Company Name: Walt Disney Co.
Public Availability Date: November 24, 2004
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
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 Connecticut Retirement Plans & Trust Funds
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") submitted by the Connecticut Retirement Plans & Trust Funds
(the "Proponent"), 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 Proponent 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.
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 Proponent
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.
NOW THEREFORE BE IT RESOLVED: That the shareholders of the company urge the
Board of Directors to amend the Corporate Governance Guidelines, and take what
ever other actions are necessary to set as a company policy that the Chairman of
the Board of Directors will always be an independent member of the Board of
Directors, except in rare and explicitly spelled out, extraordinary
circumstances.
II. The Proposal May Be Excluded Because the Company Would Lack the Power and
Authority to Implement the Proposal
Rule 14a-8(i)(6) provides that a company may omit a shareholder proposal "if the
company would lack the power and authority to implement the proposal." The Staff
has repeatedly concurred in the exclusion of substantially similar shareholder
proposals to separate the roles of Chairman and Chief Executive Officer, and to
require an independent Chairman of the Board. See, e.g., H.J. Heinz Company
(June 14, 2004); South Trust Corporation (Jan. 16, 2004); Bank of America
Corporation (Feb. 24, 2004); AmSouth Bancorporation (Feb. 24, 2004); Wachovia
Corporation (Feb. 24, 2004). In each response, the Staff stated in particular
that, "in our view, it does not appear to be within the board's power to ensure
that an individual meeting the specified criteria would be elected as director
and serve as chairman of the board." In addition, in Cintas Corporation (August
27, 2004), the Staff stated in particular that because "it does not appear to be
within the power of the board of directors to ensure that its chairman retains
his or her independence at all times and the proposal does not provide the board
with an opportunity or mechanism to cure such a violation of the standard
requested in the proposal, it appears that the proposal is beyond the power of
the board to implement." The arguments accepted by the Staff in those letters
are equally applicable to the instant Proposal.
In order to comply with the Proposal, the Company would be required to ensure
that: (i) a sufficient number of independent directors are elected by the
shareholders each year to appropriately fill the position of Chairman of the
board of directors (the "Board") of the Company and the respective positions on
the Board's Audit Committee, Governance and Nominating Committee and
Compensation Committee, which are required by the New York Stock Exchange to be
completely independent; (ii) that one of the "independent" directors would be
qualified and willing to serve as Chairman; and (iii) that the Chairman always
remain "independent" except in "rare and explicitly spelled out, extraordinary
circumstances." The Company is a Delaware corporation and is subject to the
Delaware General Corporation Law (the "DGCL"). Pursuant to Section 211 of the
DGCL, the Company's directors are elected only by its shareholders. Although
vacancies on the Board may be filled by the affirmative vote of a majority of
the remaining directors, a person who is appointed as a director to fill a
vacancy must stand for election after his/her initial term expires. Thus,
ultimately, the Company's shareholders determine who serves as the Company's
directors. It is not, therefore, within the Company's power to ensure that a
sufficient number of independent directors would be elected to the Board to
serve as Chairman as well as to serve on the various committees of the Board
that are required to be staffed with "independent" directors (even assuming
arguendo that the New York Stock Exchange definition of independence is the
appropriate standard contemplated by the Proposal).
Indeed, even if a sufficient number of independent directors willing to serve on
the Board were found, it does not necessarily follow that one of those directors
would have the time, desire and qualifications to devote to such an important
position as Chairman. Moreover, it is impossible for the Board to ensure that
the Chairman "will always be an independent" director; a director that is
appointed "independent" may lose such status subsequent to his/her appointment
as Chairman.
We note that the Proposal includes an exception for "rare and explicitly spelled
out, extraordinary circumstances," and the Proponent may intend that this
exception be available for cases in which an independent director willing to
serve as Chairman is not elected to the Board. This exception does not, however,
cure the defect in the Proposal. First, as explained more fully below, the
exception is inherently and fatally vague, and does not explicitly address the
issue of impossibility. Second, there can be no assurance that the
unavailability of an independent director willing to serve as Chairman will be
"rare and extraordinary" or will arise in the circumstances "explicitly spelled
out." Thus, even with the exception contemplated by the Proposal, the Proposal
is beyond the power and authority of the Company to implement for the same
reasons discussed in the numerous no-action letters cited above.
Further, in a long line of no-action letters, the Staff has permitted the
exclusion under Rule 14a-8(i)(6) of proposals seeking to impose qualifications
on members of the board. Such proposals, including the Proponent's Proposal, are
excludable under long-standing Staff interpretations recognizing that it is
beyond the corporation's power to ensure election of a particular person or type
of person. See, e.g., I-many, Inc. (April 4, 2003) (permitting exclusion of
proposal requiring that all members of compensation committee be non-management
directors).
Accordingly, based upon 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)(6).
III. The Proposal May Be Excluded Because It Deals with the Company's Ordinary
Business Operations
The Proposal is properly omitted under Rule 14a-8(i)(7), which states that a
company may omit a shareholder proposal if it "deals with a matter relating to
the company's ordinary business operations." The Staff's no-action letter in
U.S. Air, Inc. (February 1, 1980) is directly on point. In U.S. Air, the
shareholder proposal urged that the company "take the necessary steps" to ensure
the separation of the position of chairman from the positions of chief executive
officer and president. The Staff concurred in the company's view that the
proposal could be excluded under Rule 14a-8(i)(7) because it dealt with "a
matter relating to the conduct of the ordinary business operations of the
Company. In the view of the Staff, the relevant statutory and by-law provisions
appear to render the allocation of corporate offices and responsibilities among
the Company's employees a matter of ordinary business operation." The instant
Proposal, as requesting that the Board take the necessary steps to ensure the
separation of the position of CEO from the position of Chairman of the Board, is
directly equivalent to the proposal held excludable by the Staff in U.S. Air.
See also United Industrial Corporation (December 7, 1977) (permitting exclusion
of proposal requesting the separation of the positions of chairman and chief
executive officer because such a proposal related to the ordinary business
operations of the company); Reliance Group, Inc. (March 1, 1977) (same); see
also, e.g., General Motors Corporation (April 1, 1988) (permitting exclusion of
proposal that sought the imposition of qualifications on the chairman, CEO, COO
and president, that such positions be held by only one person and that no other
officer positions be established "since it appears to deal with a matter
relating to the conduct of the Company's ordinary business operations (i.e.,
determination of the appropriate number of Company officers and the
qualifications of Company officers)").
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. The Proposal May Be Excluded Because It Is Contrary to the Commission's
Proxy Rules
Rule 14a-8(i)(3) states that a shareholder proposal may be omitted if the
proposal or its supporting statement is contrary to the proxy rules, including
Rule 14a-9, which prohibits materially false or misleading statements in proxy
soliciting materials. The Staff has consistently taken the position that
shareholder proposals that are vague and indefinite are excludable under Rule
14a-8(i)(3) as inherently misleading because neither the shareholders nor the
company's board of directors would be able to determine, with any reasonable
amount of certainty, what action or measures would be taken if the proposal were
implemented. See, e.g., The Procter & Gamble Company (October 25, 2002)
(permitting exclusion of proposal requesting that board create a specific fund
as being "vague and indefinite" where the company argued that neither the
shareholders nor the company would know how to implement the proposal). Indeed,
while the Staff, in Staff Legal Bulletin 14B (September 15, 2004), clarified the
circumstances in which companies will be permitted to exclude proposals pursuant
to 14a-8(i)(3), it expressly reaffirmed that vague and indefinite proposals may
be subject to exclusion. According to Staff Legal Bulletin 14B:
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 requiresthis
objection also may be appropriate where the proposal and the supporting
statement, when read together, have the same result.
