Company Name: Qwest Communications Int'l. Inc.
Public Availability Date: February 23, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
STAFF REPLY LETTER [INQUIRY LETTER]
30 January 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Shareholder proposal to Qwest Communications International Inc. from W. Earl
Powles, Phillip M. Graham and William Eckhardt BY HAND
Dear Counsel: I have been asked to respond on behalf of W. Earl Powles, Phillip M. Graham and
William A. Eckhardt (the "Proponents") to the letter from counsel for Qwest
Communications International Inc. ("Qwest" or the "Company") dated 16 January
2004 ("Qwest Letter"), in which Qwest advises that it plans to omit the
Proponents' resolution concerning proxy access for security holder director
nominations from the Company's 2004 proxy materials. For the reasons set forth
below, the Proponents respectfully ask that the Division deny the no-action
relief that Qwest seeks. THE PROPONENTS' RESOLUTION
The shareholder resolution offers an explicitly precatory and non-binding
version of the direct access shareholder proposal allowed under the Commission's
proposed Exchange Act Rule 14a-11. The resolution states as follows:
RESOLVED: The shareholders of Qwest hereby request the Board of Directors to
include in the Company's proxy materials the name of any Qualified Nominee for
the Board of Directors who has been nominated by a Qualified Shareholder.
For this resolution, a "Qualified Shareholder" is an individual or group holding
at least 5% of the Company's outstanding common stock for at least two years. A
"Qualified Nominee" is an individual who consents to be nominated and is
independent of the company and of the Qualified Shareholder, as provided in the
Securities and Exchange Commission's proposed Rule 14a-11, as it applies to
situations where a shareholder-nominated candidate qualifies for inclusion in a
company's proxy. This policy should be implemented in a manner that is not inconsistent with
state law, or with the procedures governing notice, disclosure, liability,
solicitation, supporting statements and limits on the number of
shareholder-nominated candidates, as provided in proposed SEC Rule 14a-11.
In their Supporting Statement, Proponents concede explicitly that "[t]he
proponents of this resolution own less than 1% of Qwest's stock. Thus, adoption
of this resolution would not require Qwest to include board candidates nominated
by shareholders." Proponents' Supporting Statement makes it clear that this
precatory proposal would not trigger the mandatory nominating mechanism proposed
in Rule 14a-11, explaining that "[t]he SEC's proposed Rule 14a-11 would require
a company to include shareholder-nominated candidates in its proxy materials if
shareholders adopt a resolution of the sort proposed here that is sponsored by
holders of 1% of the company's stock." Proponents conclude: "We believe,
nevertheless, that the principle of shareholder access to nominate directors is
so important that we urge the Board to adopt this policy voluntarily rather than
limit shareholders to what the SEC requires." In response, Qwest argues (at p. 2) that the proposal may be excluded under Rule
14a-8(i)(8) because it "relates to an election for membership on the company's
board of directors or analogous governing body." Qwest relies solely on
no-action letter precedents that issued prior to the Commission's promulgation
of proposed Rule 14a-11 and makes no argument concerning how proposed SEC Rule
14a-11 modifies the application of Rule 14a-8(i)(8) in this limited context.
We believe that Rule 14a-11 should modify the application of Rule 14a-8(i)(8) to
permit the very narrow class of precatory proposals that request a Company's
board to implement a nomination process substantially identical to the procedure
proposed by the Commission under Rule 14a-11. An interpretation of Rule
14a-8(i)(8) that barred shareholders from requesting that their Board of
Directors voluntarily adopt a policy that the Commission mandates under only
slightly different circumstances would be perverse and clearly contradict the
policy rationale that underlies the Commission's proposed reform to facilitate
security holder director nominations. Qwest has failed to carry its burden of demonstrating why this exclusion would
apply in this context, as it is required to do under Rule 14a-8(g). See
Amalgamated Clothing and Textile Workers Union v. Wal-Mart Stores, Inc., 821 F.
Supp. 877, 883 (S.D.N.Y. 1993). As we argue below, Qwest has not sustained its
burden and the request for no-action relief should therefore be denied.
