Company Name: American Int'l. Group, Inc.
Public Availability Date: March 14, 2005
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX 1
INQUIRY LETTER
APPENDIX 2
INQUIRY LETTER
APPENDIX 3
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 13, 2005
Securities and Exchange Commission,
Division of Corporation Finance,
Office of Chief Counsel,
450 Fifth Street, N.W.,
Washington, D.C. 20549
Re: American International Group, Inc. - Omission of Shareholder Proposal
Pursuant to Rule 14a-8
Ladies and Gentleman:
This letter is submitted by American International Group, Inc. (the "Company")
pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), with respect to a proposal, dated December 6, 2004 (the
"Proposal"), submitted for inclusion in the Company's proxy materials (the
"Proxy Materials") for its 2005 annual meeting of shareholders by the American
Federation of Labor and Congress of Industrial Organizations Reserve Fund (the
"Proponent"). The Proposal and the accompanying supporting statement (the
"Supporting Statement") are attached to this letter as Annex A.
The Company believes that the Proposal and Supporting Statement should be
omitted from the Proxy Materials for the following reasons:
1. the Proposal and Supporting Statement are false and misleading;
2. the Proposal relates to the Company's ordinary business operations; and
3. the Company has substantially implemented the Proposals.
In accordance with Rule 14a-8(j) under the Exchange Act, the Company hereby
gives notice of the Company's intention to omit the Proposal and Supporting
Statement from the Proxy Materials and hereby respectfully requests the staff of
the Division of Corporation Finance (the "Staff") of the Securities and Exchange
Commission (the "Commission") indicate that it will not recommend enforcement
action to the Commission if the Company omits the Proposal and the Supporting
Statement from the Proxy Materials.
This letter constitutes the Company's statement of the reasons why it deems this
omission to be proper. Enclosed are five additional copies of this letter,
including the annexed Proposal and Supporting Statement.
The Proposals
The Proposal states:
RESOLVED, that the shareholders of American International Group (the "Company"
or "AIG") urge a special committee of independent directors to oversee the
recently appointed transaction review committee (the "Committee") in examining
the Company's sales practices, including its use of contingent commissions,
recent revelations of bid rigging and price fixing in association with Marsh and
McLennan ("Marsh") and sale of finite risk insurance. Such committee shall make
available to shareholders at reasonable cost a comprehensive, company-wide
report of its findings and recommendations.
Grounds for Omission
1. The Proposal and Supporting Statement are false and misleading (Rule
14a-8(i)(3))
A shareholder proposal or supporting statement may be omitted under Rule
14a-8(i)(3) where it is "contrary to any of the Commission's proxy rules,
including Rule 14a-9, which prohibits materially false or misleading statements
in proxy soliciting materials." The Staff has consistently concurred that a
registrant may properly omit entire shareholder proposals and supporting
statements under Rule 14a-8(i)(3) where they contain false and misleading
statements. See The Swiss Helvetia Fund, Inc. (April 3, 2001).
The Proposal and Supporting Statement violate the proxy rules, including Rule
14a-9, because they are materially false and misleading and set forth numerous
other statements and assertions that lack factual support and citation.
The Proposal, if implemented, would "urge a special committee of independent
directors to oversee the recently appointed transaction review committee." The
Proposal further asserts that the transaction review committee is currently
"examining the Company's sales practices, including its use of contingent
commissions, recent revelations of bid rigging and price fixing in association
with Marsh and McLennan ... and sale of finite risk insurance."
Almost every single one of the Proponent's assertions in the preceding sentence
is wrong.
A transaction review committee has been formed, and it is formally named the
Complex Structured Finance Transaction Committee (the "Committee"). The
Committee, however, will not be examining (1) the Company's sales practices, (2)
the Company's use of contingent commissions, or (3) recent revelations of bid
rigging and price fixing in association with Marsh & McLennan. In addition,
while the Committee may review finite risk insurance programs, the Committee is
charged with a duty of prospective review and analysis, not retrospective
examination of past transactions. In other words, the Committee is not reviewing
sales practices, as the Proponent incorrectly asserts. The Committee will be
reviewing, as its name suggests, complex structured finance transactions.
The Proponent's submission is based on the premise that the independent
directors could oversee this Committee's supposed examination of sales practices
and then "make available to shareholders at reasonable cost a comprehensive,
company-wide report of its findings and recommendations." It is clear that the
Proponent's entire premise is incorrect, and as a result, almost the entire
Proposal is false and misleading and based on statements and assertions that
lack factual support.