The Proposal's extraordinarily vague statement that an exemption from the
independence requirement would be available in "rare, and explicitly spelled
out, extraordinary circumstances" is an obvious 14a-8(i)(3) deficiency. The
Proposal does not specify who will determine whether the circumstances spelled
out qualify as "rare, explicitly spelled out and extraordinary." If the Board
were to follow the recommendation set out in the Proposal and included in the
Company's Corporate Governance Guidelines conditions that it believed are "rare,
explicitly spelled out and extraordinary," there could be no assurance that the
Proponent or other shareholders would not argue that the conditions are not
really "rare," sufficiently "spelled out" or truly "extraordinary." The Board
would thus be left with no way of determining how it should implement the
Proposal, and shareholders voting for the Proposal would have no way of
determining how the Proposal would be applied in practice if it were to be
adopted.1 In short, the Proposal is fatally vague and provides neither
shareholders nor the Company with any objectively reasonable interpretation of
the Proposal.
Accordingly, based upon Rule 14a-8(i)(3), 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).
V. 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.
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,
/s/
Pamela S. Seymon
-----FOOTNOTES-----
1 In addition, the Proposal, if implemented, would leave the Company, including
the Board and management, as well as the Company's shareholders, in the position
of not knowing who would be eligible to serve as the Company's Chairman because
the Proposal does not include a definition of "independent" director. While the
Proposal's Supporting Statement identified one relationship, namely, being Chief
Executive Officer of the Company, that would disqualify an individual from
serving as the "independent" Chairman, there are differing views on what other
relationships a director may have that would result in that director not being
deemed "independent." The Proposal references no standard of corporate
governance that would provide any indication as to the independence standards
acceptable under the Proposal. For instance, should "independence" be based on
the definition provided by the New York Stock Exchange? Delaware law? Should it
be based on some other standard, such as the definition provided by the Council
of Institutional Investors? The Proposal provides no indication as to how the
Company or shareholders should determine how the boilerplate instruction that
the Chairman always be "independent" is to be satisfied.
[APPENDIX]
RESOLUTION CONCERNING SEPARATION OF THE POSITOINS OF CHAIRMAN OF THE BOARD OF
DIRECTORS AND THE CHIEF EXECUTIVE OFFICER
WHEREAS: The Board of Directors of The Walt Disney Company has adopted corporate
governance guidelines.
WHEREAS: The guidelines state that:
The Board of Directors shall designate one of its members to serve as Chairman
of the Board. The powers and responsibilities of the Chairman of the Board shall
be set forth in the Corporation's By-laws, as supplemented from time to time by
resolution of the Board of Directors.
The Chairman of the Board shall serve for such term as the Board shall
determine. The identity of the Chairman shall be set forth in the proxy
statement for the Company's annual meeting, together with a method for
interested parties to communicate directly with the Chairman or with the
non-management Directors as a group.
WHEREAS: In March 2004 the Board of Directors determined that it was in the best
interest of the company that the position of Chairman of the Board be held by a
board member other than the Chief Executive Officer.
WHEREAS: We believe that it is the role of the Chief Executive Officer and
management to run the business of the company and the role of the board of
directors to oversee management. We believe given these different roles, and
responsibilities, leadership of the board in all companies, should be different
from leadership of management.
WHEREAS: We believe that it is in the best interest of the company that the
Chairman of the Board be an outside independent director, and not serve as Chief
Executive Officer, except in rare extraordinary circumstances.
WHEREAS: A growing number of investors also support separation of the Chair and
CEO positions. For example, in September 2004, the Council of Institutional
Investors, an association of more than 140 corporate, public and union pension
funds with more than $3 trillion in pension assets adopted as one of its
Corporate Governance Policies, which they recommend for all corporations, that
"the board should be chaired by an independent director."
NOW THEREFORE BE IT RESOLVED: That the shareholders of the company urge the
Board of Directors to amend the Corporate Governance Guidelines, and take what
ever other actions are necessary to set as a company policy that the Chairman of
the Board of Directors will always be an independent member of the Board of
Directors, except in rare and explicitly spelled out, extraordinary
circumstances.
September 28, 2004
[INQUIRY LETTER]
November 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 Connecticut Retirement Plans & Trust Funds
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"), in response to the November 1, 2004 letter from Connecticut
Retirement Plans & Trust Funds (the "Proponent") to the Securities and Exchange
Commission (the "Commission") regarding a shareholder proposal and supporting
statement (the "Proposal") submitted by the Proponent for inclusion in the
Company's proxy material for its 2005 Annual Meeting of Stockholders (the "2005
Proxy Materials"). A copy of the Proponent's November 1, 2004 letter is attached
hereto as Annex A (the "Proponent Response Letter").
On October 15, 2004, we submitted a letter (the "Request Letter") on behalf of
the Company to request confirmation from the Staff of the Division of
Corporation Finance of the Commission (the "Staff") that it would not recommend
to the Commission that any enforcement action be taken if the Company excludes
the Proposal from its 2005 Proxy Materials. The Proponent Response Letter is the
Proponent's response to the Request Letter.
We are of the view that the Proponent's arguments, as set forth in the Proponent
Response Letter, are flawed and do not adequately address our arguments in the
Request Letter. We therefore continue to believe that the Company may exclude
the Proposal from the 2005 Proxy Materials for each of the reasons given in the
Request Letter: Rules 14a-8(i)(6), (7) and (3). The reasons for our conclusions
in these regards are more specifically described in the Request Letter, but we
feel compelled to bring the Staff's attention to several items presented in the
Proponent Response Letter.
I. The Proposal May Be Excluded Because the Company Would Lack the Power and
Authority to Implement the Proposal
In the Request Letter, we noted that the Staff has repeatedly confirmed
exclusion of shareholder proposals seeking to require that the chairman (the
"Chairman") of the board of directors (the "Board") be an "independent" director
and that the positions of Chairman and chief executive officer ("CEO") be
permanently separated on the ground that companies are without the power to
ensure implementation of such proposals.1 Indeed, we were unable to uncover a
single no-action request contrary to our position.
Faced with such overwhelming support for exclusion, the Proponent
inappropriately asserts that its position is supported by "legions" of no-action
precedent involving substantially identical proposals in which the Staff
declined to issue no-action letters. The Proponent is wide of the mark. Such
no-action requests are wholly irrelevant because none of the requests were based
on the Company's Rule 14a-8(i)(6) argument; with the exception of the Kroger
Company (March 22, 2004), they dealt exclusively with arguments predicated on
Rules 14a-8(c), 14a-8(f), 14a-8(i)(1), 14a-8(i)(2), 14a-8(i)(3), 14a-8(i)(4),
14a-8(i)(7), 14a-8(i)(8) and 14a-9. The Proponent's citation in a footnote to
the Kroger Company (March 22, 2004) is also misplaced; the Rule 14a-8(i)(6)
argument put forth in Kroger focused exclusively on an argument that the board
lacked authority to amend the by-laws and did not address the impossibility of
ensuring implementation of the proposal. As stated in Staff Legal Bulletin 14
(July 13, 2001), no-action letters (such as the ones cited by the Proponent)
that do not address the grounds relied on by the Company lack any precedential
force and effect for the Proponent's position because the Staff "will not
consider any basis for exclusion that is not advanced by the company."
