Company Name: V. F. Corp.
Public Availability Date: February 13, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
January 5, 2004 Via Federal Express Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Shareholder Proposal of the New York City Employees' Retirement System, the
New York City Police Pension Fund, the New York City Fire Department Pension
Fund, the New York City Teachers' Retirement System and Christian Brothers
Investment Services, Inc. Ladies and Gentlemen:
On behalf of V.F. Corporation, a Pennsylvania corporation ("VF" or the
"Company") (Commission File No. 1-5256), I am submitting this letter to advise
the Securities and Exchange Commission (the "SEC" or "Commission") that VF
intends to exclude the shareholder proposal submitted by the New York City
Employees' Retirement System, the New York City Police Pension Fund, the New
York City Fire Department Pension Fund, the New York City Teachers' Retirement
System (together, the "NYC Systems") and Christian Brothers Investment Services,
Inc. ("CBIS" and, with the NYC Systems, the "Proponents") from VF's proxy
statement and related materials to be disseminated in advance of its 2004 Annual
Meeting of Shareholders. I am submitting this letter in accordance with Rule
14a-8(j) under the Securities Exchange Act of 1934, and seeking the advice of
the Division of Corporation Finance that it will not recommend to the
Enforcement Division that enforcement action be taken against VF as a result of
VF's exclusion of this shareholder proposal. In accordance with Rule 14a-8(j), I am enclosing six copies of each of the
following: (1) This letter; (2) The cover letter and shareholder proposal and supporting statement submitted
by the NYC Systems to VF on November 21, 2003, attached as Exhibit A; and
(3) The cover letter and copy of the shareholder proposal and supporting
statement submitted by CBIS to VF on November 20, 2003, attached as Exhibit B.
In accordance with Rule 14a-8(j)(2), the Company is simultaneously providing to
the Proponents a copy of this letter and Exhibits hereto. The Company has
advised me that it anticipates filing its definitive proxy materials not earlier
than 80 days after the date of filing of this letter with the Commission.
The Proponents' proposal (the "Proposal") is as follows:
RESOLVED: The shareholders request that the Board of Directors of VF Corporation
("VF" or the "Company") adopt an enforceable policy to be followed by the
Company, its subsidiaries, affiliates and suppliers based on the International
Labor Organization's Declaration on Fundamental Principles and Rights at Work
and to include the following: - All workers have the right to form and join trade unions and to bargain
collectively (Conventions 87 and 98); - There shall be no discrimination or intimidation in employment. VF shall
provide equality of opportunity and treatment regardless of race, color, sex,
religion, political opinion, age, nationality, social origin or other
distinguishing characteristics (Conventions 100 and 111); - Employment shall be freely chosen. There shall be no use of forced, including
bonded or voluntary prison, labor or of child labor (Conventions 29 and 105, 138
and 182); and prepare a report at reasonable cost to shareholders concerning
implementation of this policy. The Supporting Statement is set forth in Exhibits A and B.
I. Grounds for Exclusion of the Proposal and Supporting Statement From VF's
Proxy Materials. VF is entitled to exclude the Proposal and Supporting Statement from its proxy
materials for three reasons: (1) They are excludable under Rule 14a-8(i)(10) because VF has already
substantially implemented the Proposal. (2) They are excludable under Rule 14a-8(i)(7) because the Proposal deals with
matters relating to VF's ordinary business operations. (3) They are excludable under Rule 14a-8(i)(3) because they are vague,
indefinite or materially misleading in violation of Rule 14a-9.
I have been advised by and relied upon the Company as to the factual matters set
forth herein. II. The Proposal and supporting statement are excludable under Rule 14a-8(i)(10)
because VF has already substantially implemented the Proposal.
Rule 14a-8(i)(10) permits a company to exclude from its proxy materials a
shareholder proposal if the company has already substantially implemented the
proposal. VF believes that it already has substantially implemented the Proposal
because it has substantially adopted the enforceable policies called for by the
Proposal. The scope of the Proposal must be understood, in order to compare VF's current
policies to those called for by the Proposal. The Proposal would apply to both
VF-owned operations (including through subsidiaries) and third-party suppliers
not owned by VF. The Proposal would apply to U.S.-based operations and to
foreign operations. The Proposal specifically calls for the Board to adopt an
"enforceable policy" based on the International Labor Organization's Declaration
on Fundamental Principles and Rights at Work (the " "ILO Principles"). The
Proposal lists three subject areas that are to be included in the policy:
(1) The right of workers to join trade unions and bargain collectively;
(2) No discrimination or intimidation in employment, and commitment to equal
employment opportunity and treatment; (3) The right to freely choose employment, and prohibition on bonded or prison
labor and child labor. Finally, a report to shareholders is required concerning implementation.
VF has substantially implemented these labor policies by adoption of the
following ("VF Labor Policies"): (1) The VF Corporation Code of Business Conduct, applicable to all employees of
VF and its subsidiaries world-wide (copy attached as Exhibit C).
(2) The VF Corporation Global Compliance Principles and related Terms of
Engagement, applicable to suppliers of VF products (copy attached as Exhibit D).
The Global Compliance Principles also apply to VF-owned operations.
(3) Participation in the Worldwide Responsible Apparel Production Certification
Program ("WRAP"). WRAP is an independent, factory certification program that
uses accredited, external monitors to ensure compliance with WRAP principles
(copy attached as Exhibit E). WRAP certification has been completed at more than
75% of VF-owned facilities, and is in process at the remaining facilities. VF
encourages its suppliers to undergo the WRAP certification process as well.