Precedent Pre-dating the Rule 14a-11 Release is not Dispositive
Proponents acknowledge that Staff interpretations pre-dating the Release of
proposed Rule 14a-11 support Qwest's contention that shareholder proposals
establishing a procedure for security holder director nominations have been
omitted pursuant to Rule 14a-8(i)(8). See, e.g., Oxford Health Plans, Inc. (23
February 2000). However, the policy embraced by the Commission in proposed Rule
14a-11 is inconsistent with continued reliance on that precedent as applied to
the narrow class of shareholder proposals that request a Board of Directors to
adopt voluntarily a mechanism for security holder nominations that is
substantially the same as the nomination procedure endorsed by the Commission
itself. Differently put, there is no principled basis for taking two identical proposals
- both proposing adoption of the nomination procedure contemplated by proposed
Rule 14a-11 - and holding that one "relates to an election" of board members and
the other does not so "relate" simply because one is sponsored by holders of one
percent or less of the outstanding shares, while the latter is sponsored by
holders of more than one percent of the shares. It would be one thing if the
Proponents were urging a nomination procedure that differed from the one set out
in proposed Rule 14a-11, either in terms of the threshold vote needed, the
number of directors who could be elected, or some other variable. But that is
not the situation we have here. The proposal explicitly requests Qwest's board
to make it's own decision to apply, in every important respect, the Commission's
security holder nomination procedure. Qwest's sole argument appears to be that the promulgation of Rule 14a-11 should
have no impact on the scope of Rule 14a-8(i)(8). We believe that a more fair
interpretation of the Release - as well as a more constructive and consistent
policy outcome - would be that the Commission intends to exempt from omission
under Rule 14a-8(i)(8) the narrow class of security holder resolutions that
propose a nomination mechanism consistent with Rule 14a-11. Whether such a
proposal directly triggers a mandatory nomination procedure, or instead merely
urges a board to adopt that same procedure without a binding effect, as a matter
of good corporate governance, should be equally positive outcomes from the
perspective of federal securities law. Proponents' interpretation is supported by the Release, which in several
contexts anticipates the need to distinguish between direct access proposals
that will or will not be eligible to trigger the binding nomination procedure.
For example, Release footnote 76 clearly anticipates a situation where both a
potentially triggering and non-triggering direct access proposal are submitted
by shareholders. In such cases the Commission appropriately gives precedence to
the direct access proposal that is sponsored by a holder, or group of holders,
eligible to trigger the mandatory nomination access procedure if the proposal
wins the support of a majority of votes cast. Footnote 76 states in full:
Exchange Act Rule 14a-8(i)(11) [17 CFR 240.14a-8(i)(11)] permits companies to
exclude duplicative security holder proposals. We have proposed an instruction
to Exchange Act Rule 14a-8(i)(11) to specify that, where a company receives more
than one "direct access" security holder proposal, the company would not be
permitted by that rule to exclude a direct access proposal received by a holder
of more than 1% of the company's securities. [italics added]
Release footnote 76 thus contemplates "direct access" proposals that are not
submitted by "a holder of more than 1% of the company's securities." And
although the Commission clearly intends that a proposal eligible to be a
triggering proposal should take precedence over "the earlier submitted proposal
by a security holder that holds 1% or less of the registrant's securities," 1 it
seems clear that the Commission anticipates non-triggering direct access
proposals of the kind at issue here. The Exclusion of Precatory Direct Access Proposals would Undermine the
Commission's Policy Objectives Even if the Commission seeks to limit the ability of shareholders to trigger a
binding resolution, it should clarify that the rule permits precatory
resolutions requesting a company's board of directors to adopt the Commission's
Rule 14a-11 procedures voluntarily. Since the proposed Rule 14a-11 posits that
mandating proxy access for the nominees of large and long-term security holders
is justified when a certain degree of dissatisfaction with a company's proxy
process is evidenced, then it makes sense to allow shareowners an opportunity to
demonstrate the degree of support for a direct access mechanism short of a
binding process. Advisory proposals along the same line as the proposed
mandatory resolutions can have a therapeutic effect on corporate governance. The
presence of such non-binding proposals on the proxy ballot can permit a
significant degree of feedback about investor satisfaction with board
performance - and do so without triggering a mandatory mechanism for contested
elections. We submit that the interpretation advanced here is consistent with the policy
