3 hereto is a Teamsters' press release
dated November 13, 2003 concerning the Campaign Letter made available on the
Teamsters' website (www.teamsters.org). We note that Mr. Keegel both signed the Campaign Letter and submitted the
Proposal. Mr. Keegel sent the Campaign Letter on November 4th, just 10 days
before he submitted the Proposal to Merrill Lynch. The Teamsters' press release
concerning the Campaign Letter was issued just a day prior to the mailing of the
Proposal. Given the facts described above, we do not believe that the Proposal was
submitted by the Teamsters on behalf of the Fund as a bona fide effort to
improve Merrill Lynch's corporate governance for the benefit of all of its
shareholders. Rather, we are convinced that the Teamsters, taking advantage of
the Fund's standing as a shareholder of Merrill Lynch and using the shareholder
proposal process as an additional avenue of attack, have submitted the Proposal
in order to advance the Teamsters' own campaign to pressure Merrill Lynch to
influence the reports of its research analysts (a result which would be directly
in conflict with the spirit of the Commission's Global Research Analyst
Settlement approved in October 2003). We believe that the Teamsters' true motive
for submitting the Proposal is evidenced not only by Mr. Keegel's sending both
the Campaign Letter and the Proposal within a period of 10 days, but also by the
course of action he outlines in the Campaign Letter itself. In the letter, Mr.
Keegel urges that "pension fund and health and welfare trustees" communicate to
Merrill Lynch their dissatisfaction. By sending the Proposal, Mr. Keegel has
done just that. The Commission has taken the position that even proposals drafted "in broad
terms so that they might be of general interest to all security holders" may
nonetheless be omitted from a company's proxy materials if the proposals are "a
tactic designed to redress a personal grievance or further a personal interest."
SEC Release No. 34-19135 (October 14, 1982). See also Phillips Petroleum Company
(March 12, 2001) and Sara Lee Corporation (August 10, 2001) (allowing the
exclusion of a proposal prohibiting payments made by the company outside the
normal course of business where the shareholder had an interest in litigation
relating to past payments allegedly made by the company outside the normal
course of business). Our present instance may be distinguished from
circumstances in which the Staff has denied requests to exclude proposals under
Rule 14a-8(i)(4) because of the failure by the companies to supply direct
evidence that a proponent is abusing the shareholder proposal process. See,
e.g., Consolidated Freightways, Inc. (February 1, 1996) (denying no action
relief where evidence of a personal interest was limited to the existence of a
union campaign and the proposal's proponents were members of the union) and
Waste Management, Inc. (January 14, 2002) (denying no action relief where the
evidence of a personal interest was limited to the existence of a campaign and
the signing of the cover letter for the proposal, on behalf the shareholder, by
the affiliated union's president). Here, not only did the General
Secretary-Treasurer of the Teamsters sign the Proposal purportedly on behalf of
the Fund, but he also issued, within the span of 10 days, a letter urging
trustees of funds affiliated with the Teamsters to communicate the union's
agenda to Merrill Lynch. In light of the foregoing, Merrill Lynch believes the Proposal is not a proposal
intended to benefit the shareholders generally, but is intended to further the
particular union agenda of the Teamsters, to criticize Merrill Lynch's Chairman
and Chief Executive Officer ("CEO") and to cause Merrill Lynch to change certain
of its business policies and practices (i.e., to pressure its analyst to take a
position more sympathetic to the Teamsters). Because the Proposal is based upon
a personal grievance the Teamsters have against Merrill Lynch and has been
submitted for the purpose of furthering a personal interest of the Teamsters
that is not shared by the other shareholders of Merrill Lynch, it is, therefore,
excludable under Rule 14a-8(i)(4). The Proposal Relates to Election for Membership on Merrill Lynch's Board of
Directors Rule 14a-8(i)(8) permits a company to omit a shareholder proposal if the
proposal "relates to an election for membership on the company's board of
directors or analogous governing body." In this case, the Proposal relates to
Merrill Lynch's current CEO, E. Stanley O'Neal, who also serves as Chairman of
the Board in accordance with Merrill Lynch's By-Laws. Mr. O'Neal's current term
as Chairman of the Board expires at the 2005 annual meeting of shareholders. It
is highly likely that, consistent with Merrill Lynch's historical business
practices, Mr. O'Neal will again be nominated by the Board for election by the
shareholders as Chairman of the Board at the 2005 annual meeting.
Nominally, the Proposal requests the Board to separate the roles of chairman and
CEO by requiring that the chairman be an independent director who has not served
as CEO. By its terms, the Proposal's implementation is to be deferred until the
2005 annual meeting of shareholders, which is, by no coincidence, the expiration
date of Mr. O'Neal's current term and the meeting at which he will likely again
stand for election. Taken together with the supporting statement, the Proposal
is evidently an effort to oppose the reelection of Mr. O'Neal at the next
available opportunity. The supporting statement appears to be written in a way calculated to criticize
Mr. O'Neal and to cast doubt upon Mr. O'Neal's competency, motives and ethics.
