Company Name: Verizon Communications Inc.
Public Availability Date: January 26, 2004
Document Sections: INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
December 18, 2003 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Verizon Communications Inc. - Omission of Shareholder Proposal Pursuant to
Rule 14a-8 Dear Sir or Madam: We are writing on behalf of our client, Verizon Communications Inc., a Delaware
corporation (the "Company"), pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, as amended, to respectfully request that the Staff of the
Division of Corporation Finance (the "Staff") of the Securities and Exchange
Commission (the "Commission") concur with the Company's view that, for the
reasons stated below, the shareholder proposal and supporting statement (the
"Proposal") submitted by NorthStar Asset Management, Inc. ("NorthStar") and
cosponsored by Michael C. Bleiweiss, Rosemary Faulkner, Frank T. Lossy, Kathleen
Ladd Ward and Carol Master (together with NorthStar, collectively, the
"Proponents"), may properly be omitted from the proxy materials (the "ProxyMaterials")
to be distributed by the Company in connection with its 2004 annual meeting of
shareholders. Pursuant to Rule 14a-8(j)(2), we are enclosing six copies of (i) this letter and
(ii) the Proposal and cover letter dated November 12, 2003 submitted by
NorthStar, attached hereto as Exhibit A. In accordance with Rule 14a-8(j), a
copy of this submission is being sent simultaneously to each of the Proponents.
I. Introduction The Proponent requests that the Company's Board of Directors (the "Board")
prepare a report, documenting the distribution of options to employees by race
and gender. Specifically, the Proposal states: "Shareholders request that the Board shall prepare a special report, documenting
the distribution of 2003 stock options by race and gender of the recipient of
the stock options (i.e. percentage of options received by white men, white
women, African-American men, African-American women and so on). The report shall
also provide context explaining the recent trends in options granted to women
and employees of color. The report, prepared at reasonable cost and omitting
proprietary information, shall be available to shareholders, upon request, no
later than October 1, 2004." The Company requests that the Staff concur with its view that the Proposal may
properly be omitted from the Proxy Materials pursuant to Rule 14a-8(i)(7)
because, as discussed below, the Proposal deals with matters relating to the
conduct of ordinary business operations of the Company. II. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(7) Because it Would
Interfere with the Conduct of Ordinary Business Operations
Rule 14a-8(i)(7) permits a company to omit a proposal from its proxy materials
if it "deals with a matter relating to the company's ordinary business
operations." In its Release accompanying the amendments to Rule 14a-8 in 1998,
the Commission stated that the ordinary business exclusion was introduced "to
confine the resolution of ordinary business problems to management and the board
of directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual shareholders meeting." See Exchange Act Release No.
34-40018 (May 21, 1998). The Proposal should be excluded from the Proxy Materials since the subject
matter relates to general compensation matters fundamental to management's
ability to run the Company effectively. It has been well established that
general compensation matters do not raise significant social policy issues. The
Staff has consistently taken the position that proposals addressing a company's
"general compensation matters," including stock based compensation, as
distinguished from proposals addressing the compensation of senior executives
and directors, are within the "ordinary business operations" exclusion under
Rule 14a-8(i)(7). See Sempra Energy (March 5, 2003) (proposal recommended
limitations on the issuance of stock options and stock derivatives); American
Express Co. (January 16, 2003) (permitting exclusion of a proposal requesting
the board of directors not issue stock options to "higher management" unless
proposal limited to executive officers); ConAgra Foods, Inc. (July 19, 2002)
(permitting exclusion of a proposal recommending equity plan terms be amended
and requiring accounting changes); Huntington Bancshares (January 11, 2001)
(permitting exclusion of a proposal seeking to amend a company plan so cash
incentive awards would be based not only on return on average shareholders'
equity, but also return on average assets and customer satisfaction surveys);
Minnesota Mining and Manufacturing Co., Inc. (March 4, 1999) (permitting
exclusion of a proposal limiting yearly percentage increase of "top 40
executives" and CEO's compensation to amounts determined by formulas excludable
as "relating to ordinary business operations (i.e. general compensation
matters)"); and Caterpillar, Incorporated (February 13, 1992) (permitting
exclusion of a proposal on stock options to all employees). The granting of
stock options to employees is precisely the type of delegation to shareholders
of ordinary corporate decisionmaking that Rule 14a-8(i)(7) was designed to
prevent. See Comshare, Inc. (September 5, 2001); T. Rowe Price Associates, Inc.
