Company Name: Walt Disney
Public Availability Date: October 15, 2004
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, N. Y. 10019 - 6150
TELEPHONE: (212) 403-1000
FACSIMILE: (212) 403-2000
October 15, 2004
DELIVERED BY HAND
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Shareholder Proposal Submitted by St. Joseph Health System et al. for Inclusion in the
2005 Proxy Statement of The Walt Disney Company
Ladies and Gentlemen:
This letter is submitted on behalf of our client, The Walt Disney Company (the
"Company"), which has received a shareholder proposal and supporting statement (the
"Proposal") sponsored by St. Joseph Health System ("St. Joseph") and co-sponsored by the
Ursuline Provincialate of the Eastern Province of the United States, the Sisters of St. Francis of
Philadelphia, and the Sisters of St. Dominic of Racine, Wisconsin (together with St. Joseph, the
"Sponsors"), which Proposal was submitted for inclusion in the proxy statement and form of
proxy to be distributed to the Company's shareholders in connection with its 2005 annual
meeting of shareholders (the "2005 Proxy Materials"). The Company hereby notifies the
Securities and Exchange Commission (the "Commission") and the Sponsors of the Company's
intention to exclude the Proposal from its 2005 Proxy Materials for the reasons set forth below.
The Company respectfully requests that the staff of the Division of Corporation Finance of the
Commission (the "Staff") confirm that it will not recommend any enforcement action to the
Commission if the Company excludes the Proposal from its 2005 Proxy Materials.
WACHTELL, LIPTON, ROSEN & KATZ
U.S. Securities and Exchange Commission
October 15, 2004
Page 2
Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), enclosed for filing with the Commission are six copies of (i) this letter, which
includes an explanation of why the Company believes that it may exclude the Proposal and (ii)
the Proposal. I. The Proposal Presented by the Sponsors
A copy of the Proposal is attached as Annex A hereto. For your convenience, the text of
the resolution contained in the Proposal is set forth below:
RESOLVED, the shareholders request the Board's Compensation Committee, when
setting executive compensation, to include social responsibility and environmental
(as well as financial) criteria among the goals that executives must meet.
II. The Proposal May Be Excluded Because It Is So Vague or Indefinite that Neither the
Stockholders nor the Company Would Be Able to Determine What It Requires
Rule 14a-8(i)(3) under the Exchange Act permits the omission of a proposal or any
statement in support thereof if such proposal or statement is "contrary to any of the
Commission's proxy rules, including Rule 14a-9 under the Exchange Act, which prohibits
materially false or misleading statements in proxy soliciting materials." While the Commission,
in Staff Legal Bulletin 14B (September 15, 2004), clarified the circumstances in which
companies will be permitted to exclude proposals pursuant to Rule 14a-8(i)(3), it expressly
reaffirmed that vague or indefinite proposals and proposals where the resolution and supporting
statement are inconsistent may be subject to exclusion. According to Staff Legal Bulletin 14B
(September 15, 2004): There continue to be certain situations where we believe modification or exclusion may
be consistent with our intended application of rule 14a-8(i)(3). In those situations, it may
be appropriate for a company to determine to exclude a statement in reliance on rule 14a-
8(i)(3) and seek our concurrence with that determination. Specifically, reliance on rule
14a-8(i)(3) to exclude or modify a statement may be appropriate where
>>> the resolution contained in the proposal is so inherently vague or indefinite that neither
the stockholders voting on the proposal, nor the company in implementing the proposal
(if adopted), would be able to determine with any reasonable certainty exactly what
actions or measures the proposal requires - this objection may also be appropriate when
the proposal and the supporting statement, when read together, have the same result.