goals of the proposed Rule 14a-11 while avoiding the pitfalls identified by the
Division of Corporation Finance in its July 2003 Staff Report.2 That report
included among its five principal alternatives one that would substantially
reinterpret or amend Rule 14a-8(i)(8) to "allow for inclusion of proposals
seeking to establish a process to allow shareholder to access a company's proxy
card in a non-control context." (Staff Report, at 28.) This alternative would
have provided "shareholders with the flexibility to draft each proposal to
establish different thresholds for ownership, length of holding period and other
applicable requirements, on which all of a company's shareholders could then
vote." (Id., at 29.) Shareholders could have had more choice, but "[i]n the case
of a precatory proposal, the board would not be required to implement the
proposal." (Id., at 30.)3 This concern about opening the floodgates to a wide variety of non-binding proxy
access proposals, each with different thresholds and criteria, was laid to rest
in the proposed rule. In proposing Rule 14a-11, the Commission selected the
first and most direct among the Division's five broad policy alternatives,
"requiring companies to include shareholder nominees in company proxy
materials." (Id., at 7.) Yet, although the Commission chose to mandate a
particular procedure rather than to radically broaden the exception to Rule
14a-8(i)(8), neither would the public interest be served by making the exception
to (i)(8) so narrow that non-triggering proposals otherwise consistent with the
Rule 14a-11 nominating procedure would be barred. Indeed, the opposite is
clearly the case. Nearly every policy benefit cited by the Commission for
permitting a trigger based on a majority of votes cast for a direct access
shareholder proposal would be reinforced if long-term holders meeting Rule
14a-8's lower ownership threshold were allowed to place non-triggering requests
for adoption of the SEC's nomination procedure before shareholders at a larger
number of companies. According to the Release, the Commission's primary policy objectives include
"giving security holders a more effective role in the proxy process in
connection with the nomination and election of directors" and making corporate
boards "more responsive and accountable to security holders, as well as, in many
instances, more diverse." 68 FED. REG. at 60786. On the other hand, the
Commission also expressed an interest in avoiding the undue complexity, cost and
contention that could result if mandatory direct access is readily available at
companies where security holders had not evidenced dissatisfaction with the
responsiveness of the proxy process. In the effort to strike an appropriate
balance, the Commission proposed triggers and ownership thresholds that severely
limit the number of companies compelled to include security holder nominees in
the company proxy. Indeed, with respect to the likelihood that proponents
eligible to sponsor a triggering proposal will be commonplace, the Commission
observed that "[t]he submission of security holder proposals by security holders
that own 1% of the shares outstanding is currently relatively rare, however."
(Id. at 60790-01). The Release notes that a "sample of 237 security holder
proposals submitted in 2002 found that only three were submitted by an owner of
more than 1% of the shares outstanding," and that of these three, only one
received in excess of 50% of the votes cast. (Id.) Whether or not proposals sponsored by holders eligible to trigger the mandatory
nomination procedure will be "relatively rare," the two primary policy goals of
Rule 14a-11 will be extended to many more companies and millions more security
holders if the Commission permits precatory direct access proposals to be
debated and voluntarily adopted based on feedback from shareholders at a larger
number of public companies. Many of the comments filed in response to the
Release emphasize that the feedback and deterrent effect of Rule 14a-11 are
likely to beneficially impact far more companies than the triggering of
mandatory nominations that only a tiny handful of institutional investors will
be in a position to use. As a result, if the Commission intends, as it claims,
that Rule 14a-11 will give security holders "a more effective role" in the proxy
process and make boards "more accountable and responsive" to security holder
dissatisfaction, the first step is to ensure that it is possible to measure
security holder dissatisfaction. Neither boards, nor large institutional
investors, nor the media, nor even the Commission will be able to measure the
impact of this reform effort without the more extensive investor feedback that
will be possible if smaller long-term holders can bring precatory,
non-triggering direct access proposals to a vote under the less stringent
ownership thresholds that apply to other shareholder proposals submitted
pursuant to Rule 14a-8. Conclusion Because Qwest has failed to meet its burden of demonstrating that Proponents'
resolution may be omitted under Rule 14a-8, the Proponents respectfully ask you
to advise Verizon that the Division cannot concur with the Company's objections.