We also take issue with the Proponent's assertion in the Proponent Response
Letter that, because the New York Stock Exchange (the "NYSE") (as reflected by
the Company's Corporate Governance Guidelines) requires a majority of
independent directors on the Board and that certain Board committees be
comprised entirely of qualified independent directors, the Board can ensure that
both (i) an independent director qualified to serve as Chairman will be elected
to the Board by the shareholders and (ii) that such qualified individual will
consent to take on the substantial responsibilities and duties of Chairman.2 The
Staff has rejected this "argument" by repeatedly allowing exclusion of
substantially identical proposals under Rule 14a-8(i)(6) (see footnote 1,
above)notwithstanding that, in each of those no-action precedents we cited, the
companies seeking exclusion were subject to mandatory independence requirements
of the NYSE or the NASDAQ; indeed, in each case, the respective companies
highlighted such requirements as the basis for allowing exclusion (i.e., as
increasing the likelihood that qualified candidates will be unavailable).
Further, provisions relating to independence of committee members are wholly
different from provisions relating to independence of a chairman. The duties and
responsibilities of committee members (and even committee chairs) are
substantially less than the duties and responsibilities of the chairman of the
board, making it much less difficult for a company to ensure that it can find
directors qualified and willing to serve on committees.3 Indeed, in Cintas
Corporation, the Staff recently allowed exclusion of a proposal relating to an
independent chairman notwithstanding that the proponent, in its response letter,
made the same argument the Proponent makes here. See Cintas Corporation (August
27, 2004).4
Perhaps recognizing the problems with its own Proposal, the Proponent offers an
"exception" for "rare and explicitly spelled out, extraordinary circumstances."
Despite the fact that we noted in our Request Letter that this exception is
wholly inadequate to cure the defects of the Proposal, the Proponent fails to
address the inadequacies we cited in the Request Letter.5 Rather, the Proponent
(again) improperly refers to no-action letters that involved naming independent
directors to committees or nominating independent directorsnot selection of an
independent Chairmanand that used exceptions that were far more specific,
understandable and workable than the exception in the Proponent's proposal.
Finally, we reiterate that it is impossible to ensure the continued independence
of the Chairman following his/her election; a director that is appointed
independent may lose such status for a variety of reasons subsequent to his/her
appointment as Chairman. In response, the Proponent erroneously asserts that "a
similar argument was rejected by the Staff" 6 and states that "if the Company's
Chairman were to lose his/her independence ... he or she would merely be
required to resign the Chairmanship" apparently ignoring the recently issued
no-action decision of Cintas Corporation (August 27, 2004). In Cintas
Corporation, the Staff confirmed exclusion of a substantially identical proposal
and expressly stated in particular:
As it does not appear to be within the power of the board of directors to ensure
that its chairman retains his or her independence at all times and the proposal
does not provide the board with an opportunity or mechanism to cure such a
violation of the standard requested in the proposal, it appears that the
proposal is beyond the power of the board to implement. (Emphasis added.)
Requiring the Chairman's immediate resignation (which itself may be beyond the
power of the Board to implement)7 in the event his/her independent status is
lost subsequent to election obviously does not qualify as "an opportunity or
mechanism" to ameliorate a violation of the standard requested in the Proposal.
Such a "cure" might well be worse than the problem in light of the disarray that
could arise from the sudden loss of Company leadership and stewardship.
Moreover, resignation does nothing to cure a violation of the standard if either
there is a failure of shareholders to elect a sufficient number of qualified
independent directors or because no such qualified independent director is
willing to serve as a Chairman. In addition, the Chairman can certainly lose
his/her independence subsequent to election in a manner that is not
"extraordinary," "rare" and "explicitly spelled out."
In short, the Proponent's response does nothing to respond to the clear, recent
precedent excluding proposals that relate to appointment of an independent
chairman. We continue to believe, and respectfully ask that the Staff concur,
that the Proposal can be excluded under Rule 14a-8(i)(6) because the Company
lacks the power and authority to implement the Proposal.
II. The Proposal May Be Excluded Because It Deals with the Company's Ordinary
Business Operations
The Proponent's assertion in the Proponent Response Letter to the contrary
notwithstanding, we continue to believe that the Proposal is directly equivalent
to the U.S. Air Inc. (February 1, 1980) no-action line of precedents.8 The
Proponent's attempt at differentiating U.S. Air and other precedents, by arguing
that, as distinguished from the instant proposal, such precedent involved
proposals that sought to "allocate corporate offices and responsibilities among
company employees," is meritlessas conceded by the Proponent itself. As the
Proponent admits in a footnote, "it is true that the Proposal would necessarily
mean that Disney's next Chief Executive Officer could not also serve as
Chairman." While the Proponent completes the footnote by asserting that "a
policy of having an independent Chairman can be implemented without involving or
affecting Disney's corporate officers and employee responsibilities," we are at
a loss to understand how exactly it is that such a proposal, which admittedly
would necessarily involve the separation of the Chairman and CEO positions,
could conceivably be implemented without just such an allocation.9
The Proponent's argument that matters of corporate governance are generally of
such importance that they should not be considered excludable on ordinary
business grounds is unavailing because it fails to address the specific issues
involving allocation of duties of corporate officers. The proposal excluded in
U.S. Air, like the Proponent's Proposal, dealt with this specific issue, and
there the SEC concurred that the allocation of duties of corporate officers
involved ordinary business matters. General statements about the importance of
governance matters and precedents that address other specific governance
proposals are simply irrelevant.
Further, we find no inconsistency between the precedents cited by the Proponent
that do address separate chairman and officer positions and our cited
precedents. All of the no-action requests cited by the Proponent, save America
West Holdings, involved proposals that sought by-law amendments to separate the
position of chairman from other officer positions. The Proposal, however, does
not request the amendment of the Company's by-laws. Rather, the Proposal,
without seeking a by-law amendment, requests that the Board cede to shareholders
its statutorily granted authority (under 142(a)-(b) of the DGCL) to exercise
its discretion in allocating the appropriate responsibilities associated with
corporate offices. (Note, however, that submission of the Proposal in the form
of a by-law amendment would not have affected the Company's ability to exclude
the Proposal pursuant to Rule 14a-8(i)(6). See Section I, above.) It is this
critical distinction, between shareholder proposals that seek by-law amendments
and shareholder proposals that do not, that governs exclusion under Rule
14a-8(i)(7) of shareholder proposals seeking separation of the position of
chairman from other officer positions. The respective proposals in both U.S. Air
and Reliance Group did not seek by-law amendments. Therefore, in Southern
Pacific Co. (January 10, 1978), the Staff, in denying exclusion of a proposal
requesting a by-law amendment that would require the separation of the position
of chairman and the position of president, stated:
In light of the fact that it appears that under the corporation law in the
Company's State of incorporation, California, the shareholders have the power to
amend the Company's by-laws with respect to this matter, this Division is unable
to conclude that a proposal calling for the amendment of a specific by-law
provision deals with a matter relating to the conduct of the ordinary business
operations of the Company, as is required for exclusion under Rule 14-8(c)(7).
(Emphasis added.)
In fact, the failure to formulate the proposal in terms of a by-law amendment
was precisely the argument successfully put forth by the company in U.S. Air:
Proposals such as Mr. Korba's are distinguishable from proposals requesting that
the by-laws be amended to provide that different persons serve as president and
chairman of the board. The staff has determined that, where shareholders have
the power to amend the corporation's by-laws, a proposal requesting amendment of
the bylaws ... may not be excluded on the ground that it deals with the ordinary
business operations of the issuer.... Inasmuch as Mr. Korba's proposal does not
request an amendment to the Company's by-laws and is virtually identical to the
proposal deemed excludable in the Reliance Group letter, we are of the opinion
that [the] proposal may properly be excluded from the Company's proxy
statement.10
With respect to the no-action letter of America West Holdings, it too is
irrelevant because America West Holdings' Rule 14a-8(i)(7) argument made no
mention or allusion to either the Company's instant argument or even a citation
to the U.S. Air line of precedent. Rather, America West Holdings based its
argument entirely on the theory that adoption of the proposal would result in
the immediate termination and removal of its then-current chairman. Thus, the
Proponent's reliance on the no-action letters denying exclusion under Rule
14a-8(i)(7) of proposals that seek separation of the positions of CEO and
Chairman is misplaced.