After a short introduction, the supporting statement begins by identifying Mr.
O'Neal as Merrill Lynch's current Chairman and CEO. Then, using corporate
governance as cover, the statement questions Mr. O'Neal's ability to provide the
necessary leadership and objectivity required as chairman: "We believe that no
[Chairman/CEO] can ... provide the necessary leadership and objectivity required
as Chairman of the Board to properly represent the interests of shareholders."
That unsubstantiated statement of the Teamsters' opinion, placed immediately
after the identification of Mr. O'Neal, clearly is intended to imply that Mr.
O'Neal is serving the interests of management at the expense of shareholders.
The paragraph continues by implying (although studiously avoiding the use of Mr.
O'Neal's name) that Mr. O'Neal has damaged the credibility of Merrill Lynch by
appearing conflicted and has not been accountable to Merrill Lynch's
shareholders. The supporting statement then attacks Mr. O'Neal's competency and ethics by
attempting to tie him to the collapse of Enron and certain criminal charges
brought against several former Merrill Lynch employees. Immediately before the
references to Enron, the paragraph begins with the following statements:
Investors require consistency and stability from the leadership of our Company.
In a time where our Company and the economy as a whole have been in turmoil,
shareholders need a Chairman of the Board who is independent of management and
can focus on protecting the interest of shareholders. Even without the subsequent references to Enron and the criminal charges brought
against several of Merrill Lynch's former employees, the above statements are
troubling because they imply that Mr. O'Neal has not provided consistency or
stability, that Merrill Lynch has been in turmoil and that Mr. O'Neal has been
focused on protecting the interests of management rather than the interests of
shareholders. Taken with the subsequent discussion of the Enron events, however,
such statements imply not only that Mr. O'Neal failed to exhibit the specified
characteristics, but that such failure resulted in the alleged criminal acts by
several former employees of Merrill Lynch or, at the very least, a response by
management to the charges brought against such former employees calculated to
preserve its position rather than protect shareholder interests. This
implication is without basis, and impugns Mr. O'Neal's character and his actual
performance in handling the Enron crisis. To set the record straight, Merrill Lynch's settlement with the Enron Task
Force, effected under Mr. O'Neal's leadership, was precisely the conduct that
the Government views as responsible corporate behavior. According to Leslie
Caldwell, the Enron Task Force director, "Merrill Lynch is to be commended for
their responsible handling of this matter. They have done just what a company
should do under such circumstances." 1 Another prosecutor on the case commended
Merrill Lynch for demonstrating "that its current leadership is committed to
being a responsible citizen and ensuring that the illegal activities that
occurred will not be repeated." 2 On numerous occasions, the Staff has allowed companies to exclude shareholder
proposals under Rule 14a-8(i)(8) where the proposal, together with the
supporting statement, appears to question the business judgment of directors who
will stand for reelection at an upcoming annual meeting of shareholders. Most
recently, the Staff issued a letter to ExxonMobil Corporation (March 20, 2002)
concurring with ExxonMobil's request to exclude a proposal to separate the roles
of chairman and CEO and designate a non-executive and independent director as
chairman. In agreeing that the proposal could be excluded under Rule
14a-8(i)(8), the Staff noted that "the proposal, together with the supporting
statement, appears to question the business judgment of ExxonMobil's chairman,
who will stand for reelection at the upcoming annual meeting of shareholders."
See also AT&T Corp. (February 13, 2001) (permitting the exclusion of a proposal
requesting that any future occupants of the positions of CEO and chairman not be
the same person, and that the chairman be an independent director where the
supporting statement noted the poor performance of the company under the
incumbent chairman and CEO's leadership) and Foster Wheeler Corporation
(February 5, 2001) (permitting the exclusion of a proposal to remove the
incumbent CEO, if elected to the board, from the role of chairman and replace
him with an outside director where the supporting statement suggested that the
company's declining stock price was the result of the incumbent's tenure and
service in multiple roles). Like the proposals that the Staff allowed to be excluded by ExxonMobil, AT&T
Corp. and Foster Wheeler Corporation described above, the Proposal is a thinly
veiled attempt to criticize Mr. O'Neal and to impede his election to the Board
in 2005 by questioning his performance and attempting to tie him to the collapse
of Enron. An additional significant similarity to ExxonMobil, where the
submitting shareholder issued a press release and maintained a website
advocating a change in ExxonMobil's environmental policies contemporaneously
with its submission of the proposal to separate the chairman and CEO positions,
is that the Proposal is being used as part of a larger campaign in an attempt to
force Merrill Lynch to change what is grossly mischaracterized as its
"anti-union" position in the Campaign Letter. The Teamsters are free to voice their criticism of Mr. O'Neal's performance and
policies as Chairman and CEO and to oppose his election at the 2005 annual
meeting of shareholders. However, a shareholder proposal under Rule 14a-8
questioning his performance as Chairman, whether for the 2004 or the 2005 annual