The reason for excluding vague and indefinite proposals is that a shareholder voting on
such a proposal may believe that approval would produce a result that is wholly different from
the result the proponent anticipates or that the registrant's board of directors understands would
WACHTELL, LIPTON, ROSEN & KATZ
U.S. Securities and Exchange Commission
October 15, 2004
Page 3
need to follow, so that subsequent reasonable efforts by the registrant to implement the proposal
may contravene the intentions of some or all of the shareholders that voted for it. In Puget
Energy, Inc. (March 7, 2002), for example, the Staff agreed that there was basis to exclude as
vague and indefinite under Rule 14a-8(i)(3) a proposal for "improved corporate governance,"
where the registrant's letter to the Staff had argued that "[s]hareholders should not be asked to
speculate as to that on which they are voting" and that the proposal's "ambiguity is likely to lead
groups of shareholders to reach different conclusions about [its] purpose" and "cause any action
taken by the [registrant] to differ significantly from the actions envisioned by some of the
shareholders." This concern has supported exclusion of a number of proposals specifically related to
executive compensation. See, e.g., Eastman Kodak Company (March 3, 2003) (agreeing that
there was basis to exclude under Rule 14a-8(i)(3) a proposal that "the Top Salary be 'capped' at
$1,000,000.00 to include bonus, perks, [and] stock options as vague and indefinite, where the
registrant's letter to the Staff cited a lack of defined terms, valuation problems, and timing
ambiguities); General Electric Company February 5, 2003) (permitting exclusion under Rule
1 4a-8(i)(3) of a proposal requesting that the board of directors seek shareholder approval for
compensation of senior executives and board members where the company argued that "neither
the share owners nor the [registrant's board of directors] would be able to determine what action
or measures would be taken if the proposal were implemented"); Philadelphia Electric Co. (July
30, 1992) (permitting exclusion under Rule 14a-8(c)(3), the predecessor of Rule 14a-8(i)(3), of a
proposal relating to election of committee of small shareholders that will present the board with a
plan "that will in some measure equate with the gratuities bestowed on Management, Directors
and other employees"). The Staff has also agreed to the exclusion under Rule 14a-8(i)(3) of proposals concerned
with social responsibility, even when their meaning was more easily discernible than it is in the
current Proposal. In Johnson & Johnson (February 7, 2003), for instance, the excluded proposal
requested a report regarding the registrant's progress concerning "the Glass Ceiling
Commission's business recommendations," including a review of certain specific items. See
also Alcoa Inc. (December 24, 2002) (finding vague and agreeing to the omission of a proposal
calling for the implementation of "human rights standards"); Ann Taylor Stores Corp. (March
13, 2001) (same); Bristol-Myers Squibb Co. (February 1, 1999) (permitting the exclusion of a
proposal that required the company to adopt a policy of pursuing the preservation of unborn
children); The Procter & Gamble Company (October 25, 2002) (permitting omission of a
proposal requesting that the board of directors create a fund that would provide lawyers, clerical
help, witness protection and records protection for victims of retaliation, intimidation and
troubles because they are stockholders of publicly-owned companies).
The current Proposal is vague and indefinite in a number of fundamental respects. First,
it fails to specify the "social responsibility" and "environmental" criteria with which it is
concerned. It does not indicate whether the focus should be global or local - or perhaps just
limited to the workplace - or what matters should be considered. The "Whereas" clause poses
WACHTELL, LIPTON, ROSEN & KATZ
U.S. Securities and Exchange Commission
October 15, 2004
Page 4
rhetorical questions with regard to "sexual harassment" and "race discrimination" and
environmental accidents," but the Proposal does not indicate whether these specific matters
should be considered or how they should be considered. The Proposal notes that 70% of Fortune
100 companies "use at least one social responsibility criteri[on]," but does not specify which
one(s) it would have the Company's shareholders vote on or the Company use.
Second, although the Proposal says that social responsibility and environmental criteria
should be "among the goals that executives must meet," it does not set forth the means by which
the executives' compliance with such goals would be measured. The Company would be left
unable to decide what type of criteria it should use to evaluate an executive's performance with
respect to matters of social responsibility. Again, the Proposal poses a hypothetical, asking
whether "responsible officers pay [should] be on a business-as-usual scale in a year of a major
environmental accident," but does not begin to consider, for instance, who would judge whether
such an incident is "major" and which officers would be deemed "responsible" in any given case.