(February 7, 2000); and Bio-Technology General Corporation (April 28, 2000).
The Proposal requests that the Board prepare a special report "documenting the
distribution of 2003 stock options by race and gender of the recipient" and
clearly does not apply solely to senior executive officers or directors of the
Company. Accordingly, the Proposal relates to general compensation issues which
are within the scope of the Company's ordinary business operations.
Where executive compensation and general compensation may be intertwined in a
proposal, the Staff consistently has determined that the proposal is not a
proper subject for shareholder action and may be excluded as relating to
ordinary business operations. See Comshare, Incorporated (September 5, 2001)
(permitting exclusion of a proposal seeking to improve disclosure of company's
strategy for awarding stock options to top executives and directors); see also,
AT&T Corp. (February 28, 2000) (proposal seeking to modify stock-based incentive
planpursuant to which the company made stock option grants to all employees);
and Bio-Technology General Corp. (April 28, 2000) (proposal excluded because it
applied to a plan in which substantially all employees were eligible to
participate). The Staff consistently has taken the position that a proposal may be omitted
under Rule 14a-8(i)(7) where the proposal deals with matters relating to the
conduct of the company's ordinary business, even if the Staff concludes that
certain matters covered by the proposal may be outside the scope of ordinary
business. See E*Trade Group, Inc. (October 31, 2000) (permitting exclusion of a
proposal when two of the four means suggested to enhance shareholder value
related to ordinary business matters and two did not); and Z-Seven Fund, Inc.
(November 3, 1999) (complete exclusion of a proposal was permitted, with the
Staff "noting in particular that although part of the proposal appears to
address matters outside the scope of ordinary business, certain matters
contained in the proposal refer to ordinary business matters.")
The Staff has taken the same position regarding proposals for reports covering
both ordinary business and other matters. See, e.g., The Warnaco Group, Inc.
(March 12, 1999) (permitting exclusion of a proposal for a report related to
labor practices where "paragraph 3 of the description of matters to be included
in the report relates to ordinary business operations"); Wal-Mart Stores, Inc.
(March 15, 1999) (same); Kmart Corporation (March 12, 1999) (same); and
International Business Machines Corporation (January 9, 2001) (permitting
exclusion of a proposal dealing with ordinary business matters as well as
executive compensation). Accordingly, while the Proposal may also implicate
issues of workplace diversity, which arguably address issues of social policy,
the Proposal is nonetheless excludable because it directly deals with general
employee compensation. Additionally, the Staff has a long-standing policy of not permitting proponents
to revise overly-broad shareholder proposals once it becomes apparent that they
would be excludable under Rule 14a-8(i)(7) because they address "ordinary
business operations." This policy was reaffirmed in Section E.5 of the Division
of Corporation Finance: Staff Legal Bulletin No. 14 (July 13, 2001), where the
Staff stated that proposals excludable under Rule 14a-8(i)(7) may only be
revised "[i]f it is unclear whether the proposal focuses on senior executive
compensation or director compensation, as opposed to general employee
compensation ..." Here, it is clear that the Proposal focuses on general
employee compensation. The Staff's position prohibiting such revisions to shareholder proposals
concerning general employee compensation is evidenced in numerous noaction
letters. Where proposals clearly apply to a registrant's "general
compensatiomatters," the Staff does not permit proponents to revise proposals in
order to limit them to "executive compensation." See, e.g., E.I. du Pont de
Nemours and Company (March 15, 2001) (proposal that no employee at a company
site receive a profitsharing bonus unless all employees at the site receive the
bonus); Sempra Energy (January 30, 2001) (proposal related to stock options and
stock-based compensation of "employees" generally); and AT&T Corp. (February 28,
2000) (proposal related to stock-based compensation generally).