meeting, is not the appropriate means for addressing such dissatisfaction. In a
release relating to proposed amendments to Rule 14a-8, the Commission noted that
"the principal purpose of [Rule 14a-8(i)(8)] is to make clear, with respect to
corporate elections, that Rule 14a-8 is not the proper means for conducting
campaigns or effecting reforms in elections of that nature, since other proxy
rules, including Rule 14a-11 [now Rule 14a-12(c)] are applicable thereto." 3 The
Teamsters should not be allowed to use the Proposal as a back-door attempt to
oppose the election of Mr. O'Neal to the Board while avoiding the effort and
expense of nominating an alternate candidate. Based on the foregoing, we believe that the Proposal is excludable from Merrill
Lynch's proxy materials under Rule 14a-8(i)(8) because it relates to an election
for membership on Merrill Lynch's Board. The Proposal's Supporting Statement Contains False and Misleading Statements and
Omits to State Material Facts Rule 14a-8(i)(3) permits a company to omit a shareholder proposal if the
proposal or supporting statement is contrary to any of the Commission's proxy
rules, including Rule 14a-9, which prohibits materially false or misleading
statements in proxy solicitation materials. Rule 14a-9 provides that no
solicitation may be made "by means of any proxy statement ... containing any
statement which, at the time and in the light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or which
omits to state any material fact necessary in order to make the statements
therein not false or misleading." Note (c) to Rule 14a-9 further states that
"material which directly or indirectly impugns character, integrity or personal
reputation, or directly or indirectly makes charges concerning improper, illegal
or immoral conduct or associations, without factual foundation" may be
misleading within the meaning of Rule 14a-9. The Staff recently allowed a company to omit an entire shareholder proposal and
supporting statement under Rule 14a-8(i)(3) where it contained false and
misleading statements that impugned "the character, integrity and personal
reputation" of members of the company's board by implying that the company's
directors had violated, or might choose to violate, their fiduciary duty. The
Swiss Helvetia Fund, Inc. (April 3, 2001). The Staff has also recently confirmed
that, "when a proposal and supporting statement will require detailed and
extensive editing in order to bring them into compliance with the proxy rules,
we may find it appropriate for companies to exclude the entire proposal,
supporting statement, or both, as materially false or misleading." Staff Legal
Bulletin No. 14 (July 13, 2001). We believe that the Proposal and its supporting statement may be excluded from
Merrill Lynch's proxy materials under Rule 14a-8(i)(3) because they are false,
misleading, unsupported and impugning to the character and integrity of Merrill
Lynch's Chairman and CEO contrary to the Commission's proxy rules as further
described below. 1. In the second paragraph, the Teamsters state that "an appearance of a
conflicted Board Chair can damage the credibility of the Company." This
statement, which is unsubstantiated and implies that Mr. O'Neal appears
conflicted and, as a result, damages the credibility of Merrill Lynch, is
materially misleading. 2. We believe that the third paragraph is materially misleading in its entirety
for the following reasons:
The Teamsters assert that "Investors require consistency and stability from
the leadership of our Company" and that "shareholders need a Chairman of the
Board who is independent of management and can focus on protecting the interests
of shareholders," without noting that such statements are only the unsupported
opinions of the Teamsters. Furthermore, such statements, when coupled with the
discussion of Enron in the immediately following sentence of the same paragraph,
improperly and without basis imply that Mr. O'Neal has not provided consistency
or stability and that he has not focused on protecting the interests of
shareholders.
The Teamsters flatly assert that "our Company and the economy as a whole have
been in turmoil" without explanation (other than indirectly by their reference
to Enron further below in the paragraph) or support. We believe that this
statement is materially false and misleading to our shareholders concerning the
state of our company. As detailed in our third quarter earnings report, released
on October 14, 2003, Merrill Lynch reported its highest ever third quarter
earnings and the second best quarterly earnings in the company's history. As our
results demonstrate, Merrill Lynch is hardly a company "in turmoil."
The Teamsters raise, for the purposes of criticizing Mr. O'Neal and suggesting
that Mr. O'Neal was somehow involved in or responsible for the alleged criminal
acts of several former Merrill Lynch employees, the fact that several former
Merrill Lynch employees were charged with criminal violations in connection with
Enron. As discussed above, the use of this statement is directly contrary to the
record of Mr. O'Neal's highly praised involvement in the Enron settlement.
3. The Teamsters assert that "the National Association of Corporate Directors
recommend that Boards designate an independent director as Chair or lead
director to evaluate CEO and Board Chair functions." In addition to being
unsubstantiated by a specific citation, this statement supports an alternative
not requested in the Proposal (i.e., the designation of a lead director to
evaluate CEO and chairman functions). This could mislead shareholders into
believing that the Proposal is to designate a lead director to evaluate CEO and
chairman functions, rather than to separate the offices of chairman and CEO and
to require that a person who has not served as CEO be the chairman.