(4) Participation in the Fair Labor Association ("FLA") by two of VF's
subsidiaries, JanSport, Inc. and VF Imagewear, Inc. The FLA was established as
an independent monitoring system that holds its participating companies
accountable for the conditions under which their products are produced. To
advance fair, decent and humane working conditions, the FLA enforces an
industry-wide Workplace Code of Conduct, which is based on the core labor
standards of the International Labour Organization (ILO). A copy of the FLA's
Workplace Code of Conduct is attached as Exhibit F. VF believes that the VF Labor Policies are consistent with the spirit and
language of most of the ILO Principles, including the principles highlighted in
the Proposal. Each of the policies cited above that comprise the VF Labor
Policies requires compliance with all laws in each country in which VF does
business. For operations in the United States and most other countries
(including those cited in Proponent's supporting statement), this requirement
ensures workers rights of freedom of association, precludes employment
discrimination and worker intimidation, and prohibits prison and child labor.
The VF Code of Business Conduct, which is available on the VF website (www.vfc.com),
also contains the following on discrimination and harassment:
Non-discrimination. The Company's associates are its greatest resource. It is
the Company's policy to treat its associates fairly in all respects and to
select associates on the basis of qualification for the work to be performed
without regard to race, color, religion, national origin, sex, age, disability
or sexual orientation. The Company will provide compensation programs founded on
high performance standards, equitable treatment and competitive opportunities
commensurate with corporate and individual performance. Harassment. All associates shall have the opportunity to perform their work in
an atmosphere and environment free from any form of unlawful discriminatory or
retaliatory treatment or physical or mental abuse, including, but not limited
to, harassment based on race, color, religion, national origin, sex, age,
disability or sexual orientation. The VF Terms of Engagement, which were initially adopted by VF in 1996, must be
agreed to by suppliers of VF's products. The Terms of Engagement require the
supplier to agree to and certify compliance with the VF Corporation Global
Compliance Principles. The Global Compliance Principles embody many of the
applicable ILO Principles, including the following: Discrimination. While VF recognizes and respects cultural differences,
employment - including hiring, remuneration, benefits, advancement, termination
and retirement - should be based on ability and not on belief or any other
personal characteristics. VF Authorized Facilities may not discriminate on the
basis of race, age, color, national origin, gender, religion, sexual
orientation, disability or similar factors. Harassment. All VF Authorized Facilities must treat all employees with respect
and dignity. Thus, VF Authorized Facilities may not subject employees to
corporal punishment, physical, sexual, psychological or verbal harassment or
abuse. In addition, VF Facilities may not use monetary fines as a disciplinary
practice. Women's Rights. All VF Authorized Facilities must ensure women workers receive
equal treatment in all aspects of their employment. Pregnancy tests will not be
a condition of employment, and pregnancy testing - to the extent provided by a
VF Authorized Facility - will be at the option of the worker. Employees will not
be exposed to hazards that may endanger their reproductive health, and employees
will not be forced to use contraception. Employment Age. Workers may not be younger than 15 years of age (or 14 where
consistent with International Labor Organization guidelines and, the local law
allows such exception) or the age for completing compulsory education, or the
minimum age established by law, whichever is greater. All VF Facilities must
observe all legal requirements for work of employees under 18 years of age,
particularly those pertaining to hours of work and working conditions.
Forced Labor. VF Authorized Facilities will not use involuntary or forced labor
- indentured, bonded or otherwise. WRAP principles set forth policies that are consistent with the ILO Principles,
including the following WRAP policies that cover each of the specific policies
that the Proposal calls for: Freedom of Association & Collective Bargaining - Manufacturers of Sewn Products
will recognize and respect the right of employees to exercise their lawful
rights of free association and collective bargaining. Prohibition of Discrimination - Manufacturers of Sewn Products will employ, pay,
promote, and terminate workers on the basis of their ability to do the job,
rather than on the basis of personal characteristics or beliefs.
Prohibition of Harassment or Abuse - Manufacturers of Sewn Products will provide
a work environment free of harassment, abuse or corporal punishment in any form.
Prohibition of Forced Labor - Manufacturers of Sewn Products will not use
involuntary or forced laborindentured, bonded or otherwise.
As indicated by the information available on WRAP's website, WRAP companies are
committed to a factory evaluation process based on verifiable and credible
monitoring performed by professionally qualified independent enterprises granted
accreditation by the WRAP Certification Board. WRAP lists its accredited
independent monitors on its website (www.wrapapparel.org).
The FLA Workplace Code of Conduct also embodies the principles advocated by the
Proponent, including the following: Forced LaborThere shall not be any use of forced labor, whether in the form of
prison labor, indentured labor, bonded labor or otherwise.
Child LaborNo person shall be employed at an age younger than 15 (or 14 where
the law of the country of manufacture allows) or younger than the age for
completing compulsory education in the country of manufacture where such age is
higher than 15. Harassment or AbuseEvery employee shall be treated with respect and dignity. No
employee shall be subject to any physical, sexual, psychological or verbal
harassment or abuse. NondiscriminationNo person shall be subject to any discrimination in
employment, including hiring, salary, benefits, advancement, discipline,
termination or retirement, on the basis of gender, race, religion, age,
disability, sexual orientation, nationality, political opinion, or social or
ethnic origin. Freedom of Association and Collective BargainingEmployers shall recognize and
respect the right of employees to freedom of association and collective
bargaining. Moreover, the FLA has approved VF's factory compliance and monitoring program as
meeting FLA compliance standards and verification procedures.