III. The Proposal May Be Excluded Because It is Contrary to the Commission's
Proxy Rules
Given the substance (or lack thereof) of the Proponent's response to the
Proposal's Rule 14a-9 deficiency, our detailed bases for exclusion of the
Proposal pursuant to Rule 14a-8(i)(3) discussed in our Request Letter need not
be reiterated. The Proponent's only substantive response is its conclusory
assertion thatnotwithstanding that the "rare and explicitly spelled out,
extraordinary circumstances" exception is inherently vague and indefinitethe
Proposal is not excludable because "Connecticut has appropriately left it to the
Board's discretion [to] construct the specific language and deal with such other
details as are necessary to implement the Proposal." This response simply does
not address the fact that the Proponent's exception gives the Board no objective
measure as to the circumstances that would be acceptable, and therefore gives
the Board no way of knowing whether it has properly implemented the proposal and
shareholders no way of knowing what they are voting on. Should the Board include
in the Company's Corporate Governance Guidelines conditions it believes are
"rare and explicitly spelled out, extraordinary circumstances," there could be
no assurance that the Proponent or other shareholders would not argue that the
conditions are not really "rare," sufficiently "spelled out" and/or truly
"extraordinary." 11 Absent such reasonable certainty, the Company should be
permitted to exclude the Proposal pursuant to Rule 14a-8(i)(3) and as recently
articulated by Staff Legal Bulletin 14B (September 15, 2004).
The Proponent's offer to "withdraw" or "amend" the vague and indefinite
exception is also unavailing. First, withdrawal of the exception would
completely eliminate the Proponent's earlier argument that the presence of the
exception somehow distinguishes the Proposal from the numerous no-action
precedents allowing exclusion of substantially similar proposals. Second, the
Proponent has not in fact provided any alternative to its vague exception, and
we therefore cannot evaluate whether alternative language would be appropriate.
Moreover, elimination, or significant modification, of the exception may
sufficiently transform the Proposal such that it would constitute submission of
a new proposal, which could make the proposal excludable pursuant to Rule
14a-8(c) and/or 14a-8(e). See, e.g., Staff Legal Bulletin 14 (July 13, 2001)
("SLB 14") ("[I]t is important for shareholders to note that, depending on the
nature and timing of the changes, a revised proposal could be subject to
exclusion under rule 14a-8(c), rule 14a-8(e), or both.").12
In summary, the Proposal is, and must remain, fatally vague.
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.
Please do not hesitate to contact the undersigned, Pamela S. Seymon, at (212)
403-1205.
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,
/s/
Pamela S. Seymon
-----FOOTNOTES-----
1 As a sampling of support, we cited to Cintas Corporation (August 27, 2004),
H.J. Heinz Company (June 14, 2004), South Trust Corporation (January 16, 2004),
Bank of America Corporation (February 24, 2004), AmSouth Bancorporation
(February 2, 2004) and Wachovia Corporation (February 24, 2004).
2 The Proponent also engages in a laborious discussion of the Board's power to
adopt corporate governance guidelines and by-laws that prescribe qualifications
for directors in the erroneous belief that this "critical argument" somehow
alleviates the Rule 14a-8(i)(6) deficiency. The issue is not whether the Board
has the ability to add provisions to its Corporate Governance Guidelines or
by-laws. The issue is whether the Board should be required to adopt provisions
to the Company's governance documents imposing on itself an unwavering
dutynotwithstanding that it is without the power to ensure its compliance with
such duty.
3 The Staff's decisions to grant the no-action requests we have cited (see
footnote 1, above) support this distinction as they chronologically follow the
Proponent's cited Staff decisions of The Gap, Inc. (March 18, 2002), Commerce
Bancorp, Inc. (March 15, 2002) and Apple Computer, Inc. (February 26, 2002) -
which related solely to committee membership. Moreover, of critical importance,
these no-action requests cited by the Proponent are inapposite as they did not
require the board to ensure the election of such directors, maintain such
directors on the specified committees or otherwise require the board to take any
such action beyond its lawful powers.
4 In fact, the NYSE and NASDAQ requirements noted above only aggravate the risk
that there will not be a sufficient pool of qualified, independent directors
available for election and who are also willing to accept the position of
Chairman. Moreover, even if a qualified independent director were willing to
serve as Chairman, it is also plainly outside the power of the Company to ensure
that such person would be elected to serve by the shareholders of the Company.
5 The Proponent does attempt to demonstrate that the exception is not fatally
vague, but, as we explain below, fails in its attempt to do so.
6 Continental Airlines (January 27, 2004), the sole no-action precedent relied
upon by the Proponent, had nothing to do with independence from management, but
instead dealt with a requirement that directors not obtain a "non-ordinary
course investment in a competitor company."
7 In this regard, we note that the Proposal would apply immediately, rather than
prospectively, and that the Board lacks the express right to force the current
Chairman to resign in the event his independent status is lost.
8 See, e.g., General Motors Corporation (April 1, 1988); Reliance Group, Inc.
(March 1, 1977); United Industrial Corporation (December 7, 1977).
9 We also are at a loss to understand the Proponent's allegation that we somehow
"mischaracterize" the Proposal by describing it as requesting that the Board
take the necessary steps to ensure the separation of the position of CEO from
the position of Chairman. The Proposal's caption, in bold and capital typeface,
reads:
RESOLUTION CONCERNING SEPARATION OF THE POSITIONS OF CHAIRMAN OF THE BOARD OF
DIRECTORS AND THE CHIEF EXECUTIVE OFFICER
Moreover, the text of the Proposal's "Whereas" clauses relate exclusively to the
perceived benefits to be derived from separating the positions of CEO and
Chairman. And, the text of the resolution itselfwhich calls for a Chairman that
is "always" an independent member of the Boardcertainly supports such
characterization of the Proposal. In short, the Proposal seems to do nothing but
ask that the Board take steps necessary to ensure that the current separation of
these roles is permanent.
10 Cf. Pan Am Corp. (March 22, 1985) (wherein the proponent successfully argued
that "[the company] fails to recognize, however, that in arguing for the
omission of the proposal in US Air, Inc. the company specifically distinguished
the proponent's proposal, which did not request amendment of the by-laws, from
the proposal considered in Southern Pacific Co., which was framed as a by-law
amendment.").
11 The Proponent only exacerbates the problem by adding in its response that
"those exceptions should be as narrow as possible" and "should be extremely
limited." We are now faced with the vague language of the Proposal, plus
additional indications in further vague language that the Proponent may object
if it determines that the exceptions are not tailored narrowly enough to satisfy
it.
12 SLB 14 makes clear that the Staff will only "base [its] response on the
proposal contained in the company's original no-action request" and "will not
address revised proposals unless the company chooses to acknowledge the
changes."
[INQUIRY LETTER]
November 1, 2004
By Overnight Delivery
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549-0402
Re: Shareholder Proposal Submitted by Connecticut Retirement Plans & Trust Funds
for Inclusion in The Walt Disney Company's 2005 Proxy Statement
Ladies and Gentlemen:
This letter is submitted on behalf our client, the Connecticut Retirement Plans
& Trust Funds ("Connecticut"), in response to the letter dated October 15, 2004,
sent on behalf of The Walt Disney Company ("Disney" or the "Company") to the
Division of Corporation Finance of the Securities and Exchange Commission (the
"Division") (the "October 15, 2004 letter"), in which the Company maintains that
the shareholder proposal submitted by Connecticut may be excluded from the
Company's 2005 proxy statement pursuant to Rules 14a-8(i)(6), 14a-8(i)(7) and
14a-8(i)(3).