4. The Teamsters cite from CalPERS' Corporate Governance Core Principles and
Guidelines, dated April 13, 1998 (the "CalPERS' Guidelines"), as follows: "the
independence of a majority of the Board is not enough" and that "the leadership
of the board must embrace independence, and must ultimately change the way in
which directors interact with management." As Peoples Energy Corporation noted
in their request to omit the identical quotation, the CalPERS' Guidelines do not
call for a separation of the CEO and chairman positions, and the use of the
CalPERS' Guidelines citation to imply otherwise is materially misleading. See
Peoples Energy Corporation (November 3, 2002). The Staff concurred with Peoples
Energy that the supporting statement's use of the CalPERS' Guidelines citation
may be materially false or misleading under Rule 14a-9 and allowed its omission
from the company's proxy materials. Id. For the same reasons, we believe the
citation to the CalPERS' Guidelines should be excluded from our proxy materials.
In addition, the misuse of the CalPERS' Guidelines makes the second sentence of
the fourth paragraph misleading in that it indicates that "institutional
investors" (of which The Ethical Funds, the other institutional investor cited
by the Teamsters, constitutes only one) agree with the Teamsters' proposition.
5. The third bullet point states that The Ethical Funds call for a strong
independent director as chairman to represent the interests of shareholders, but
does not include any citation. Without more, neither shareholders nor the
Company can verify the accuracy of the statement. The Staff has repeatedly
required that shareholder proposals include accurate citations to specific
sources. See, e.g., The Boeing Company (February 18, 2003), Swift Transportation
Company, Inc. (April 1, 2003) and Peoples Energy Corporation (November 3, 2002).
6. Finally, and in our view most significantly, the Proposal fails to disclose
the Teamsters' underlying motive in submitting the Proposalthat it is in fact
submitting the Proposal on behalf of the Teamsters as part of their campaign to
pressure Merrill Lynch to change the position of one of its research analysts on
a matter of concern to the Teamsters. For the foregoing reasons, we believe that the Proposal violates the proxy
rules, including Rule 14a-9, because the supporting statement is materially
false and misleading and omits material facts necessary to make the supporting
statement not false or misleading, impugns the character and integrity of
Merrill Lynch's Chairman and CEO and sets forth numerous statements and
assertions that lack factual support and citation. Therefore, the Proposal,
which would require detailed and extensive editing in order to bring it into
compliance with the proxy rules, may be excluded in its entirety pursuant to
Rule 14a-8(i)(3). If the Staff is unable to concur with our conclusion that the
Proposal should be excluded in its entirety, we respectfully request that the
Staff recommend exclusion of the statements discussed above.
Conclusion Based on the foregoing, we believe Merrill Lynch may exclude the Proposal from
the proxy materials for the 2004 Annual Meeting. We respectfully request that
the Staff confirm that the Proposal may be excluded from such proxy materials.
Should you have any questions or would like any additional information regarding
the foregoing, please do not hesitate to contact me at 212-670-0180. Thank you
for your prompt attention to this matter. Pursuant to Rule 14a-8(j), enclosed for filing on behalf of Merrill Lynch are
five additional copies of this letter, as well as a receipt copy, and five
copies of the letter dated November 14, 2003 from the Teamsters to Merrill Lynch
with the Proposal attached. A copy of this letter, with attachments, is
simultaneously being sent to the Teamsters. Please file-stamp the enclosed copy
of this letter and return it to me in the enclosed self-addressed postage-paid
envelope. Sincerely, /s/
Richard Alsop -----FOOTNOTES-----
1 Mary Flood and Melissa Drosjack, "The Fall of Enron," The Houston Chronicle
(September 18, 2003), at A1. 2 Kurt Eichenwald, "Merrill Reaches Deal with U.S. in Enron Affair," The New
York Times (September 18, 2003, Thursday, Late Edition), at A1.
3 Exchange Act Release No. 34-12598 (July 7, 1976). [APPENDIX 1]
Exhibit I November 14, 2003 BY FAX: 212-670-4703
BY UPS NEXT DAY Ms. Judith Witterschein, Corporate Secretary
Merrill Lynch and Company, Inc.
222 Broadway
17thFloor
New York, NY 10038 Dear Ms. Witterschein:
I hereby submit the following resolution on behalf of the International
Brotherhood of Teamsters General Fund, in accordance with SEC Rule 14a-8, to be
presented at the Company's 2004 Annual Meeting. The General Fund has owned greater than $2,000 in shares continuously for at
least one year and intends to continue to own at least this amount through the
date of the annual meeting. Enclosed, please find relevant proof of ownership.
Any written communication should be sent to the below address via U.S. Postal
Service, UPS, or Airborne, as the Teamsters have a policy of accepting only
Union delivery. If you have any questions about this proposal, please direct
them to the Teamsters Corporate Governance Advisor, Jennifer O'Dell, at (202)
624-8981. Sincerely, /s/
C. Thomas Keegel
General Secretary-Treasurer CTK/jo
Enclosures [APPENDIX 2]
RESOLVED: The shareholders of Merrill Lynch & Co., Inc., ("Merrill Lynch" or "the
Company") urge the Board of Directors (the "Board") to amend the by-laws to
require that an independent director who has not served as the chief executive
of the Company serve as Board Chair. Implementation will be deferred until the
2005 Annual Meeting of Shareholders. SUPPORTING STATEMENT:
It is the responsibility of the Board of Directors to protect shareholders'
interests by providing independent oversight of management, including the Chief
Executive Officer (CEO), in directing the corporation's business and affairs.