Third, the supporting statement doesn't lend any support to the resolution; it merely says
that it is important that the Company "adopt social responsibility and environmental criteria for
executive compensation because" and then includes a litany of statistics solely related to tobacco
smoking - and nothing else. This suggests that depiction of smoking should be a criterion, but
leaves the Company (and shareholders) unclear as to what role other issues (including those
mentioned in the "Whereas" clause) should play. Nor does the reference to smoking in motion
pictures provide any clarity as to how compensation should be evaluated with respect to this
issue. The Company would have no idea what actions with regard to the depiction of smoking in
movies might be grounds for increasing or decreasing executive compensation, and shareholders
voting for the Proposal would have no way of determining what actions the Proposal would
encourage or discourage and what the ultimate effect on compensation would be.
The Staff has concurred in the exclusion of a similar proposal in RJR Nabisco Holdings
Corp. (February 25, 1998). In that case, shareholders had proposed to link executive
compensation with a "reduction in teenage smoking." The registrant sought to exclude the
proposal as beyond the registrant's power to effectuate because it was "unclear what specific
standards the company would have to meet." This Proposal's standards are no clearer than those
of the proposal in RJR Nabisco Holdings Corp. - indeed, this Proposal offers no specific
standards at all. As in RJR Nabisco Holdings Corp., the Proposal is properly excludable under
Rule 14a-8(i)(6). The Proposal may also be excluded as vague and indefinite because the supporting
statement is largely irrelevant to the Proposal and its "Whereas" clause. he supporting
statement fails to draw a connection between the studies relating to smoking in the movies
described in the statement and the substance of the Proposal itself. he Staff stated in Staff
Legal Bulletin 14 (July 13, 2001) that "when a proposal and supporting statement will require
detailed and extensive editing in order to bring them into compliance with the proxy rules, [the
Staff] may find it appropriate for companies to exclude the entire proposal, supporting statement,
or both as materially false or misleading." The Staff has concurred in exclusion on this ground
WACHTELL, LIPTON, ROSEN& KATZ
U.S. Securities and Exchange Commission
O.ctober 15, 2004
Page 5
when, as here, there is a substantial disconnect between the Proposal and the supporting
statement. In Kmart Corp. (March 28, 2000), the Staff concurred in exclusion of a proposal to
disclose contributions to political parties not recognizing the rights of the unborn when the
supporting statement consisted entirely of statements largely irrelevant to the proposal.1/
Accordingly, based upon Rule 14a-8(i)(3) and Rule 14a-8(i)(6), the Company intends to
exclude the Proposal from the 2005 Proxy Materials. The Company respectfully requests the
Staff to confirm that it will not recommend enforcement action if the Company omits the
Proposal from the 2005 Proxy Materials pursuant to Rule 14a-8(i)(3) and Rule 14a-8(i)(6).
III. The Proposal May Be Excluded Because the Sponsors Cannot Evade the "Ordinary.
Business Operations" Exclusion by Linking an Excludable Matter to Executive
Compensation The Proposal's focus on executive compensation is an apparent attempt to circumvent the
"ordinary business operations" exclusion for proosals relating to the content, sale, distribution
or manner of presentation of particular products.2/ The Sponsors' attempt to circumvent the
ordinary business exclusion by submitting this Proposal must fail, however, because the Staff has
consistently taken the position that a proposal may be excluded in its entirety pursuant to Rule
14a-8(i)(7) if part of the proposal relates to ordinary business, even when the remainder of the
proposal relates to matters other than ordinary business, such as executive compensation. In
Associated Estates Realty Corporation (March 23, 2000), the Staff concluded that a proposal
which made recommendations concerning the compensation of the chief executive officer and
the institution of a business plan which would include disposition of non-core businesses and
assets could be excluded in its entirety because it related in part to ordinary business operations.
1/ Even if the Staff were to disagree that the Proposal is vague and indefinite, and hence excludable in its entirety, the
total irrelevance of the supporting statement requires at a minimum that the supporting statement be excluded from
the Proposal. As discussed above, Staff Legal Bulletin 14B expressly reaffirmed certain grounds for "modification
or exclusion" of proposals in accordance with Rule 14a-8(i)(3). Among the grounds specifically reaffirmed were
situations where "substantial portions of the supporting statement are irrelevant to a consideration of the subject
matter of the proposal, such that there is a strong likelihood that a reasonable shareholder would be uncertain as to
the matter on which she is being asked to vote." In the precedents, the Staff has also consistently recognized that
supporting statements, or portions thereof, which are unrelated or irrelevant to the subject matter of the proposal
may be confusing and misleading to shareholders in violation of Rule 14a-9 and are excludable pursuant to Rule
14a-8(i)(3) or its predecessor, Rule 14a-8(c)(3). See, e.g., Freeport-McMoRan Copper & Gold Inc. (February 22,
1999); Knight-Ridder, Inc. (December 28, 1995); Cigna Corp. (February 16, 1988).