These VF Labor Policies were developed and refined by management, taking into
consideration the broad range of work-place issues embodied by the ILO
Principles. Indeed, the VF Global Compliance Principles quoted above
specifically mention the ILO Principles, demonstrating an awareness of those
standards as the VF Labor Policies were drafted. All of the VF Labor Policies are enforceable policies, providing rights of the
Company to investigate and enforce compliance. The VF Code of Conduct provides
for disciplinary action up to and including termination of employment for
violations. The FLA and WRAP programs provide for rigorous certification
processes and extensive independent monitoring. The VF Terms of Engagement and
Global Compliance Principles are subject to on-going monitoring by VF and
certification requirements, with remedies for non-compliance that include
possible termination of contracts. VF has a specialized staff of 10 full time
employees charged with monitoring compliance by its principal suppliers,
coordinates with VF customers and others with an interest in labor conditions,
and often uses independent third party monitors to monitor compliance with its
Terms of Engagement and Global Compliance Principles. VF long has been willing to discuss its labor policies with members of the
general public, and has done so on numerous occasions. In connection with their
FLA participation, all factories where apparel for colleges and universities are
produced by VF's subsidiaries, JanSport and VF Imagewear, are listed on FLA's
website. The FLA performs random audits on its participant's facilities to
ensure compliance. The Company's key role in the WRAP organization is well
known, and WRAP maintains a website with information on its principles and
activities. VF's Code of Conduct is also posted on its website, and the Company
is in the process of posting its Global Compliance Principles on its website as
well. The foregoing clearly demonstrates that VF has already adopted policies and
procedures that address the concerns raised in the Proposal, so that it has been
substantially implemented and may be excluded. This principle has been affirmed
in a number of recent no-action letters, including the factually similar letter
issued to The Talbots Inc. (avail. Apr. 5, 2002) permitting exclusion of
proposal seeking commitment to implement a code of conduct based on the ILO
Principles where the company had already established policies to address
concerns on global workplace conditions and labor practices in factories
producing its merchandise. See, also, Freeport McMoRan Copper and Gold, Inc.
(available Mar. 5, 2003) (permitting exclusion of proposal that the board amend
social and human rights policy, establish independent monitoring program, and
report credible claims of violation); The Gap, Inc. (available Mar. 16, 2001)
(permitting exclusion of proposal that the board prepare report on child labor
practices of company's suppliers where company had established and implemented a
code of vendor conduct and took related actions); Kmart Corporation (available
Feb. 23, 2000) (permitting exclusion of proposal that the board prepare a report
on company's vendor standards and compliance mechanisms in countries where
company sourced its products where company had adopted a vendor code of conduct
and took related actions). The facts at hand differ from those in Sara Lee Corporation (available Sept. 8,
2003), in which the staff concluded that no exclusion was permissible under Rule
14a-8(i)(10) regarding a proposal calling for a code of conduct based on the ILO
Principles. The Sara Lee proposal specifically called for outside, independent
monitoring of compliance with the labor policy, but the company's program
apparently did not provide for independent monitoring for some of its lines of
business. Here, the Proposal does not call for independent monitoring, but only
for "enforceable policies." (As discussed below, the Supporting Statement
obliquely mentions independent monitoring, but the resolution to be acted on by
shareholders does not refer to it and, in context, the Proposal does not call
for independent, third-party monitoring in the way the Sara Lee proposal did.)
Accordingly, having substantially implemented the Proposal, the Company intends
to exclude it and the supporting statement from its proxy materials under Rule
14a-8(i)(6). III. The Proposal and supporting statement are excludable under Rule 14a-8(i)(7)
because they deal with employment conditions and policies that are within the
ambit of VF's ordinary business operations. Rule 14a-8(i)(7) permits a company to exclude from its proxy materials a
shareholder proposal that deals with a matter relating to the company's ordinary
business operations. If implemented, the Proposal would have the Company to
adopt a policy that in effect overlaps VF's existing policies governing worker
rights, including each of the specific labor issues mentioned in the Proposal.
Because of this substantial overlap, the Proposal in effect would simply tinker
with specific issues under the Company's existing policies.
In Release No. 34-40018 (May 21, 1998), accompanying the Commission's 1998
amendments to Rule 14a-8, the Staff acknowledged that the policy underlying the
ordinary business operations exclusion is "to confine the resolution of ordinary
business problems to management and the board of directors, since it is
impracticable for stockholders to decide how to solve such problems at an annual
meeting." The staff acknowledged that, to determine whether a proposal raising
social policy concerns can be excluded under Rule 14a-8(i)(7), consideration is
on a case-by-case process and must take into account the nature of the proposal
and the circumstances of the company which received it. At one extreme, a proposal raising social policy concerns regarding labor
conditions, where those concerns have been actively opposed or blithely ignored
by a company, could not be excluded as matters relating to ordinary business
operations. In this case, VF is at the other extreme. VF has adopted and is
enforcing labor policies that promote the social policy goals of the Proposal
and is actively working, internally and with the FLA and WRAP and other
organizations, to improve working conditions at suppliers around the world.