The Board exists to ensure that management acts in the best long-term interests
of the shareholders. Currently at Merrill Lynch, Mr. Stanley O'Neal holds the positions of both
Chairman of the Board and CEO. We believe that no single individual can both
fill the position of CEO and, at the same time, provide the necessary leadership
and objectivity required as Chairman of the Board of properly represent the
interests of shareholders. Further, an appearance of a conflicted Board Chair
can damage the credibility of the Company. We believe a clear delineation
between the roles of Chair and CEO is necessary and will promote greater
accountability to Merrill Lynch's shareholders. Investors require consistency and stability from the leadership of our Company.
In a time where our Company and the economy as a whole have been in turmoil,
shareholders need a Chairman of the Board who is independent of management and
can focus on protecting the interests of shareholders. Merrill Lynch was
implicated in the Enron debacle when the U.S. Justice Department charged three
Merrill Lynch executives with various criminal violations after finding that
they helped Enron inflate its profits and then knowingly caused others to make
false statements to a grand jury, Congress, the Securities and Exchange
Commission, and the Enron bankruptcy examiner. Merrill Lynch needs a Chairman
that can provide quality independent oversight of management's performance
during these crises. We believe that separating the positions of Chair and CEO will enhance
independent Board leadership at Merrill Lynch. Other institutional investors and
corporate governance experts agree:
The National Association of Corporate Directors recommend that Boards
designate an independent director as Chair or lead director to evaluate CEO and
Board Chair functions.
CalPERS' Corporate Governance Guidelines state, "The independence of a
majority of the Board is not enough. The leadership of the board must embrace
independence, and must ultimately change the way in which directors interact
with management."
The Ethical Funds and Domini Social Investments Proxy Voting Guidelines call
for a strong independent director as Board Chair to represent the interests of
shareholders. We believe the recent wave of corporate scandals demonstrate that no matter how
many independent directors there are on the Board, that Board is less likely to
protect shareholder interests by providing independent oversight of the officers
if the Chairman of that Board is also the CEO of the company.
We urge shareholders to vote FOR this proposal. [INQUIRY LETTER]
January 14, 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 RE: Request for No-Action by Merrill Lynch & Co., Inc. on the Shareholder
Proposal Submitted by the International Brotherhood of Teamsters General Fund
for Inclusion in the 2004 Merrill Lynch Proxy Materials. Dear Ladies and Gentlemen:
We are in receipt of a letter sent to you by Mr. Richard B. Alsop, ("Mr. Alsop"
or "Counsel"), First Vice President and General Counsel of Merrill Lynch & Co.,
Inc. ("Merrill Lynch" or "the Company") dated December 18, 2003. In that letter,
Counsel gives notice of the Company's intent to exclude the International
Brotherhood of Teamsters General Fund's ("Fund") shareholder proposal from
Merrill Lynch's proxy materials for 2004. In accordance with Rule 14a-8(j), enclosed are six (6) copies of this letter and
its exhibits. The Fund's proposal, requesting the Company's Board of Directors to amend the
by-laws to require that an independent director who has not served as the chief
executive of the Company serve as Board Chair, a legitimate issue for
shareholder's consideration and must be included in the Company's 2004 Proxy
Materials. Counsel relies on Rule 14a-8(i)(4), claiming that the proposal relates to the
redress of a personal claim or grievance against Merrill Lynch and is designed
to further a personal interest of the International Brotherhood of Teamsters,
Rule 14a-8(i)(8), claiming that the proposal deals with a matter relating to the
election for membership on the Board, and Rule 14a-8(i)(3) stating that
substantial portions of the supporting statement of the proposal are false
and/or misleading. The Proponent respectfully disagrees.
ARGUMENT 1. The Proposal May be Included in the Company's 2004 Proxy Materials Under Rule
14-8(i)(4), Because it Does Not Relate to the Redress of a Grievance and the
Furtherance of a Personal Interest. First, Counsel argues that the cover letter for the proposal, which was received
by the Company on November 17, 2003, "does not explain the affiliation between
the Teamsters and the Fund or the basis on which the Teamsters have the
authority to act on behalf of the Fund." The Proponent is the General Secretary-Treasurer of the International
Brotherhood of Teamsters and is also a Trustee of the Teamsters General Fund.
Therefore, it is within the Proponent's rights as a Trustee of the Fund to file
a shareholder proposal on the Fund's behalf, as has been done in regard to the
Fund's proposals at companies such as IBM, Coca-Cola Company, and America West
Airlines. Second, Counsel argues that because the Proponent filed a shareholder proposal
at the Company, after having separately expressed his concerns about statements
made by a Merrill Lynch analyst regarding a strike at Safeway, Inc., that the
proposal is not filed with the intent to improve corporate governance at Merrill
Lynch, rather it is merely to "advance the Teamsters' own campaign to pressure
Merrill Lynch to influence the reports of its research analysts."