Connecticut's proposal (the "Proposal") seeks a resolution urging the Company's
Board of Directors (the "Board") "to amend the Company's Corporate Governance
Guidelines, and take what ever other actions are necessary to set as a company
policy that the Chairman of the Board of Directors will always be an independent
member of the Board of Directors, except in rare and explicitly spelled out,
extraordinary circumstances." It is a matter of public record that Disney
presently is conducting a search for a new Chief Executive Officer, and that it
expects to announce the results of its search in June 2005, after the 2005
Annual Shareholders' Meeting. It is also a matter of public record that Disney's
current Chairman of the Board will not seek re-election for that position in
2006, and that the Board will nominate a new candidate for that position.
Further, as noted in the Statement in Support of the Proposal, in March 2004,
Disney's Board determined that it was in the best interest of the Company that
the position of Chairman of the Board be held by a board member other that the
Chief Executive Officer. Yet, now that an institutional shareholder is advancing
a proposal for a resolution to set a policy that would serve as a guidepost
during the CEO search process and in the nomination of a new Chairman, Disney
has resorted to legalistic gymnastics to avoid adopting such a policy. Disney's
arguments in its October 15, 2004 letter belie its representations that it is
committed to corporate governance policies and practices that assure shareholder
interests are represented in a thoughtful and independent manner.1
The burden is on Disney to establish that it has a reasonable basis for
excluding the Proposal from the proxy materials. See Staff Legal Bulletin No 14
(CF) (July 13, 2001). As demonstrated herein, the three grounds upon which
Disney relies to exclude the proposal misstate applicable law governing the
rights and duties of directors, and misconstrue the plain language of the
Proposal. Therefore, Disney has not established any reasonable basis to exclude
the Proposal.
I. The Proposal Is Not Properly Excludable Under Rule 14a-8(i)(6), Because the
Company Has the Power and Authority to Implement the Proposal
Rule 14a-8(i)(6) allows a company to exclude a shareholder proposal from its
proxy materials "[i]f the company would lack the power or authority to implement
the proposal." The Proposal encourages the Company's Board of Directors to amend
the Company's Corporate Governance Guidelinesinternal guidelines that the Board
itself adopted. Disney's Board has exhibited well in the past its authority to
revise, change update and augment its Corporate Governance Guidelines when it so
desires, and indeed the Company does not argue (nor could it) that it lacks the
power to amend those guidelines.
Nor can the Company legitimately argue that it cannot amend its guidelines to
adopt policies relating to the independence of its directors. Under Delaware law
and Disney's own certificate of incorporation, the Board has the authority to
adopt bylaws that prescribe qualifications, such as an independence requirement,
for the Company's directors.2 Since Disney's Board has the legal authority to
enact bylaws that establish such qualifications, it certainly has the authority
to establish them by way of Corporate Governance Guidelines. Indeed, the
Company's argument to the contrary is specious in light of the fact that the
Board has already adopted policies in its Corporate Governance Guidelines
requiring that a majority of the directors be independent, and that certain
Board committees consist exclusively of independent directors.3
Indeed, Connecticut's Proposal is nearly identical to legions of shareholder
resolutions put forth at other companies, urging boards of directors to take all
steps necessary, whether by setting guidelines or through by-law amendments, to
establish independence as a necessary qualification for the chairman. The
Division's staff (the "Staff") has repeatedly declined to issue no-action
letters to companies seeking to exclude these proposals. See, e.g.,
International Paper Company (publicly available March 8, 2004) (proposal urging
the board to amend the bylaws to require that an independent director who has
not served as CEO serve as chairman of the board); Alaska Air Group, Inc.
(publicly available March 1, 2004) (proposal requesting that the board take all
necessary steps to amend the bylaws and adopt a policy to ensure that the Lead
Independent Director is truly independent); The Home Depot, Inc. (publicly
available February 25, 2004) (proposal urging the board to adopt a policy of
electing an independent director to serve as lead director of the board);
Wal-Mart Stores, Inc. (publicly available February 18, 2004) (proposal urging
the board to amend the bylaws to require that an independent director be its
chairman); First Mariner Bancorp (publicly available February 11, 2004)
(proposal urging the board of directors to adopt a policy that the board's
chairman and the chief executive officer be two different individuals and that
the chairman be an independent director); First Mariner Bancorp (publicly
available March 20, 2002) (same); Merrill Lynch & Co., Inc. (publicly available
February 6, 2004) (proposal urging the board to amend the bylaws to require that
an independent director who has not served as the chief executive of the company
serve as board chair); Swift Transportation Company, Inc., (publicly available
April 1, 2003) (same); Peoples Energy Corp. (publicly available November 3,
2002) (same); UAL Corporation (publicly available January 25, 2002) (same);
America West Holdings Corp. (publicly available April 14, 1998) (same); Exxon
Mobil Corp. (publicly available March 24, 2003) (proposal urging the board to
amend the bylaws to require that an independent director serve as chairman of
the board, and that the chairman not concurrently serve as the chief executive
officer); Weyerhaeuser Company (publicly available January 15, 2003) (proposal
urging the board to amend the bylaws to require that an independent director who
has not served as an officer of the company be its chairman); Community
Bancshares, Inc. (publicly available March 15, 1999) (proposal requesting the
board to adopt a bylaw amendment requiring that the positions of Chairperson and
president are not held by the same person); ITT Corporation (publicly available
January 13, 1995) (proposal requesting the board of directors to take
appropriate action to ensure that the positions of chief executive officer and
chairman of the board are held by different people).
The Staff has also declined to issue no-action letters in a number of cases
involving proposals seeking the adoption of a policy to fill all openings on
certain board committees, as they occur, with independent directors. In doing
so, the Staff rejected the very argument made by the Company here: that they
could not guarantee that shareholders would elect directors meeting the
necessary criteria, and that the proposals were therefore excludable under Rule
14a-8(i)(6). See, e.g., The Gap, Inc. (publicly available March 18, 2002)
(proposal to implement policy providing for transition to a corporate governance
committee composed entirely of independent directors, as openings occur);
Commerce Bancorp, Inc. (publicly available March 15, 2002) (same, compensation
committee); Apple Computer, Inc. (publicly available February 26, 2002) (same,
nominating committee).
Despite this long line of authority, the Company has latched onto a recent
string of no-action letters involving proposals to require an independent
chairperson, and is trying to fit itself within their rubric by arguing that the
Company lacks the power to implement Connecticut's Proposal, not because it
cannot amend the Corporate Governance Guidelines or by-laws, but because it
cannot ensure (i) that the shareholders elect a sufficient number of independent
directors to fill the Chairman position, (ii) that one of the Company's
independent directors would be willing to serve as Chairman, and (iii) that the
Chairman would always remain independent.
There are several fatal flaws in the Company's argument. First and foremost, it
ignores the fact that, under the Company's Certificate of Incorporate and
Delaware law, the Board has the express legal authority to establish
qualifications for the Company's directors. Nowhere does the law limit that
authority to only those qualifications which the Company can guarantee will be
met. Notably, although the Staff has issued no-action letters regarding a
handful of proposals which ask boards to impose qualifications upon directors,
the proponents of those proposals never made this critical argument. In fact,
all but one of those no-action letters were issued in circumstances where the
proponents of the proposals did not make any written submissions to the Staff at
all.4 The one exception was Cintas Corporation (publicly available August 27,
2004), where the proponent responded but did not mention (if indeed it was true
of that company) that the board had the legal authority to implement bylaws
prescribing qualifications for directors.5 Thus, when issuing the no-action
letters upon which the Company relies, the Staff did not have the benefit of any
argument by the proponents that the boards had the express authority under state
law to implement the policies being proposed. For that reason alone, those
no-action letters should not be given any precedential effect. Had the Staff
been presented with complete information and both sides of the argument,
Connecticut is confident that it would not have issued the no-action letters.