Thus, the issue is no longer whether the social policies are desirable, but
rather how to achieve the goal to which the Company is already committed. The
nature of the Proposala sweeping call to adopt labor policies taking into
consideration the ILO Principlesas compared to the circumstances of the
Company, which already has adopted labor policies that embody the same concerns
as the ILO Principles and committed staff and resources to compliance efforts
and enforcement, demonstrate that this proposal is squarely in the realm of
ordinary business and should be excluded. The Proponent's Supporting Statement points out that, as a purely business
matter, human rights and labor issues at suppliers can result in adverse
reactions by customers. For this precise reason, VF works closely with retailers
and the owners of brands for which the Company is a licensee to ensure that its
plants and those of its suppliers meet modern standards. This process includes
coordinating standards and compliance efforts with these other parties, to make
the process more effective and efficient. For example, as noted above, the
Company's JanSport and VF Imagewear subsidiaries sell certain product lines
through college bookstores. Recently, the Company worked effectively with the
Workers Rights Consortium, which represents 130 US universities and colleges, to
remedy labor problems at an Indonesian plant. Setting labor standards for
world-wide suppliers and compliance mechanisms obviously is important to the
Company and its business, but equally obviously the issues for VF are now
business issues of implementation and not broad social policy issues of whether
the Company will or will not promote humane labor standards at its suppliers.
The SEC staff has recognized that, where the board and management are actively
involved in setting policy relating to business conduct, a broadly worded
shareholder proposal that would have only a minimal and incremental effect on
existing policies can be excluded as relating to ordinary business. Recently, in
Costco Wholesale Corporation (available Dec. 11, 2003), the staff concurred that
a proposal calling for adoption of a code of ethics that would also address
issues of bribery and corruption and require a report to shareholders on the
ethics code could be excluded under Rule 14a-8(i)(7). Certainly, Costco was
dealing with a topic of broad social importance, corporate ethics. But,
management of Costco already had in place a code of ethics and was in the
process of revising it to conform to changes in Nasdaq listing standards. Other
no-action letters have permitted exclusion under Rule 14a-8(i)(7) in similar
circumstances. See Chrysler Corp. (Feb. 18, 1998) (proposal asked board to
review or amend code of standards for its international operations and present a
report to Chrysler's shareholders); Lockheed Martin Corp. (Jan. 29, 1997)
(proposal requested board committee to evaluate whether company had adequate
legal compliance program and prepare a report); AT&T Corp. (Jan. 16, 1996)
(proposal asked board to review standards and practices in the Maquiladora
operations and prepare a report to shareholders); USX Corp. (Dec. 28, 1995)
(proposal asked board to adopt and maintain a code of ethics, but company
already maintained extensive policies in the areas covered by the proposed code
of ethics); Barnett Banks, Inc. (Dec. 18, 1995) (proposal asked company to
prepare and issue a comprehensive code of ethics for public dissemination);
NYNEX Corp. (Feb. 1, 1989) (proposal sought special committee of board to revise
code of corporate conduct); Transamerica Corp. (Jan. 22, 1986) (proposal
requested formation of a special committee of board to develop code of corporate
conduct). Accordingly, the Company intends to exclude the Proposal and supporting
statement from its proxy materials under Rule 14a-8(i)(7).
IV. The Proposal is excludable under Rule 14a-8(i)(3) because it and the
supporting statement are materially misleading in violation of Rule 14a-9.
Rule 14a-8(i)(3) permits a corporation to exclude from its proxy materials a
shareholder proposal that contains materially false or misleading statements
which would violate Rule 14a-9. The Proposal, including its supporting
statement, is materially misleading, by calling for adoption of an enforceable
policy regarding working conditions when such policies already exist. This will
mislead shareholders into believing that action is necessary in order for VF to
have a socially responsible policy and avoid the business risk, as stated in the
supporting statement, of VF "appearing to benefit from human rights violations."
Socially responsible, enforceable policies are already in place, so at most this
would be a proposal to amend these policies in minor ways.
Along these lines, the supporting statement contains a number of materially
misleading statements: (1) The supporting statement states: "VF's Code of Conduct does not include the
cited ILO standards...." As shown above, the Code of Conduct does contain
non-harassment and non-discrimination standards, which are among the "cited ILO
standards." This is grossly misleading. (2) The Supporting Statement refers to overseas suppliers, and states:
Reports of abuses involving VF's suppliers in several countries underscore the
concern: unsafe conditions and worker intimidation at a VF supplier in Indonesia;
unsafe conditions and harassment at a VF supplier in El Salvador; and
violence against workers and abusive and discriminatory practices at a VF
supplier in Lesotho. These statements are misleading and vague. The statements do not indicate when
or where the incidents allegedly occurred, what were the sources of the
"reports" or whether the reports have been confirmed (or even proven wrong),
whether at the time the incidents allegedly occurred VF was buying merchandise
from the supplier, whether the alleged problems were in violation of VF's
existing policies and whether VF did or did not take enforcement action to seek
remedies and compliance. Given this vagueness, VF cannot even respond to the allegations, other than to
guess at what the Proponents are referring to. These statements appear to be
intentionally vague to mislead shareholders to conclude that VF is not sensitive
to issues of fair, humane and safe working conditions and does not have
effective policies and procedures in place. This suggestion is simply wrong.
(3) The supporting statement refers to "an active enforcement policy, including
monitoring by independent third parties." The resolution itself refers only to
an "enforceable policy." The terms "enforceable policy" would seem to suggest a
policy reserving to VF the right to enforce, with the means to find violations
by employees and third-party suppliers and rights to impose penalties and compel
remedies. In fact, the current VF policies are "enforceable" in this sense.