Thank you for your consideration of these points. Please feel free to contact me
if additional information is required. Please note that I am moving my office next week. As of 1 February 2004, I can
be reached at: 5301 Wisconsin Avenue, N.W., Suite 350
Washington, D.C. 20015-2015
(202) 364-1050 Fax: (202) 364-9960 Very truly yours,
/s/ Cornish F. Hitchcock
cc: Stephen E. Brilz, Esq.
W. Earl Powles
Phillip M. Graham
William Eckhardt -----FOOTNOTES-----
1 Release No. 34-48626, 68 FED. REG. 60819 (23 October 2003), states:
"Instruction to paragraph (i)(11): For purposes of this paragraph, a proposal
requesting that the company become subject to the security holder nomination
procedure set out in §240.14a-11 that is submitted by a more than 1% security
holder may not be excluded on the basis that it duplicates a previously
submitted proposal by a security holder that holds 1% or less of the
registrant's securities. In this instance, the earlier submitted proposal by a
security holder that holds 1% or less of the registrant's securities may be
excluded under this paragraph." 2 SEC Division of Corporation Finance, Staff Report: Review of the Proxy Process
Regarding the Nomination and Election of Directors (15 July 2003).
3 The Staff Report notes that unlike a direct access proposal cast as a bylaw or
binding resolution, a precatory direct access proposal need not be viewed as
resulting in contested elections since it would be the board of directors'
decision to adopt and implement the nomination procedure. The Report states:
"[T]he majority of shareholder proposals under this alternative likely would be
precatory. In such a case ... [b]ecause the board would decide whether to
implement the process, the nomination of a candidate to the board by a
shareholder likely should not be viewed as a `contest' as defined by Exchange
Act Rule 14a-12(c). The Commission could take the position that the board's
decision to implement a process to allow shareholders to nominate candidates to
the board constitutes, in essence, board sanctioning of these nominees and,
thus, there would not be a `contest' as defined by Exchange Act Rule 14a-12(c)."
Staff Report, at 29. [INQUIRY LETTER]
January 16, 2004 BY HAND DELIVERY Office of the Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Qwest Communications International Inc. - Stockholder Proposal of W. Earl
Powles, Philip M. Graham and William A. Eckhardt Ladies and Gentlemen:
In accordance with Rule 14a-8(j) promulgated under the Securities Exchange Act
of 1934, as amended, Qwest Communications International Inc., a Delaware
corporation (the "Company"), respectfully requests the concurrence of the staff
of the Division of Corporation Finance (the "Staff") of the United States
Securities and Exchange Commission (the "Commission") that it will not recommend
any enforcement action to the Commission if the Company excludes from its proxy
materials for its 2004 Annual Meeting of Stockholders (the "Proxy Materials") a
stockholder proposal and supporting statement (the "Proposal") submitted by W.
Earl Powles, Philip M. Graham and William A. Eckhardt (the "Proponents"). The
Company intends to file a definitive copy of the Proxy Materials with the
Commission eighty or more days after the date of this letter.
In accordance with Rule 14a-8(j), enclosed herewith for filing are six copies of
this letter and its exhibit. By delivery of a copy of this letter to the
Proponents, in accordance with Rule 14a-8(j), the Company hereby notifies the
Proponents of its intention to exclude the Proposal from the Proxy Materials.
As discussed more fully below, the Company believes that it may exclude the
Proposal from the Proxy Materials pursuant to Rule 14a-8(i)(8) because the
Proposal relates to an election for membership on the Company's Board of
Directors (the "Board"). I. Proposal
The Proposal, a copy of which is attached hereto as Exhibit A, reads in part as
follows: RESOLVED, The shareholders of Qwest hereby request the Board to include in the
Company's proxy materials the name of any Qualified Nominee for the Board of
Directors who has been nominated by a Qualified Shareholder.