Second, the notion that the Company lacks the power to implement a policy
requiring an independent Chairman is belied by the fact that its own Corporate
Governance Guidelines already reflect a policy requiring that certain other
members of the Board be independent. For example, the Company's Corporate
Governance Guidelineswhich the Board itself adoptedexpressly provide that:
1. "It is the policy of the Board of Directors that a substantial majority of
Directors be independent of the Company and of the Company's management."
6
2. "The Audit, Compensation and Governance and Nominating Committees shall be
composed entirely of Directors who are independent under these Guidelines and
any applicable regulatory requirements or listing standards." 7
3. "The Executive Committee shall include the Chief Executive Officer of the
Company. At least half of its members shall be independent Directors." 8
4. "If any Director ceases to be independent under the standards set forth
herein while serving on any Committee whose members must be independent, he or
she shall promptly resign from that Committee." 9
Having already adopted the policies set forth above, the Company can hardly
argue that it lacks the power to amend its Corporate Governance Guidelines to
adopt a similar policy requiring that the Chairman of the Board be independent.
Moreover, as a New York Stock Exchange-listed company, Disney is required by law
and listing standards to ensure that a majority of its directors be independent
(NYSE Listing Standards 303A.01) and that its audit committee,
nominating/corporate governance committee, and compensation committee consist
solely of independent directors. See 15 U.S.C. 78j-1(m)(3); NYSE Listing
Standards 303A.04, 303A.05. How is it that the Company can ensure that its
stockholders will elect sufficient directors to comply with these legal and
listing requirements, and with the policies in its own Corporate Governance
Guidelines, but not with a policy requiring an independent Chairman? The reality
is that, as a practical matter, the Board can ensure all of those things. The
Board nominates candidates for election as directors, and only rarely is a
Board-nominated candidate defeated in such an election. Indeed, it is virtually
unheard of for an independent director nominated by the Board to be defeated by
a non-independent director. Thus, by virtue of its authority to nominate
independent director candidates, the Board has significant control over the
number of independent directors who will sit on the Board. Moreover, it is the
Board, not the shareholders, who decides which director shall serve as Chairman.
See Disney's Amended and Restated Bylaws, Article III, Section 5 (attached as
Exhibit C). Clearly, it is within the Board's power to select an independent
director for that position. Even in the unlikely event that the shareholders do
not elect a sufficient number of independent directors to fill the necessary
committee seats as well as the Chairman position, the Board has the power to
expand the size of the Board, if necessary, as well as to fill vacancies on the
Board. See id., Article III, Sections 1 & 3. Thus, contrary to the Company's
argument in the October 15, 2004 letter, it does have the power to implement the
Proposal.
As discussed above, the no-action letters cited by the Company should not be
followed because they are contrary to Delaware law, which allows Disney's Board
to impose qualifications on its directors. However, even if the Staff were to
disagree with Connecticut on that point, the precedents cited by the Company
should not be followed because they involved proposals that are distinguishable
from Connecticut's Proposal. Specifically, in the no-action letters cited by the
Company, the proposals sought to create bright-line rules, with no exceptions,
requiring that the chairman be independent. See Cintas Corporation (publicly
available August 27, 2004) (proposal asking the board to "adopt a policy that
the Chair of the Board will be an independent director who has not previously
served as an executive officer" of the company) (emphasis added); H.J. Heinz
Company (publicly available June 14, 2004) (proposal urging the board "to amend
the Company's bylaws to require that an independent director ... who has not
served as an officer of the Company serve as the Chairman of its Board of
Directors ...") (emphasis added); Bank of America Corporation (publicly
available February 24, 2004) (proposal recommending that the board "amend the
bylaws to separate the roles of Chairman of the Board of Directors and Chief
Executive Officer and require an independent director to serve as Chairman of
the Board as soon as possible") (emphasis added); Amsouth Bancorporation
(publicly available February 24, 2004) (same), Wachovia Corporation (publicly
available February 24, 2004) (same); SouthTrust Corporation (publicly available
January 16, 2004) (same); I-many, Inc. (publicly available April 4, 2003)
(proposal that "the Company's Compensation Committee shall be compromised [sic]
of non-management Directors and at least one independent, non-director
shareholder all of whom shall be approved annually by a majority vote of
shareholders").10
While Connecticut believes that a bright-line policy is within the Company's
power to implement under Delaware law, and that the Staff issued the foregoing
noaction letters based on incomplete (and indeed incorrect) information,
Connecticut's Proposal is different from those referenced above because it does
not require a bright-line policy. Instead, it provides for exceptions to the
policy "in rare and explicitly spelled out, extraordinary circumstances." Thus,
if the Company foresees circumstances in which it would be impossible to have an
independent Chairman, it can expressly provide for exceptions to the policy in
those circumstances. Connecticut leaves it to the Board to identify any
necessary exceptions, but notes that they should be extremely limited. Indeed,
the Company apparently saw no need for any such exceptions to the policies
requiring independence of other Board and Committee members, as the Corporate
Governance Guidelines provide for no such exceptions.
Thus, the Company is incorrect to argue that Connecticut's Proposal would
require the Board to ensure that an independent director is elected Chairman.
Rather, it merely asks the Board to establish as Company policy that the
Chairman will be independent absent extraordinary circumstances (which are left
to the Board to define). In this respect, this situation is akin to that in
Murphy Oil Corporation (publicly available March 10, 2002), where the Staff
determined that Rule 14a-8(i)(6) did not permit exclusion of a proposal urging
the board to adopt a policy requiring all members of the compensation and
nominating committee to be independent, where it contained a proviso that
"compliance was excused during periods in which the board did not contain enough
independent directors to serve on the committee." See also Qwest Communications
International Inc. (publicly available February 25, 2004) (declining to issue
no-action letter where proposal urged the board to amend Qwest's corporate
governance guidelines to require the board to nominate director candidates such
that, if elected, a two-thirds majority of directors would be independent, since
it did not require the board to ensure the results of the election). The same
reasoning applies here: Connecticut's Proposal would not require the board to
ensure that the Chairman is independent, but rather to set as Company policy
that the Chairman will be independent, except in extraordinary circumstances.
With respect to the Company's argument that the Board could not ensure the
continued independence of the Chairman following his/her election, a similar
argument was rejected by the Staff in Continental Airlines, Inc. (publicly
available January 27, 2004). There, the Staff denied a request for a no-action
letter seeking under Rule 14a-8(i)(6), with respect to a proposal requesting
that the board adopt a policy that no member or nominee to the board of
directors have a material, non-ordinary course investment in a direct competitor
company. In doing so, the Staff implicitly rejected the company's assertion that
the board could not ensure enforcement of the proposal because an elected
nominee for the board might acquire, during the term of his or her membership on
the board, a "material, non-ordinary course investment" that would be prohibited
by the proposal, and that in such a case, enforcement of the policy would
require the board to remove the incumbent director in violation of Delaware law.
Here, the Company's position is even weaker than the registrant's in Continental
Airlines, because if the Company's Chairman were to lose his/her independence
while in office, he/she would not have to be removed from the Board, but would
merely be required to resign the Chairmanship. Disney's Corporate Governance
Guidelines already provide that, "[i]f any Director ceases to be independent ...
while serving on any Committee whose members must be independent, he or she
shall promptly resign from that Committee." 11 Certainly, the Company can adopt
the same requirement for the Chairman.