Indeed, among the enforcement tools that VF policies currently permit are
independent third-party monitoring, and VF in fact avails itself of this
compliance tool. The reference to "monitoring by independent third parties" is
vague and ambiguous, however, as it would seem to suggest that third parties
should have rights to seek remedies from VF in cases in which violations of its
labor policies occur. This concept is in no way suggested by the resolution
itself, and the oblique reference to it in the supporting statement cannot
possible adequately inform shareholders as to what they are voting on (if indeed
the Proponents in fact mean that third-party monitoring should permit
enforcement against the Company rather than simply by the Company).
Accordingly, the Company intends to exclude the Proposal and supporting
statement from its proxy materials under Rule 14a-8(i)(3).
If the staff does not agree to exclusion of the Proposal and supporting
statement entirely, then I request the staff to concur that the specific
statements identified as misleading and vague can properly be excluded, namely,
the fourth paragraph of Proponent's supporting statement and the phrase
"including monitoring by independent third parties" in the last paragraph of
Proponent's supporting statement. * * * * *
I am sending to the Proponents, via Federal Express, a copy of this submission
(including exhibits), thus advising the Proponents of VF's intent to exclude the
Proposal and supporting statement from VF's proxy materials for the 2004 Annual
Meeting. The Proponent is respectfully requested to provide copies to the
undersigned of any response that it may choose to make to the SEC.
A copy of this letter is also enclosed, without exhibits, which I request your
filing desk to date-stamp and return to me in the attached self-addressed
stamped envelope, to evidence the SEC's receipt of this filing.
If you have any questions relating to this submission, please do not hesitate to
contact the undersigned at (603) 526-4770. Thank you for your attention to this
matter. Very truly yours, /s/ Steven C. Root
Steven C. Root Enclosures
cc: Candace S. Cummings, Esq.
Vice PresidentAdministration and General Counsel V.F. Corporation (w/enclosures)
Mr. Kenneth B. Sylvester
Assistant Comptroller for Pension Policy
The City of New York, Office of the Comptroller, Bureau of Asset Management
1 Centre Street
New York, N,.Y. 10007-2341 (w/enclosures) Mr. John K.S. Wilson
Christian Brothers Investment Services, Inc.
90 Park Avenue, 29thFloor
New York, NY 10016-1301 [INQUIRY LETTER]
January 30, 2004 BY FAX AND EXPRESS MAIL
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: VF Corporation; Shareholder Proposal submitted by the New York City Pension
Funds To Whom It May Concern: I write on behalf of the New York City Employees' Retirement System, the New
York City Police Pension Fund, and the New York City Teachers' Retirement System
(together the "Funds" or the "Proponents")* in response to the letter from
counsel for VF Corporation ("VF" or the "Company") dated January 5, 2004, in
which the Company advises that it plans to omit the Proponents' shareholder
resolution (the "Proposal") from the Company's 2004 proxy materials. Based upon
a review of the Proposal and the Company's letter, we are of the opinion that
the Company's position is without merit, and the Funds respectfully request that
the Division deny the relief the Company seeks. 1. The Proposal.
The Proposal states: RESOLVED: The shareholders request that the Board of Directors of VF Corporation
("VF" or the "Company") adopt an enforceable policy to be followed by the
Company, its subsidiaries, affiliates and suppliers based on the International
Labor Organization's Declaration on Fundamental Principles and Rights at Work
and to include the following: All workers have the right to form and join trade unions and to bargain
collectively (Conventions 87 and 98); There shall be no discrimination or intimidation in employment; VF shall
provide equality of opportunity and treatment regardless of race, color, sex,
religion, political opinion, age, nationality, social origin or other
distinguishing characteristics (Conventions 100 and 111); Employment shall be freely chosen.; there shall be no use of forced, including
bonded or voluntary, prison, labor or of child labor (Conventions 29 and 105,
138 and 182); and prepare a report at reasonable cost to shareholders concerning
implementation of this policy. The supporting statement notes that the Company is a global corporation, and its
international operations and sourcing arrangements can expose the company to a
variety of risks. The resolution is designed to manage the risk of the Company
becoming a party to serious human rights violations in the workplace or
appearing to benefit from such violations, and that the Company's Code of
Conduct does not include the cited standards of the International Labor
Organization's Declaration on Fundamental Principles and Rights at Work (the
"ILO Conventions"), promulgated by a specialized agency of the Unites Nations
comprised of business, government and employee representatives of 174 countries
including the United States. The supporting statement also notes that the Company imports many goods into the
United States and that shareholders have a strong interest in knowing what steps
the Company is taking to monitor and control the conditions under which its
suppliers produce those goods. In particular, the supporting statement cites to
abuses by the Company's suppliers in several countries, including Indonesia, El
Salvador and Lesotho, such as worker intimidation, harassment and violence, and
production of goods in unsafe working conditions. The supporting statement adds
that the Company's success depends on consumer and governmental goodwill, and
that the Company's brands and reputation would benefit from adopting and
enforcing a code of conduct based on the ILO Conventions that seek to assure
that the Company is not associated with human rights violations in the
workplace. 2. The Company's Opposition and the Funds' Response.