For this resolution, a "Qualified Shareholder" is an individual or group holding
at least 5% of the Company's outstanding common stock for at least two years. A
"Qualified Nominee" is an individual who consents to be nominated and is
independent of the company and of the Qualified Shareholder, as provided in the
Securities and Exchange Commission's proposed Rule 14a-11, as it applies to
situations where a shareholder-nominated candidate qualifies for inclusion in a
company's proxy. II. Reason for Exclusion
Rule 14a-8(i)(8) - The Proposal Relates to an Election for Membership to the
Board Rule 14a-8(i)(8) permits the exclusion of a stockholder proposal from a
company's proxy materials if it "relates to an election for membership on the
company's board of directors or analogous governing body." The Commission has
stated 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 ... are applicable thereto." Securities Exchange Act Release
No. 34-12598 (July 7, 1976). The Staff has previously concluded that stockholder proposals seeking to require
a company to include stockholder nominees in the company's proxy materials may
be excluded under Rule 14a-8(i)(8), or its predecessor, Rule 14a-8(c)(8),
stating that these proposals "rather than establishing procedures for nomination
or qualification generally, would establish a procedure that may result in
contested elections of directors." E.g. Eastman Kodak Co. (Feb. 28, 2003); The
Bank of New York Co., Inc. (Feb. 28, 2003); AOL Time Warner Inc. (Feb. 28,
2003); and Citigroup Inc. (Apr. 14, 2003) (all permitting exclusion of a
proposal to amend the bylaws to require that the company include the name, along
with certain disclosures and statements, of any person nominated for election to
the board by a stockholder who beneficially owns 3% of more of the company's
outstanding common stock). See also Storage Technology Corp. (Mar. 22, 2002)
(permitting exclusion of a proposal to amend the bylaws to require the company
to include in its proxy materials the name of each candidate for director
nominated by a stockholder); General Motors Corp. (Mar. 22, 2001) (permitting
exclusion of a proposal that the company include in its proxy materials the
names of all nominees for director); The Coca-Cola Co. (Jan. 24, 2000)
(permitting exclusion of a proposal that the company include in its proxy
materials candidates for the board nominated by the holders of at least three
percent of the company's common stock); Citigroup Inc. (Jan. 21, 2000)
(permitting exclusion of a proposal that the company include in its proxy
materials candidates for the board nominated by the holders of at least three
percent of the company's common stock); BellSouth Corp. (Feb. 4, 1998)
(permitting exclusion of a proposal to amend the bylaws to provide that
stockholder nominees to the board be included in the company's proxy materials
even if the board recommended a vote against such person); and Unocal Corp.
(Feb. 8, 1991) (permitting the exclusion of a proposal to amend the bylaws to
require the company to include stockholder nominees in its proxy materials).
The Company believes that the Proposal is identical in substance to the
proposals addressed by the Staff in the above-noted no-action letters and
according is properly excludable from the Proxy Materials under Rule
14a-8(i)(8). III. Conclusion For the reasons set forth above, the Company respectfully requests that the
Staff confirm that it will not recommend any enforcement action to the
Commission if Company excludes the Proposal from the Proxy Materials. If the
Staff disagrees with the Company's view that the Proposal may be excluded from
the Proxy Materials, the Company respectfully requests that it have an
opportunity to discuss such decision with the Staff prior to the Staff issuing a
formal response. Please do not hesitate to contact the undersigned at (303) 992-6244 with any
comments, questions or requests for additional information regarding the
foregoing. Sincerely, /s/
Stephen E. Brilz
Vice President and Assistant Secretary cc: Richard N. Baer [INQUIRY LETTER]
December 24, 2003 Richard N. Baer
Executive Vice President,
General Counsel and Corporate Secretary
Qwest Communications International, Inc.