2/ This Proposal was submitted by members of a group of agencies who have been working together with other
agencies on issues relating to the depiction of smoking in the movies. Other members of this group have submitted
a separate proposal for inclusion in the Company's 2005 Proxy Materials calling for a report on "(i) the impact on
adolescent health arising from their exposure to smoking in movies (or other Company programming) our Company
has released or distributed and (ii) any plans to minimize such impacts in the future" (the "Health Impacts
Proposal"). The Company believes it may exclude the Health Impacts Proposal Under the long line of no-action
letters supporting exclusion of such proposals and has submitted a separate letter regarding that proposal.
WACHTELL, LIPTON, ROSEN & KATZ
U.S. Securities and Exchange Commission
October 15, 2004
Page 6
Similarly, in E*Trade Group, Inc. (October 31, 2000), the Staff concurred in the omission of a
proposal under the ordinary business exclusion which recommended a number of potential
mechanisms for increasing shareholder value, including: (a) the sale of the company; (b)
changes to the executive compensation plan to more accurately reflect company performance and
tie compensation to that performance; (c) reduction of staff to improve earnings performance;
and (d) dismissal and replacement of executive officers. The Staff concluded that since two out
of four of the mechanisms suggested by the proponent implicated ordinary business matters, the
entire proposal should be omitted. The same conclusion should be reached with regard to this Proposal because the
supporting statement makes it clear that the Sponsors are using the form of an executive
compensation proposal to sneak in its otherwise excludable opinion regarding a matter of
ordinary business (on-screen smoking in the Company's movies).
A proponent using a similar strategy failed in Wal-Mart Stores, Inc. (March 15, 1999),
where the proposal, on the surface, seemed to be seeking a report on the company's actions to
ensure it did not purchase from suppliers who manufactured items using forced labor, convict
labor, child labor or who failed to comply with laws protecting their employees' wages, benefits,
working conditions, freedom of association and other rights. The Staff noted, however, that a
paragraph of the submission related to the registrant's policies to implement wage adjustments to
ensure adequate purchasing power and a sustainable living wage. Given that this paragraph
implicated ordinary business matters, the Staff determined that the entire proposal could be
excluded under Rule 14a-8(i)(7). See also Z-Seven Fund, Inc. (November 3, 999) (proposal
containing corporate governance recommendations as well as ordinary business
recommendations was permitted to be excluded in its entirety, with the Staff reiterating its
position that it is not their practice to permit revisions to shareholder proposals under the
ordinary business exception). Consistent with past Staff practice, this Proposal should be
excludable under Rule 14a-8(i)(7), and no revisions should be permitted.
Accordingly, based upon Rule 14a-8(i)(7), the Company intends to exclude the Proposal
from the 2005 Proxy Materials. The Company respectfully requests the Staff to confirm that it
will not recommend enforcement action if the Company omits the Proposal from the 2005 Proxy
Materials pursuant to Rule 14a-8(i)(7). IV. Conclusion
For the foregoing reasons, the Company respectfully requests that the Staff confirm that it
would not recommend enforcement action if the Company omits the Proposal from its 2005
Proxy Materials. If you have any questions, or if the Staff is unable to concur with the
Company's conclusions without additional information or discussions, the Company respectfully
requests the opportunity to confer with members of the Staff prior to the issuance of any written
response to this letter. Please do not hesitate to contact the undersigned, Pamela S. Seymon, at
(212) 403-1205.
WACHTELL, LIPTON, ROSEN & KATZ
U.S. Securities and Exchange Commission
October 15, 2004
Page 7
Please acknowledge receipt of this letter and its attachments by stamping the enclosed
copy of the first page of this letter and returning it in the self-addressed stamped envelope
provided for your convenience. Very truly yours,
Pamela S. Seymon
|