The Company has urged the Division to grant "no-action" relief under three
provisions of SEC Rule 14a-8(i): Rule 14a-8(i)(10), which applies to proposals
that have already been "substantially implemented"; Rule 14a-8(i)(7), which
applies to matters pertaining to the "ordinary business" of a company; and, Rule
14a-8(i)(3), which deals with false or misleading statement in violation of Rule
14a-9. We address each objection in turn below. Before doing so, however, we offer the
general observation that the Division has refused to grant no-action relief to
companies objecting to similar resolutions urging the adoption of various human
rights principles involving a company's international operations and the
operations of its overseas suppliers. Kmart Corp. (March 16, 2001); Microsoft
Corp. (September 14, 2000); Warnaco Group, Inc. (March 14, 2000); Oracle Corp.
(August 15, 2000); 3 Com Corp. (August 15, 2000). In those letters the Division
cumulatively rejected each of the exclusions upon which the Company relies here.
The Division has reaffirmed that view last year in Sara Lee Corp. (September 8,
2003) (ruling on 14a-8(i)(10)issues), Xcel Energy Inc. (March 24, 2003) and TJX
Cos. (April 7, 2003); the proponents' letter in Xcel Energy provides a good
summary that we cite to avoid repeating. We believe that the similarities
between the Proponents' resolution and the cited proposals warrant the denial of
no-action relief here, particularly as the Company bears the burden under Rule
14a-8(g) of proving that one or more of the exclusions applies.
3. Rule 14a-8(i)(10): Substantially implemented.
The Company incorrectly argues that the Proposal has been substantially
implemented because it has adopted various policies or is subject to certain
laws that address concerns raised in the proposal. These include:
a. The Company's Code of Business Conduct ("Code"), applicable to employees of
the Company and its world-wide subsidiaries; b. The Company's Global Compliance Principles and related Terms of Engagement,
applicable to its suppliers and Company-owned operations; c. Participation in the Worldwide Responsible Apparel Production Certification
Program ("WRAP"); d. Participation in the Fair Labor Association ("FLA") by two Company
subsidiaries, JanSport, Inc. and VF Imagewear, Inc. We have reviewed the Company's Code of Business Conduct in particular, which
endorses and adopts certain worthy principles. Yet this document, even when read
in conjunction with the other authorities the Company cites, does not
demonstrate that VF has substantially implemented the Proposal.
While the Code contains references to some of the specifics covered in the
Proposal, some key points are not specifically addressed at all. There is, for
example, no reference to the Proponents' first point, involving the right to
form and join trade unions. Nor does the Code fully address the second point,
regarding non-discrimination or harassment on the bases of political opinion or
social origin. Further, the Code also lacks an explicit reference to the third
point involving forced (including bonded or voluntary) prison labor and child
labor. The Code does contain a general statement that "all associates conduct
Company business in full compliance with laws, rules and regulations of each
respective country, or follow the Company standards set forth if local laws are
more permissive" This falls far short of the specificity on the cited topics
that the Proponents' resolution seeks. The Global Compliance Principles and Terms of Engagement also lack an explicit
reference to the Proponents' first point, involving the right to form and join
trade unions, fail to address non-discrimination or prohibition of harassment on
the bases of political opinion or social origin and do not specifically prohibit
the use of voluntary prison labor. The Company asserts that its Terms of Engagement must be agreed to by its
suppliers, and that the suppliers also must "agree to and certify compliance
with the VF Corporation Global Compliance Principles." The Company states that
the Global Compliance Principles "embody many of the applicable ILO principles".
If anything, the specificity of the Terms of Engagement and Global Compliance
Principles on these points underscore the inadequacy of the Code's treatment of
the other points noted by the Fund in the preceding paragraphs.
As additional support for its no-action request, the Company cites its
participation in the Worldwide Responsible Apparel Production Certification
Program ("WRAP"). WRAP is described as an independent factory certification
program, and the Company contends that WRAP policies cover each of the specific
policies contained in the Proponents' resolution. As with the Company's other
principles and policies, WRAP policies do not specifically address all of the
Proponents' points, such as non-discrimination or prohibition of harassment on
the bases of political opinion or social origin and do not specifically prohibit
the use of voluntary prison labor. Moreover, WRAP is not truly independent of
the garment industry. Three of the seven directors who oversee WRAP are garment
industry executives. Indeed, one of those WRAP directors, Candace Cummings, is
an executive of VF itself, and is copied in that capacity on the January 5
letter to the Division from VF's counsel. According to the Company, two subsidiaries participate in the FLA, which holds
participating companies responsible for workplace conditions where their
products are produced. Even if thee two subsidiaries adhere to and adhere to FLA
policies, the Proponents are seeking compliance to its points by the Company and
all of its subsidiaries, affiliates and suppliers, not merely a few. Also, the
FLA policies do not address prison labor. The Company further states that it "often uses independent third party monitors
to monitor compliance with its Terms of Engagement and Global Compliance
Principles." Taken at face value, this could well mean that the Company fails to
use independent monitors in a majority of instances. In their supporting
statement, the Proponents make clear that strict standards and an active
enforcement policy require independent monitoring by third parties. Clearly, the
Company's admission that it does no more than "often" use independent third
parties to assess compliance with its Terms of Engagement and Global Compliance
Principles demonstrates that it has not substantially implemented this proposal,
which envisions use of independent monitors for all compliance activities.