1801 California Street, 52nd Floor
Denver, CO 80202 Dear Mr. Baer:
We hereby submit the attached stockholder proposal for inclusion in the
Company's 2004 proxy statement as provided under Securities and Exchange
Commission Rule 14a-8. Our stockholder resolution and supporting statement requests the Board of
Directors to include in Qwest's proxy materials the name of any Qualified
Nominee for the Board of Directors who has been nominated by a Qualified
Shareholder. As you likely know, in October the SEC proposed new Rule 14a-11, under which
Qwest and many other public companies may have to include in their proxy
materials a limited number of candidates for the Board of Directors who have
been nominated by shareholders. Rule 14a-11 is likely to be finalized and apply
to annual meetings held in 2004. Although we realize we do not own enough stock
to trigger the mandatory inclusion of qualified shareholder nominees under Rule
14a-11, our proposal simply suggests that the Board consider adopting this same
procedure on a voluntary basis. Each of us has continuously held the shares of common stock currently valued at
over $2,000 for more than one year. We intend to maintain our ownership position
through the date of the 2004 Annual Meeting. We plan to introduce and speak for
our resolution at the Company's 2004 Annual Meeting. We thank you in advance for including our proposal in the Company's next
definitive proxy statement. If you need any additional information please feel
free to contact us. Sincerely yours,
/s/ W. Earl Powles
/s/ Philip M. Graham
/s/ William A. Eckhardt
ENCLOSURES [APPENDIX]
STOCKHOLDER PROPOSAL ON PROXY ACCESS FOR DIRECTOR NOMINATIONS
Philip M. Graham, 1833 East Gary Street, Mesa, AZ, 85203, who owns 1,072 shares
of the Company's common stock; W. Earl Powles Jr., 1301 W. Dunlap Ave, Phoenix,
AZ 85021, who owns 1,220 shares of the Company's common stock; and William A.
Eckhardt, 16914 E. Britt Ct., Fountain Hills, AZ, 85268, who owns 931 shares of
the Company's common stock; hereby notify the Company that they intend to
present the following resolution at the 2004 Annual Meeting for action by the
stockholders. RESOLVED: The shareholders of Qwest hereby request the Board of Directors to
include in the Company's proxy materials the name of any Qualified Nominee for
the Board of Directors who has been nominated by a Qualified Shareholder.
For this resolution, a "Qualified Shareholder" is an individual or group holding
at least 5% of the Company's outstanding common stock for at least two years. A
"Qualified Nominee" is an individual who consents to be nominated and is
independent of the company and of the Qualified Shareholder, as provided in the
Securities and Exchange Commission's proposed Rule 14a-11, as it applies to
situations where a shareholder-nominated candidate qualifies for inclusion in a
company's proxy. This policy should be implemented in a manner that is not inconsistent with
state law, or with the procedures governing notice, disclosure, liability,
solicitation, supporting statements and limits on the number of
shareholder-nominated candidates, as provided in proposed SEC Rule 14a-11.
SUPPORTING STATEMENT In October 2003 the SEC proposed new Rule 14a-11, under which companies may have
to include in their proxy materials a limited number of director candidates
nominated by shareowners. The rationale, the SEC explained, is that shareholders
who are "dissatisfied with the leadership of a company generally must undertake
a proxy contest, along with its related expenses, to put nominees before the
security holders for a vote. A board's nominees, on the other hand, do not bear
the cost of their candidates, which are funded out of corporate assets."
We view the principle underlying the SEC's pending Rule - shareholder access to
the Company's proxy to nominate board candidates - as critical to accountable
corporate governance. Qwest, like most companies, does not give shareholders a
choice among competing candidates in director elections. As a result, it can be
difficult for shareholders to hold individual directors accountable or to
register dissatisfaction with the board's performance.
[STAFF REPLY LETTER]
February 23, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Qwest Communications International Inc.
Incoming letter dated January 16, 2004
The proposal requests that the board include in its proxy materials the name of
any "Qualified Nominee" submitted by a "Qualified Shareholder."
We are unable to conclude that Qwest has met its burden of establishing that
Qwest may exclude the proposal under rule 14a-8(i)(8). Accordingly, we do not
believe that Qwest may omit the proposal from its proxy materials in reliance on
rule 14a-8(i)(8). Sincerely, /s/
Grace K. Lee
Special Counsel
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