The proposal requesting the Company to split the positions of Chairman of the
Board and CEO of the Company is a proposal that the Teamsters have submitted to
company ballots for years. In fact, this year alone the Teamsters General Fund
and the Teamster Affiliates Pension Plan (TAPP) have submitted this exact
proposal at six different companies. Also, our Fund's proxy voting guidelines
require that we generally support proposals that call for the separation of the
positions of Chairman and CEO.1 Further, the issue of splitting the roles of
Chairman and CEO at listed corporations is one that many other institutional
investors are concerned about. Last year, more than 25 proposals calling for
this corporate governance reform were submitted.2 Counsel points to the fact that the Proponent submitted the Fund's shareholder
proposal ten days after sending information to Teamster benefit fund trustees
about Merrill Lynch's position regarding the Safeway labor dispute, as evidence
that the proposal is not a "bona fide effort to improve Merrill Lynch's
corporate governance for the benefit of all its shareholders."
The Proponent has a dual responsibility to the membership of the International
Brotherhood of Teamsters (IBT) in his capacity as General Secretary-Treasurer of
the Union as well as Trustee of the Teamsters General Fund. As a Trustee, the
Proponent is a fiduciary of the General Fund and, under the Employee Retirement
Income Security Act (ERISA), uses active ownership strategies to create
long-term value for Fund participants. In particular, the Proponent has a duty
to monitor boards of directors and corporate leadership at corporations that the
Fund has an equity interest in to ensure that managements' actions benefit
shareholders and are not motivated by self-interest. It is under this role that
the Proponent filed the shareholder proposal at Merrill Lynch on behalf of the
General Fund. The letter that the Proponent wrote to fund trustees in regard to statements
made by an analyst employed by Merrill Lynch is consistent with the
communications that have been made in the past to trustees of Union Pension
Funds in the Proponent's capacity as General Secretary-Treasurer of the IBT.
Further, the IBT has been engaging other money management firms in discussions
regarding the ongoing labor dispute and the effect that it is having on Teamster
investments across the country, including Strong Capital Management, Morgan
Stanley, State Street Global Advisors, Ariel Capital Management and Alliance
Capital. 2. The Proposal May be Included in the Company's 2004 Proxy Materials Under Rule
14a-8(i)(8), Because the Proposal Does Not Relate to Election for Membership on
Merrill Lynch's Board of Directors Counsel, relying on Rule 14a-8(i)(8), argues that the shareholder proposal can
be omitted from the Company's 2004 Proxy Materials because the Proposal,
"relates to an election for membership on the company's board of directors or
analogous governing body." Counsel points to the fact that current Merrill Lynch Chairman/CEO Mr. Stanley
O'Neal's term would expire in 2005 and this is "the meeting at which he will
likely again stand for election ... the Proposal is evidently an effort to
oppose the reelection of Mr. O'Neal at the next available opportunity."
First, the shareholder proposal submitted by the proponent specifically states
that if the Board of Directors agrees to implement the proposal, implementation
should be deferred until the 2005 annual meeting of shareholders. Therefore,
there would be no interference with the election of any current member of the
Board of Directors in 2004, nor does it ask the Board of Directors to unseat any
current Chairman of the Board. Second, the Proponent had no knowledge, until reading Counsel's request for
No-Action that Mr. O'Neal would likely be running for membership on the Company
Board of Directors in 2005. Consequently, Counsel's allegation that the
Shareholder Proposal was a "back-door attempt to oppose the election of Mr.
O'Neal to the Board ..." is without merit. Next, Counsel claims that the proposal is a personal attack on Mr. O'Neal's
ethics and competency because the proposal attempts to link Mr. O'Neal to the
"collapse of Enron and certain criminal charges brought against several former
Merrill Lynch employees." The Proponent's shareholder proposal states correctly
that three former Merrill Lynch executives violated criminal law and helped
Enron do the same, and knowingly caused others to make false statements to a
grand jury, Congress, the Securities and Exchange Commission (SEC), and the
Enron bankruptcy examiner.3 Also, according to press reports,
"Merrill Lynch accepted responsibility for its employees' actions and pledged to
avoid any similar problematic transactions, form a committee to ensure strict
compliance, report to independent outside auditors and allow a
prosecutor-appointed lawyer to monitor their work. Should the firm violate the
agreement, the government could file criminal charges." 4
In addition, "Civil charges were also filed against Merrill Lynch itself, but
the firm settled for $80 million in February." 5 These charges happened under
the leadership of current Chairman of the Board and CEO, Mr. O'Neal. The
Proponent's intent in providing the information about Merrill Lynch and the
three former Merrill Lynch executives' involvement in the Enron debacle is to
show that, without an independent Director at Merrill Lynch, shareholders cannot
be assured that management is focused on protecting shareholders.