In addition, a piecemeal transmission of information, by posting such
information as certain Company policies on a website, and referring the public
to two other websites that list factories producing apparel for colleges and
universities for its subsidiaries and information about WRAP, coupled with the
Company's assertions that it is willing to discuss its labor policies with the
public, do not address the final point of the proposal. These actions place the
burden of obtaining information on the shareholders and the general public and
do not substitute for a report addressing implementation of the proposed policy.
More generally, the Company's response misses the heart of the Proponents'
resolution, which is to generate the production of a single document that
explicitly and in one place commits the Company to the enumerated principles.
The resolution is thus similar to other proposals that the Division has viewed
as appropriate for shareholder action, such as the Sullivan Principles, CERES
Principles and McBride Principles, which the Division viewed as a proper subject
regardless of whether a company has an existing code of conduct in place.
We note too that the Division denied relief on (i)(10) grounds in Oracle Corp.,
supra, where Oracle argued against a proposal to adopt a similar set of human
rights principles on the ground that Oracle already had in place its own code
and a separate employee handbook, which (along with laws to which Oracle was
subject) were said to "sufficiently address the concerns of the Principles."
(Inquiry Letter 1, par. 2). There, as here, the proponent cited specific
elements of the resolution that were not addressed in the company's
documentation, and the Division denied no-action relief. Most recently, the
Division denied relief on those grounds in Sara Lee. We ask the Division to
follow the same approach here. Finally, the poor past record of VF's suppliers in dealing with their own
workers outside the United States (see pp. 6-7 of this letter), suggests that VF
ought not to be entrusted with monitoring its own compliance with labor
standards. Rather, substantial implementation of the Funds' Proposal would
require that VF be made subject to one strict and comprehensive set of labor
standards, enforced in all instances by truly independent monitoring.
4. Rule 14a-8(i)(7): Ordinary business.
The Company next invokes the "ordinary business" exclusion, which a Company may
cite to omit resolutions dealing with issues that "are mundane in nature and do
not involve any substantial policy or other considerations." Release No.
34-12999, 41 Fed. Reg. 52994, 52998 (3 December 1976)(emphasis added). The
issues presented by the Proposal, however, are replete with policy significance.
With an exception discussed below, the Division has issued various letters over
the years recognizing human rights issues as not subject to the "ordinary
business" exclusion, witness the numerous resolutions involving the Sullivan
Principles, McBride Principles, CERES Principles and the like. As the Proposal
makes clear, the Company has extensive international operations, and it does
business in some countries where issues of human rights violations periodically
occur. We note that the Division rejected arguments similar to those the Company makes
here in the recent Xcel Energy, Oracle and Microsoft rulings, where the
resolution in question asked those companies to endorse a set of principles
similar to those advanced by the Fund here that would go beyond the company's
current code of ethics. In those situations, the Division rejected no-action
relief on "ordinary business" grounds. (That the latter two resolutions were
specific to China does not affect the calculus). In Warnaco Group, Inc. (March 14, 2000), the proponent made arguments similar to
those the Proponents are advancing here in support of a resolution seeking a
report on Warnaco's monitoring and compliance with its vendor standards, and
that policy affected Warnaco's overseas operations generally, not just in China.
That resolution raises the same sort of issues that the Proponents' proposal
raises here, and the Division denied no-action relief to Warnaco.
The Company argues that the Proponents' proposal may be excluded under Costco Wholesale Corp. (December 11, 2003). Costco is not precedent, however, because
it involved a resolution that has been withdrawn. Nor can the Company rely upon
five other cited letters: Chrysler Corp. (February 19, 1998); Lockheed Martin
Corp. (January 29, 1997), AT&T Corp. (January 16, 1996); USX Corp. (December 28,
1995), and Barnett Banks, Inc. (December 18, 1995); each of which were issued
when the Commission was following the so-called Cracker Barrel doctrine, under
which resolutions involving labor relations were per se excluded under the
"ordinary business" exclusion. The Commission's 1998 amendments to Rule 14a-8
overturned that interpretation and substituted the current methodology under
which the recent resolutions involving Oracle, Microsoft and Warnaco were
recently approved. In short, the Company has failed to carry its burden of justifying the exclusion
of the Proponents' proposal under this provision of the Rule.
5. Rule 14a-8(i)(3): False and misleading statements.
The Company finally claims that the Proposal is false and misleading, although
the statements the Company cites are truthful and properly supported.
At the outset, VF argues that the resolution is materially false and misleading
because it urges adoption of an "enforceable policy" to be "based on" the ILO
standards. This is said to be materially false and misleading because VF
believes that it already has an enforceable policy. As we discussed in part 3,
however, there are wide gaps between the ILO standards cited in the resolution
and the current VF policy. As a result, the challenged statement in the
resolution is not materially false or misleading. VF has similar objections with respect to the supporting statement:
a. VF objects to language that its "Code of Conduct does not include the cited
ILO standards...." As noted above, the Proponents' statement is factually
correct. In particular, VF's non-harassment and non-discrimination standards do
not go as far as the ILO. b. VF then objects to references to reports of abuses involving VF suppliers in
Indonesia, El Salvador and Lesotho. VF professes ignorance of the charges and
suggests that the statements are so vague that shareholders would be misled.
There are several general and specific points we offer in response.