For all of the above reasons, Connecticut's Proposal is within the Company's
power and authority to implement, and the Company should not be permitted to
exclude it under Rule 14a-8(i)(6).
II. The Proposal May Not Be Excluded On Grounds That It Deals With Disney's
Ordinary Business Operations
Disney also seeks to exclude Connecticut's Proposal under Rule 14a-8(i)(7),
which permits exclusion of a proposal if it deals with a matter relating to the
registrant's ordinary business operations. In its October 15, 2004 letter,
Disney mischaracterizes the Proposal as one "requesting that the Board take the
necessary steps to ensure the separation of the position of CEO from the
position of Chairman of the Board." It then claims that the Proposal is
"directly equivalent" to the proposal in U.S. Air. Inc. (publicly available
February 1, 1980) which requested that the board take the steps necessary to
provide for a chairman as well as a president and chief executive officer. The
Staff agreed that that proposal was excludable under Rule 14a-8(i)(7) because it
sought to allocate corporate offices and responsibilities among company
employees, which appeared to be a matter of ordinary business operation. In
contrast, Connecticut's Proposal does not relate to corporate offices or
employee responsibilities. Rather, it pertains directly to the important issue
of whether Disney's Chairman ought to be an independent director.12
The three other no-action letters that Disney cites, two from 1977 and one from
1988, are likewise wholly irrelevant to this situation, as they involved
proposals concerning the appropriateness of the number of corporate officers
and/or their qualifications. In United Industrial Corporation (publicly
available December 7, 1977) and Reliance Group, Inc. (publicly available March
1, 1977), the Staff found that proposals requesting that the board take the
steps necessary to provide for a separate chairman and president were excludable
because they involved decisions about how responsibilities would be divided and
what positions would be held by the members of the executive staff of the
company, which, to the Staff, appeared to involve the ordinary business
operations of the Company. In General Motors Corporation (publicly available
April 1, 1988), the proposal related to the elimination of all but four company
officerships, and to the level of automotive and other experience of the
remaining officers of the company. By any account, it involved a determination
of the appropriate number of company officers and the qualifications of company
officers, which is ordinary business of the company and therefore was deemed
excludable under Rule 14a-8(i)(7). Here, by contrast, Connecticut's Proposal
does not seek to affect the number or qualifications of company officers, but
rather of the Company's Chairman of the Board.
After the decisions cited by Disney were issued, the Commission clarified its
view of Rule 14a-8(i)(7) and the considerations to be given to the ordinary
business exclusion:
The first relates to the subject matter of the proposal. Certain tasks are so
fundamental to management's ability to run a company on a day-to-day basis that
they could not, as a practical matter, be subject to direct shareholder
oversight. Examples include the management of the workforce, such as the hiring,
promotion, and termination of employees, decisions on production quality and
quantity, and the retention of suppliers. However, proposals relating to such
matters but focusing on sufficiently significant social policy issues (e.g.,
significant discrimination matters) generally would not be considered to be
excludable, because the proposals would transcend the day-to-day business
matters and raise policy issues so significant that it would be appropriate for
a shareholder vote. The second consideration relates to the degree to which the
proposal seeks to "micro-manage" the company by probing too deeply into matters
of a complex nature upon which shareholders, as a group, would not be in a
position to make an informed judgment. This consideration may come into play in
a number of circumstances, such as where the proposal involves intricate detail,
or seeks to impose specific time-frames or methods for implementing complex
policies.
SEC Release No. 34-40018 (May 21, 1998) (the "SEC Release") (footnotes omitted).
In no-action letters following the Commission's issuance of the SEC Release, the
Staff has consistently allowed proposals relating to matters of corporate
governance, like Connecticut's Proposal, to be included in proxy materials on
the grounds that they are not "ordinary" business matters. These have included
proposals submitted in response to recent corporate scandals involving director
compensation, auditor misconduct, and accounting improprieties, whereby
stockholders seek improvements in corporate governance policies and practices
through (among other things) the appointment of independent directors for
chairman and board committee positions. That is precisely what Connecticut seeks
with its Proposal.
For example, in Clear Channel Communications, Inc. (publicly available March 5,
2003), the Staff denied a request for a no-action letter for the exclusion under
Rule 14a-8(i)(7) of a proposal urging the board to amend the bylaws to require
that an independent director who has not served as chief executive officer of
the company serve as chairman of the board of directors. In doing so, the Staff
implicitly accepted the proponent's arguments that such a proposal does not seek
to micro-manage the hiring and firing of corporate personnel, but rather
addresses important corporate governance policies involving matters of
widespread public debate. Similarly, in Quality Systems, Inc. (publicly
Available June 9, 1999), the Staff declined to issue a no-action letter for
exclusion pursuant to Rule 14a-8(i)(7) of a proposal seeking to amend the
company's bylaws to require an independent board of directors. The proponent of
the proposal had argued that the independence and/or corporate governance
practices of a public company board of directors cannot be considered mundane in
nature, as they raise important policy matters. See also America West Holdings
Corporation (publicly available March 10, 2004) (rejecting Rule 14a-8(i)(7) as
ground to exclude a proposal seeking adoption of a policy that no member or
nominee to the board of directors have a material, non-ordinary course
investment in a direct competitor company); General Electric Company (publicly
available January 28, 2003) (denial of request to exclude, under Rule
14a-8(i)(7), a proposal that recommended that the board amend the bylaws to
require an independent director, who has not served as CEO of the company, serve
as chairman of the board); The Gap, Inc. (publicly available March 18, 2002)
(rejecting arguments seeking to exclude, under Rule 14a-8(i)(7), a proposal
requesting that the company adopt a policy providing for a transition to a
Corporate Governance Committee composed entirely of independent directors);
Marriott International, Inc. (publicly available March 19, 2002) (rejecting
arguments seeking to exclude, under Rule 14a-8(i)(7), one proposal requesting
that the board "set a goal of establishing a board of directors with at least
two-thirds of its members being independent directors" and another proposal
requesting that the board adopt a policy that provides for a transition to a
Nominating and Corporate Governance Committee composed entirely of independent
directors); Duke Realty Corporation (publicly available February 5, 2002)
(rejecting exclusion under Rule 14a-8(i)(7) of a proposal requesting that the
board "set a goal of establishing a board of directors with at least two-thirds
of its members being independent directors"); America West Holdings Corp.
(publicly available April 14, 1998) (predating the SEC Release but nevertheless
denying request to exclude, under Rule 14a-8(i)(7), a proposal urging the board
to take the necessary steps to require that an independent director who was not
formerly the chief executive officer of the company serve as chairman of the
board).
In fact, in 2001 the Staff denied a no-action request by Disney itself under
Rule 14a-8(i)(7), with respect to a shareholder proposal requesting that the
Board adopt a policy that would prohibit Disney's independent accountants from
providing non-audit services to the Company. In rejecting Disney's argument that
the proposal related to the Company's ordinary business operations, the Staff
stated: "In view of the widespread public debate concerning the impact of
non-audit services on auditor independence and the increasing recognition that
this issue raises significant policy issues, we do not believe that Disney may
omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7)." The
Walt Disney Company (publicly available December 18, 2001).
The importance of having an independent Chairman of the Board has likewise
become a subject of widespread public debate, and as evidenced by the letters
cited above, it is an important policy issue that goes beyond the ordinary
business operations of the Company. Rule 14a-8(i)(7) therefore provides no basis
to exclude the proposal from Disney's 2005 proxy materials.