3. The Proposal may be Included in the Company's 2004 Proxy Materials under Rule
14a-8(i)(3), Because it Does Not Contain False and Misleading Statements or
Omits to State Material Facts A. Counsel claims that in the second paragraph the statement, "an appearance of
a conflicted Board Chair can damage the credibility of the Company," is
materially misleading. The Proponent does not believe that the statement found in the supporting
statement, as suggested by Counsel, implies that Merrill Lynch CEO Mr. O'Neal is
conflicted, but rather, could appear conflicted to shareholders. Further, in
Swift Transportation Company, Inc. (April 1, 2003), the Division of Corporate
Finance allowed the exact same sentence to appear in the 2003 Proxy Materials of
Swift Transportation. The sentence in the supporting statement is also cast as
the proponent's opinion. Therefore, the proponent stands by the sentence as
written. B. Counsel argues that the entire third paragraph of the supporting statement
should be excluded because it is false and misleading. 1. First, Counsel argues that the line that states, "Investors require
consistency and stability from the leadership of our Company," and that
"shareholders need a Chairman of the Board who is independent of management and
can focus on protecting the interests of shareholders," should be cast as the
Fund's opinion. The Proponent believes that these statements are generally
accepted tenants of corporate governance shared by many institutional investors.
According to the Corporate Directors Guidebook, "The principle responsibility of
a corporate director is to promote the best interests of the corporation and its
shareholders in directing the corporation's business and affairs." 6 (Emphasis
added.) Further, the Conference Board's Commission on Public Trust and Private
Enterprise has recognized that, "A key role of the board of directors is to
provide oversight to ensure that management acts in the best ... long-term
interests of the shareowners." 7 In addition, the Board suggests that in order
for boards to discharge their responsibility in the most effective way, boards
of directors must "... demonstrate loyalty exclusively to the corporation and
the shareholders." 8 Therefore, the Proponent stands by the proposal as written.
2. Counsel argues that the third paragraph of the supporting statement, "when
coupled with the discussion of Enron in the immediately following sentence of
the same paragraph, improperly and without basis imply that Mr. O'Neal has not
provided consistency or stability and that he has not focused on the interests
of shareholders," and should be deleted. As stated previously, the discussion of Enron in the supporting statement is
provided to shareholders to show that shareholders require leadership of the
company that is focused on the day-to-day operations of the business, and a
separate Chairman of the Board that can provide independent oversight of
management's decisions, and to avoid the appearance of a conflict of interest.
Therefore, the Proponent stands by the Proposal as written.
C. Counsel argues that the sentence, "The National Association of Corporate
Directors recommend that Boards designate an independent director as Chair or
lead director to evaluate CEO and Board Chair functions," is unsubstantiated by
a specific citation. In the spirit of compromise the Proponent is willing to
provide the following citation: Recommendations from the NACD Concerning Reforms
in the Aftermath of the Enron Bankruptcy, Comment Letter from Roger Raber to
Richard Grasso, NYSE. (March 4, 2002). D. Counsel argues that the Proponent's citation to the CalPER's guidelines is
materially misleading because it does not directly call for the separation of
the positions of Chairman of the Board and CEO. While the guidelines do not
specifically call for the splitting of the two positions, they do underscore the
need for board independence, which is the intent of the Proponent's shareholder
proposal. Therefore, the Proponent stands by the proposal as written.
E. Counsel argues that the third bullet point of the Supporting Statement may be
omitted because it does not provide a citation to the Ethical Funds and Domini
Social Investments Proxy Voting Guidelines. In the spirit of compromise, the
Proponent is willing to provide the following citation if Counsel agrees to
waive the 500-word limitation: Ethical Funds Proxy Voting Guidelines, The
Ethical Funds, Sec. 3.0(3.2.3), (2003), and Proxy Voting Guidelines &
Shareholder Activism, Proxy Season 2002, 7thEdition. Domini Social
Investments, p. 25 (2002). However, if Counsel does not agree to waive the word
limitation, please see the revised proposal enclosed. CONCLUSION
Counsel's arguments for exclusion of the Fund's shareholder proposal from the
2004 Proxy Materials clearly do not meet the standard for SEC no-action. In the
spirit of compromise, the Proponent is willing to alter the supporting statement
to the shareholder proposal as outlined in the argument above. Also, in order to
comply with the 500-word limitation, the proposal had to be edited. Please see
herein, EXHIBIT A. The SEC's primary mission "is to protect investors and maintain the integrity of
the securities markets." The Proponent urges the SEC to protect Merrill Lynch &
Co. shareholders who support a Board Chair who does not also serve as Chief
Executive and, by extension, protect all shareholders who take an interest in
corporate governance, by denying the Company's request for no-action.
Based on the foregoing analysis the Proponent respectfully requests that the
Division take action to enforce inclusion of its proposal in Merrill Lynch &
Co.'s 2004 Proxy Materials. Sincerely,
/s/ C. Thomas Keegel
Trustee CTK/jo
Enclosures -----FOOTNOTES-----
1 Teamsters Proxy Voting Guidelines, 1.4 Separate Offices of Chairman and CEO,
pg. 5. (2003) 2 Of the 27 proposals submitted for inclusion in company proxy materials by
Taft-Hartley Funds, 16 proposals went to shareholder vote, 3 were omitted, and 8
were withdrawn by the proponent. 3 Flood, Mary. The Fall of Enron, The Houston Chronicle. September 18, 2003.