The fact that the Proposal is framed as a request that the Board prepare a
report concerning general compensation of employees instead of asking the Board
to take action with respect to general employee compensation does not affect the
analysis that the Proposal may be excluded pursuant to Rule 14a-8(i)(7). It is
the Commission's long-standing position that the Staff should look to the
substance of the report in order to determine whether ordinary business matters
are involved. In its Release accompanying the amendments to Rule 14a-8 in 1983,
the Commission stated: "proposals requesting issuers to prepare reports on specific aspects of their
business or to form special committees to study a segment of their business
would not be excludable under Rule 14a-8(c)(7)1. Because this interpretation
raises form over substance and renders the provisions of paragraph (c)(7)
largely a nullity, the Commission has determined to adopt the interpretative
change set forth in the Proposing Release. Henceforth, the staff will consider
whether the subject matter of the special report or the committee involves a
matter of ordinary business; where it does, the proposal will be excludable
under Rule 14a-8(c)(7)." Exchange Act Release No. 34-20091 (August 16, 1983).
The Staff consistently has looked at the subject matter of the requested report
in determining the applicability of the provisions of Rule 14a-8(i)(7). See,
e.g., Hilton Hotels (March 14, 2003) (permitting exclusion of a proposal
requesting board to account for all executive retirement benefits, including
deferred compensation and the Supplemental Retirement and Retention Plan); UAL
Corporation (February 17, 2002) (permitting exclusion of a proposal requesting
that board prepare a report on the pension liability of the company's SERP and
all other qualified pension plans); United Technologies Corporation (January 9,
2002) (same); American Home Products Corporation (February 24, 2000) (permitting
exclusion of a proposal requiring company to prepare a report on employee
ownership); and MBNA Corporation (February 23, 2000) (same).
III. Conclusion For the reasons discussed above, the Company requests that the Staff concur with
the Company's view that the Proposal may properly be omitted from the Proxy
Materials under Rule 14a-8(i)(7) because the Proposal relates to general
compensation matters and would interfere with the conduct of the Company's
ordinary business operations. Should the Staff disagree with the Company's
position or require any additional information, we would appreciate the
opportunity to confer with the Staff concerning these matters prior to the
issuance of its response. If the Staff has any questions or comments regarding the foregoing, please
contact the undersigned at (212) 735-3360, or, in my absence, Richard J.
Grossman of this firm, at (212) 735-2116. Very truly yours,
/s/ Daniel E. Stoller
Enclosures cc: Marianne Drost, Esq., Senior Vice President, Deputy General Counsel and
Corporate Secretary, Verizon Communications Inc.
Ms. Julie N. W. Goodridge, President, NorthStar Asset Management, Inc.
Mr. Michael C. Bleiweiss
Ms. Rosemary Faulkner
Mr. Frank T. Lossy
Ms. Kathleen Ladd Ward
Ms. Carol Master
Mr. Scott Klinger -----FOOTNOTES-----
1 The predecessor to the current Rule 14a-8(i)(7). [APPENDIX 1]
Exhibit A RTHSTAR ASSET MANAGEMENT INC
November 12, 2003
Ms. Marianne Drost
Corporate Secretary
Verizon Communications, Inc.