First, VF manages to miss the essential point being made by the Proponents,
which is that there is considerable consumer sensitivity to allegations of abuse
in overseas workshops and that companies that are insufficiently sensitive to
those issues may be punished in the marketplace. Second, all the incidents cited
in the resolution come from publicly available reports, and the fact that public
documents make such allegations regarding VF suppliers may have a harmful effect
when disclosed. The initial disclosure may do damage to a company's reputation,
which is a separate reason why the Proponents believe that an effective
enforcement program is so vital. Third, given the fact that the cited reports
are public documents, it strains credulity for VF to suggest that that the
Company is not aware what the Proponents are talking about.
With respects to the reports themselves, excerpts of which are attached, they
disclose that VF was purchasing merchandise from the cited suppliers and that
the violations/abuses were seemingly contrary to the Company's policies.
Specifically, the Proponents obtained its information on Indonesia from findings
and recommendations contained in a Workers Rights Consortium ("WRC") report
dated August 26, 2003. The report addressed a WRC team assessment from February
21-27, 2003 of PT Dae Joo Leports ("PT"), located in North Jakarta, Indonesia.
PT manufactures college logo handbags and backpacks for Jansport. The
investigation's focus included occupational health and safety, health benefits
and freedom of association. The team found that PT management had refused to enter into contract
negotiations with a newly-formed employees' union, verbally intimidated,
arbitrarily demoted, transferred or fired workers who joined the union or
attempted to negotiate with management on its behalf, and even asserted, in its
response to the WRC recommendations that they were unaware that they were
legally required to negotiate with the factory's organized workers.
Additionally, the report indicated that the assessment team found serious
concerns that affected PT's ability to provide a safe and healthy work
environment. Among the problems cited were: lack of personal safety equipment
such as face masks and protective gloves, resulting in respiratory troubles
including pulmonary tuberculosis and cutting injuries; low-hung cutting boards
resulting in head injuries ranging from mild concussions to neurological damage;
repeated tasks leading to chronic pain of certain body parts; excessive heat,
humidity and noise levels; and monitoring of bathroom access.
In El Salvador, the Proponents obtained information from reports the National
Labor Coalition prepared. The reports indicated that the Company used several
suppliers to produce Lee brand jeans, including the Formosa Textiles Factory.
The reports cite to inhumane conditions in the suppliers' factories, such as
forced pregnancy tests, unsafe drinking water, termination of union supporters,
prohibitions on talking and verbal harassment by supervisors, and forced
overtime. The government of Lesotho, through its Labor Department, as well as numerous
other academics and organizations including the World Bank and the United
Nations, have issued reports that cite numerous violations and abuses in a
four-factory complex known as China Garments Manufacturers ("CGM"). CGM produces
denim clothing for the Lee and Wrangler brands. Some of the most egregious
abuses included: an inability of workers to organize absent intimidation or
termination; disparate pay rates for workers in the same jobs; employees
locked-in during working hours with no means of escape in the event of an
emergency; lack of access to clean drinking water; lack of protective clothing;
arbitrary deductions from pay for absences due to illness or tardiness
regardless of the reasons; and forcing pregnant women to stand all day while
working. There is thus information in the public domain raising questions about VF's
policing of its overseas suppliers, and the existence of that information is
potentially compromising to the Company. The fact that VF regards these reports
as unpleasant does not undercut the point that there is work remaining to be
done in this area. Third, VF engages in hairsplitting when it cites the reference in the supporting
statement to "an active enforcement policy, including monitoring by independent
third parties." In VF's view, the Company is already "enforcing" current
policies by imposing penalties and compelling remedies. Once again, VF misses
the point. The goal is to have an enforceable policy that is, in fact,
consistently enforced by independent monitors. Moreover, that policy must go
well beyond current standards that VF has in place, to include other critical
ILO standards that VF policies do not currently embrace. Nor is there any merit to the suggestion that the reference to "monitoring by
independent third parties" is vague and ambiguous because, in VF's view, it
"would seem to suggest" that third parties should have rights to seek remedies.
This is not a credible interpretation of the language. Independent third party
monitoring efforts are central to the credibility of a company's overseas
enforcement policies. Conclusion For these reasons, the Funds respectfully submit that the Company's request for
no-action relief should be denied. We appreciate the Division's consideration of
these points. Very truly yours, /s/
Richard S. Simon cc: Steven C. Root, Esq.
-----FOOTNOTES----- * Christian Brothers Investment Services, Inc. is a co-sponsor of the Proposal.
[STAFF REPLY LETTER]
February 13, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: V. F. Corporation
Incoming letter dated January 5, 2004 The proposal urges the board of directors to adopt and implement an enforceable
company-wide human rights policy based upon the International Labor
Organization's conventions, including the three principles set forth in the
proposal, and prepare a report concerning implementation of the policy.
We are unable to concur in your view that VF may omit the entire proposal under
rule 14a-8(i)(3). There appears to be some basis for your view, however, that a
portion of the supporting statement may be materially false or misleading under
rule 14a-9. In our view, the proponents must provide a citation to a specific
source for the statement that begins "reports of abuses..." and ends "...
supplier in Lesotho." Accordingly, unless the proponents provide VF 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 VF omits only this portion 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 VF may exclude the proposal under rule
14a-8(i)(7). Accordingly, we do not believe that VF may omit the proposal from
its proxy materials in reliance on rule 14a-8(i)(7). We are unable to concur in your view that VF may exclude the proposal under rule
14a-8(i)(10). Accordingly, we do not believe that VF may omit the proposal from
its proxy materials in reliance on rule 14a-8(i)(10). Sincerely,
/s/ John J. Mahon
Attorney-Advisor
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