4 Id. 5 Id. 6 Corporate Director's Guidebook, American Bar Association, Section on Business
Law, Second Edition, p. 4-5 (1994). 7 Commission on Public Trust and Private Enterprise, Findings and
Recommendations, The Conference Board, p. 15 (2003) 8 Id.at 21. [APPENDIX 3]
RESOLVED: The shareholders of Merrill Lynch & Co., Inc., ("Merrill Lynch" or "the
Company") urge the Board of Directors (the "Board") to amend the by-laws to
require that an independent director, who has not served as the chief executive
of the Company, serve as Board Chair. Implementation will be deferred until the
2005 Annual Meeting of Shareholders. SUPPORTING STATEMENT:
It is the responsibility of the Board of Directors to protect shareholders'
interests by providing independent oversight of management, including the Chief
Executive Officer (CEO), in directing the corporation's business and affairs.
The Board exists to ensure that management acts in the best long-term interests
of the shareholders. Currently at Merrill Lynch, Stanley O'Neal holds the positions of both Chairman
of the Board and CEO. We believe that no single individual can fill both the
position of CEO and, at the same time, provide the necessary leadership and
objectivity required as Chairman of the Board to properly represent the
interests of shareholders. Further, an appearance of a conflicted Board Chair
can damage the credibility of the Company. We believe a clear delineation
between the roles of Chair and CEO is necessary and will promote greater
accountability to Merrill Lynch's shareholders. Investors require consistency and stability from the leadership of our Company.
In a time where our Company and the economy as a whole have been in turmoil,
shareholders need a Chairman of the Board who is independent of management and
can focus on protecting the interests of shareholders. Merrill Lynch was
implicated in the Enron debacle when the U.S. Justice Department charged three
Merrill Lynch executives with various criminal violations after finding that
they helped Enron inflate its profits and then knowingly caused others to make
false statements to a grand jury, Congress, the SEC, and the Enron bankruptcy
examiner. Merrill Lynch needs a Chairman that can provide quality independent
oversight of management's performance during these crises.
We believe that separating the positions of Chair and CEO will enhance
independent Board leadership at Merrill Lynch. Other institutional investors and
corporate governance experts agree:
The National Association of Corporate Directors recommend that Boards
designate an independent director as Chair or lead director to evaluate CEO and
Board Chair functions.1
CalPERS' Corporate Governance Guidelines state, "The independence of a
majority of the Board is not enough. The leadership of the board must embrace
independence, and must ultimately change the way in which directors interact
with management." We believe the recent wave of corporate scandals demonstrates that, no matter
how many independent directors there are on the Board, that Board is less likely
to protect shareholder interests by providing independent oversight of the
officers, if the Chairman of that Board is also the CEO of the Company.
We urge shareholders to vote FOR this proposal.
-----FOOTNOTES----- 1 Recommendations from the NACD Concerning Reforms in the Aftermath of The Enron
Bankruptcy, Comment Letter from Roger Raber to Richard Grasso, NYSE. (March 4,
2002).
[STAFF REPLY LETTER]
February 6, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Merrill Lynch & Co., Inc. Incoming letter dated December 18, 2003
The proposal urges the Board to amend the bylaws to require that an independent
director who has not served as CEO serve as chairman of the board.
We are unable to concur in your view that Merrill Lynch may omit the entire
proposal under rule 14a-8(i)(3). However, there appears to be some basis for
your view that portions of the supporting statement may be materially false or
misleading under rule 14a-9. In our view, the proponent must:
provide factual support in the form of a citation to a specific source for the
phrase that begins "our Company and the economy ..." and ends "... in turmoil";
provide factual support in the form of a citation to a specific source for the
sentence that begins "The National Association ..." and ends "... Board Chair
functions";
delete the discussion that begins "CalPERS' Corporate Governance Guidelines
..." and ends "... interact with management"; and
provide factual support in the form of a citation to a specific source for the
sentence that begins "The Ethical Funds ..." and ends "... interests of
shareholders." Accordingly, unless the proponent provides Merrill Lynch with a proposal and
supporting statement revised in this manner, within seven calendar days after
receiving this letter, we will not recommend enforcement action to the
Commission if Merrill Lynch omits only these portions of the supporting
statement from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Merrill Lynch may exclude the proposal
under rules 14a-8(i)(4). Accordingly, we do not believe that Merrill Lynch may
omit the proposal from its proxy materials in reliance on rule 14a-8(i)(4).
We are unable to concur in your view that Merrill Lynch may exclude the proposal
under rules 14a-8(i)(8). Accordingly, we do not believe that Merrill Lynch may
omit the proposal from its proxy materials in reliance on rule 14a-8(i)(8).
Sincerely, /s/
Lesli L. Sheppard-Warren
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