III. The Proposal May Not Be Excluded On Grounds That It Is Vague Or Ambiguous
The Company asserts that the language in Connecticut's Proposal providing for an
exception "in rare and explicitly spelled out, extraordinary circumstances" is
"extraordinarily" and "fatally" vague and therefore the entire Proposal is
inherently misleading and thus excludable under Rule 14a-8(i)(3). In support of
this argument, the Company posits theoretical confusion that the Proposal's
purported lack of clarity could cause, and claims that the Board would have "no
way of determining" how it should implement the Proposal and that the
shareholders voting for the Proposal would have "no way of determining" how the
Proposal would be applied in practice if it were adopted.
The purpose of the language in the Proposal providing for an exception "in rare
and explicitly spelled out, extraordinary circumstances" was to afford the Board
the flexibility to craft limited exceptions to the policy requiring an
independent Chairman, if it deemed such exceptions necessary in order to
implement the Proposal. As discussed above, however, Connecticut believes that
the Company can adopt a policy requiring an independent Chairman without
providing for any exceptions to that policy (as it has already done in adopting
policies requiring independence of certain Committee members and of a majority
of the Board). If the Staff agrees with Connecticut on that issue, then
Connecticut is prepared to withdraw the language which the Company claims is
vague (i.e., the phrase "except in rare and explicitly spelled out,
extraordinary circumstances").
On the other hand, if the Staff concludes that an exception is necessary, then
it should reject the Company's argument that the language in the Proposal is
impermissibly vague. The underlying goal of the Proposal is clear: to implement
a policy that the Chairman be independent. While Connecticut could have tried to
dictate to the Board specifically what the exceptions to that policy should be,
such an effort would surely have been met with an objection that Connecticut was
encroaching on the Board's power, authority and responsibility. Instead,
Connecticut has appropriately left it to the Board's discretion construct the
specific language and deal with such other details as are necessary to implement
the Proposal.
The Staff has, on numerous occasions, rejected arguments that a proposal is
excludable as vague, where the goal of the proposal is clear but there is room
for the exercise of discretion by the Board or management in determining how to
implement it. See, e.g., Comcast Corp. (publicly available February 11, 2004)
(proposal for board to "take the steps that may be necessary to adopt a
recapitalization plan that would provide for all of the Company's outstanding
stock to have one vote per share," where the features of the plan and the means
of implementation were left to the board's discretion); Nicor, Inc., (publicly
available January 17, 2004) (resolution that "once this proposal is adopted,
dilution or removal of this proposal is requested to be submitted to a
shareholder vote at the earliest possible shareholder election," and providing
that "[d]irectors have discretion to set the earliest election date and in
responding to shareholder votes"); Alaska Air Group, Inc. (publicly available
March 14, 2003) (proposal requesting adoption of "[a] policy of the greatest
flexibility to implement the spirit and the letter of [simple majority voting]
to the fullest extent possible and as soon as possible"); The TJX Companies,
Inc. (publicly available April 7, 2003) (proposal requesting amendment of
policies "to reflect implementation of a code of conduct based on the ILO
standards" and "establish[ment] [of] an independent monitoring process that
assesses adherence to these conventions," where specific code of conduct and
independent monitoring process were not defined).
Connecticut is confident that the Board and the shareholders will understand the
goal of the Proposal, and that while the language of the Proposal permits the
Board to make exceptions to that policy, those exceptions should be as narrow as
possible. However, in the event the Staff concurs in the Company's view that the
language in the Proposal providing for an exception is vague, then Connecticut
is prepared to amend the language to cure any vagueness problem which the Staff
identifies.
Conclusion
For the foregoing reasons, we believe that Connecticut's Proposal should be
included in Disney's 2005 Proxy Statement and that Disney's request for a
no-action letter should be denied. In the event that the Staff disagrees with
our position, or requires any additional information, we would appreciate the
opportunity to meet and confer to discuss these issues. Please feel free to call
the undersigned at your convenience.
In accordance with Rule 14a-8(j), we have enclosed six (6) copies of this
letter. We have also enclosed an additional copy, which we ask that you kindly
date-stamp and return to us in the enclosed, self-addressed stamped envelope.
Respectfully,
/s/
Megan D. McIntyre
Attachments
cc: Pamela S. Seymon, Esquire
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Wendy Webb, Director of Investor Relations
The Walt Disney Company
500 South Buena Vista St.
Burbank, CA 91521
-----FOOTNOTES-----
1 See http://corporate.disney.go.com/corporate/governance.html.
2 Article X of Disney's Restated Certificate of Incorporation expressly permits
Disney's directors to amend the Company's bylaws. Moreover, Disney is a Delaware
corporation governed by the Delaware General Corporation Law ("DGCL"), which
expressly provides that the "bylaws may prescribe ... qualifications for
directors." DGCL 141(b).
3 See http://corporate.disney.go.com/corporate/guidelines3.html (attached as
Exhibit A) and http://corporate.disney.go.com/corporate/guidelines11.html
(attached as Exhibit B).
4 See H.J. Heinz Company (publicly available June 14, 2004), Bank of America
Corporation (publicly available February 24, 2004), Amsouth Bancorporation
(publicly available February 24, 2004), Wachovia Corporation (publicly available
February 24, 2004), SouthTrust Corporation (publicly available January 16,
2004), and I-many, Inc. (publicly available April 4, 2003).
5 Cintas Corporation was a Washington corporation. Like Delaware law, Washington
state incorporation law provides that "bylaws may prescribe qualifications for
directors." Wash. Code 23B.08.020. Washington law also permits a board of
directors to adopt bylaws, but only under certain circumstances. Wash Code
23B.10.200. It is not clear whether those circumstances were present at Cintas
Corporation.
6 See http://corporate.disney.go.com/corporate/guidelines3.html (attached as
Exhibit A).
7 See http://corporate.disney.go.com/corporate/guidelines11.html (attached as
Exhibit B).
8 Id.
9 Id.
10 The Staff reached a different conclusion when faced with a similar proposal
in The Kroger Company (publicly available March 22, 2004). There, the company,
an Ohio corporation, sought to exclude from its proxy materials a proposal
requesting the Board to "take the necessary steps to amend the by-laws to
require that, subject to any presently existing contractual obligations of the
Company, the Chairman of the Board of Directors shall not concurrently serve as
the Chief Executive Officer." In support of exclusion under Rule 14a-8(i)(6),
the company correctly noted that the Proposal might be appropriate under the
laws of such states as Delaware, in which directors have the ability to amend
the bylaws, but argued that it was beyond the power of the board to implement
the proposal under Ohio law. The Staff denied the no-action letter, in part
because it was unable to concur with the view that Kroger lacked the power to
implement the proposal.
11 See http://corporate.disney.go.com/corporate/guidelines11.html (attached as
Exhibit B).
12 While it is true that the Proposal would necessarily mean that Disney's next
Chief Executive Officer could not also serve as Chairman, a policy of having an
independent Chairman can be implemented without involving or affecting Disney's
corporate offices and employee responsibilities.
[STAFF REPLY LETTER]
November 24, 2004
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Walt Disney Company
Incoming letter dated October 15, 2004
The proposal urges the board to amend the Corporate Governance Guidelines and
take whatever other actions are necessary to set as a company policy that the
chairman of the board of directors will always be an independent member of the
board, except in rare and explicitly spelled out, extraordinary circumstances.
We are unable to concur in your view that Disney may exclude the proposal under
rule 14a-8(i)(3). Accordingly, we do not believe that Disney may omit the
proposal from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Disney may exclude the proposal under
rule 14a-8(i)(6). Accordingly, we do not believe that Disney may omit the
proposal from its proxy materials in reliance on rule 14a-8(i)(6).
We are unable to concur in your view that Disney may exclude the proposal under
rule 14a-8(i)(7). Accordingly, we do not believe that Disney may omit the
proposal from its proxy materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Heather L. Maples
Special Counsel
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