1095 Avenue of the Americas, 38thFloor
New York, NY 10036 Dear Ms. Drost:
As Verizon shareholders, we have followed with great interest our company's
initiatives to become a leader in workplace diversity. As citizens we are
concerned that the racial wealth gap in America continues to widen and believe
that corporate compensation practices must come under greater scrutiny to be
sure they are free from bias. We would like Verizon to extend its diversity
leadership by publicly disclosing its stock option distribution by the race and
gender of option recipients. Therefore as the beneficial owner, as defined under Rule 13(d)-3 of the General
Rules and Regulations under the Securities Act of 1934, of 2,597 shares of
Verizon Communications common stock, NorthStar Asset Management, Inc. is
submitting for inclusion in the next proxy statement, in accordance with Rule
14a-8 of these General Rules, the enclosed shareholder proposal. NorthStar Asset
Management, Inc. is acting as the lead filer of this resolution, which we expect
others to co-file. The proposal asks the Board of Directors to prepare a report
on the distribution of 2003 stock options by the race and gender of recipients
and to provide background context by commenting on recent trends in stock option
distribution by race and gender. As required by Rule 14a-8 NorthStar has held these shares for more than one year
and will continue to hold the requisite number of shares through the date of the
next stockholders' annual meeting. Proof of ownership will be provided upon
request. One of the filing shareholders or our appointed representative will be
present at the annual meeting to introduce the proposal. Please send copies of all correspondence pertaining to this resolution to: Scott
Klinger; United for a Fair Economy/Responsible Wealth; 37 Temple Place; Boston,
MA 02111, who is assisting me in filing this resolution. United for a Fair
Economy, the parent organization of the Responsible Wealth project, is a
national non-profit organization working to address economic inequity both
legislatively and through shareholder activism. A commitment from Verizon to prepare this report would allow this resolution to
be withdrawn. We believe that this proposal is in the best interest of Verizon
and its shareholders. Sincerely, /s/
Julie, N. W. Goodridge
President [APPENDIX 2]
Stock Option Glass Ceiling WHEREAS, Verizon is one of hundreds of large companies to publish an annual diversity
report. These reports allow shareholders and other interested parties to see the
company's progress in creating opportunities for women and people of color.
Verizon has received many honors for its diversity efforts, including being
named as one of the 50 Best Companies for Minorities by Fortune magazine.
Despite these honors, Verizon has been the subject of discrimination lawsuits by
its employees. In 2002, Verizon settled a long-fought federal court suit and
agreed to grant employment credit for retirement purposes to women employees who
had taken pregnancy leave during their careers. In April 2002, a group of
Verizon's Latino management employees filed charges with the Equal Employment
Opportunity Commission alleging racial discrimination in compensation,
advancement and termination. The complaint seeks class action status on behalf
of 3,500 Latino managers at Verizon. Employee discriminatioa suits are on the rise nationwide and can be financially
costly to companies and risk damage to their reputation. In 2000, Coca-Cola
settled one of the nation's largest employee race discrimination suits for $192
million. One of the frequent contentions in employee discrimination suits is that
employees are compensated differently on the basis of their race and gender.
Historically these cases have rested largely on the payment of salaries and
bonuses, but we believe in the future, employees will look more closely at
corporate wealth distributed in the form of stock options.
According to the Company's 2003 proxy statement, Verizon distributed more than
30 million options to employees in 2002: 9.1% of total options went to the seven
most highly compensated officers, representing 0.003% of all employees. Only one
of the seven highest paid officers was a woman. RESOLVED,
Shareholders request that the Board shall prepare a special report, documenting
the distribution of 2003 stock options by race and gender of the recipient of
the stock options (i.e. percentage of options received by white men, white
women, African-American men, African-American women and so on). The report shall
also provide context explaining the recent trends in options granted to women
and employees of color. The report, prepared at reasonable cost and omitting
proprietary information, shall be available to shareholders, upon request, no
later than October 1, 2004. SUPPORTING STATEMENT
Verizon's annual diversity report is helpful in seeing our company's progress in
advancing women and people of color to positions of greater responsibility
within the company. This requested reporwill provide additional information that
will allow shareholders to evaluate whether there is a stock option glass
ceiling at Verizon, that might lead to potential future liability. In requesting
this report we wish to be sure that all Verizon's employees receive
wealth-creating opportunities that fairly reflect their role and contribution to
the company. Verizon has been a leader in corporate diversity initiatives and we
believe the disclosure of this additional information is consistent with our
company's commitment to continued leadership on diversity issues.
Please vote FOR this resolution. [INQUIRY LETTER]
January 19, 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549 Re: Verizon Communications Inc. "no-action" request dated December 18, 2003
concerning shareholder proposal seeking report on stock option distribution by
the race and gender of option recipients. Ladies and Gentlemen:
In its letter of December 18, 2003, Verizon Communications Inc. (the "Company")
indicated its intention to omit a shareholder resolution submitted by NorthStar
Asset Management and five other shareholders (collectively, the "Proponents").
This letter is submitted on behalf of the collective Proponents.
The Proposal asks the Company to prepare a report outlining the distribution of
stock options by the race and gender of the option recipients. In addition the
Proposal asks the Company to comment on recent trends in the distribution of
options by race and gender. The Company believes the Proposal violates Rule 14a-8(i)(7) (the "ordinary
business" exclusion). In its letter, the Company argues that the Proposal
concerns general compensation matters, and cites numerous precedents supporting
why such matters are excludable. The Proponents believe that the Proposal is a matter of social policy,
specifically social policy dealing with the issue of corporate diversity. The
Commission has broadly established precedents allowing shareholders to vote on
such things as the public disclosure of EEO-1 data. This Proposal is an
extension of such disclosures. The Proponents acknowledge that the Proposal does deal with matters of general
employee compensation, but only in order to serve the higher purpose of insuring
that sound social policy is carried out. The Proposal takes a step beyond the
already permitted EEO-1 shareholder proposals, to ascertain whether the job
advancements for women and minorities revealed in the EEO-1 forms are also
translating into improved financial remuneration of employees.
In general, US corporations concentrate stock options in higher level jobs with
greater responsibilities. The Proponents believes the Company'compensation
practices follow this model as the top seven executives received more than 9% of
stock options in 2002. The intent of the Proposal is two-fold. First to provide additional data to
EEO-1 forms to ascertain whether the advancement of women and members of racial
minority groups are not just being rewarded with a job title, but with real
compensation as befits their responsibilities. Second, the Proposal seeks to
provide additional information to shareholders about the financial risks they
may be incurring in a climate of heightened employment wage discrimination
suits. Because the Proponents believe this Proposal is, first and foremost, a matter of
social policy, rather than general employee compensation, the Proponents do not
believe that the Company's multiple precedents are valid in this matter. This is
a new resolution for the Commission for which the Proponents believe there is no
clear precedent. The question is whether this Proposal is viewed as an extension
of permissible EEO-1 disclosure requests. The Proponents ask the Commission to
concur that the Proposal is a matter of social policy and that the Company's
petition for "no-action" relief be denied. In accordance with Rule 14-8(j) please find six copies of this letter enclosed.
A copy of this letter has been simultaneously sent to Marianne Drost, Corporate
Secretary of the Company. Thank you for your consideration.
Sincerely, /s/
Scott Klinger
Co-Director, Responsible Wealth On behalf of the Proponents
Cc: Julie Goodridge, NorthStar Asset Management
Michael Bleiweiss
Rosemary Faulkner
Frank Lossy, MD
Kathleen Ladd Ward
Carol Master
Marianne Drost, Verizon Communications
Daniel Stoller, Skadden, Arps (attorney for the Company)
[STAFF REPLY LETTER]
January 26, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Verizon Communications Inc. Incoming letter dated December 18, 2003
The proposal requests that the board prepare a report that documents the
distribution of 2003 stock options by the recipient's race and gender and
discusses recent trends in stock options granted to women and employees of
color. We are unable to concur in your view that Verizon may exclude the proposal under
rule 14a-8(i)(7). Accordingly, we do not believe that Verizon may omit the
proposal from its proxy materials in reliance on rule 14a-8(i)(7).
Sincerely, /s/
Lesli L. Sheppard-Warren
Attorney-Advisor
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