As the Staff has indicated, "when a proposal and supporting statement will
require detailed and extensive editing in order to bring them into compliance
with the proxy rules, we may find it appropriate for companies to exclude the
entire proposal, supporting statement, or both, as materially false or
misleading." Staff Legal Bulletin No. 14 (July 13, 2001). In fact, in this
situation, Proponent would need to prepare an entirely new proposal to avoid
using false and misleading material.
For the foregoing reason, the Company believes that it may omit the Proposal
from the Proxy Materials under Rule 14a-8(i)(3).
2. The Proposal relates to the Company's ordinary business operations (Rule
14a-8(i)(7))
A proposal may be omitted under Rule 14a-8(i)(7) if it "deals with a matter
relating to the company's ordinary business operations." The Commission has
stated that the purpose of this rule is to avoid the micro-management by
shareholders of matters that are fundamental to management's ability to run a
company on a day-to-day basis. See Exchange Act Release No. 40018 (May 21,
1998). The Company believes that it may omit the Proposal under Rule 14a-8(i)(7)
because it relates to the subject matter of litigation in which the Company has
been named as a defendant.
The Proposal not only requests that the independent directors form a committee
to oversee an examination of the Company's sales practices, including its use of
contingent commissions and recent revelations of bid rigging and price fixing,
but also would require the committee of independent directors to publicly report
its findings and recommendations on these subjects to shareholders.
The Company currently is involved in various legal actions relating to these
matters. See e.g., Michael Feder v. American International Group, Inc., et. al.,
Marilyn Clark v. American International Group, Inc., et. al. If implemented, the
Proposal would interfere significantly with the Company's current litigation
strategy in these actions and amount to an impermissible intrusion on the
oversight of ordinary business operations by management and the Board of
Directors. While the Company may well conduct an investigation as part of its
litigation strategy, a requirement that it publicly report its findings is the
equivalent of requiring the Company to surrender any control over its defense in
this active litigation.
The Staff has previously acknowledged that a shareholder proposal is properly
excludable under the "ordinary course of business" exception contained in
14a-8(i)(7) when the subject matter of the proposal is the same or similar to
that which is at the heart of litigation in which a registrant is then involved.
See, e.g., R.J. Reynolds Tobacco Holdings, Inc. (March 6, 2003); RJR Nabisco
Holdings Corp. (February 22, 1999) (proposal requiring the company to stop using
the terms "light" and "ultralight" until shareholders can be assured through
independent research that such brands reduce the risk of smoking-related
diseases excludable under the "ordinary course" exception because it interfered
with litigation strategy of class-action lawsuit on similar matters); Philip
Morris Companies Inc. (February 22, 1999) (same).
This result is also consistent with the longstanding position of the Staff that
a company's decision to institute or defend itself against legal actions, and
decisions on how it will conduct those legal actions, are matters relating to
its ordinary business operations within the meaning of 14a-8(i)(7). See, e.g.,
NetCurrents, Inc. (May 8, 2001) (proposal requiring NetCurrents, Inc. to sue two
individuals within 30 days of the annual meeting excludable as ordinary business
operations because it relates to litigation strategy); Microsoft Corporation
(September 15, 2000) (proposal asking the registrant to sue the federal
government on behalf of shareholders excludable as ordinary business because it
relates to the conduct of litigation); Exxon Mobil Corporation (March 21, 2000)
(proposal requesting immediate payment of settlements associated with Exxon
Valdez oil spill excludable because it relates to litigation strategy and
related decisions); Philip Morris Companies Inc. (February 4, 1997) (proposal
recommending that Philip Morris Companies Inc. voluntarily implement certain FDA
regulations while simultaneously challenging the legality of those regulations
found excludable under clause (c)(7), the predecessor to the current (i)(7));
Adams Express Company (July 18, 1996) (proposal for registrant to initiate court
action against the Federal Reserve Board excludable as ordinary business because
it went to the determination by the company to institute legal action); Exxon
Corporation (December 20, 1995) (proposal that registrant forego any appellate
or other rights that it might have in connection with litigation arising from
the Exxon Valdez incident excludable because litigation strategy and related
decisions are matters relating to the conduct of the registrant's ordinary
business operations); Benihana National Corporation (September 13, 1991) (Same).
For the foregoing reason, the Company believes that it may omit the Proposal
from the Proxy Materials under Rule 14a-8(i)(7).
3. The Proposal has been substantially implemented (Rule 14a-8(i)(10))
Rule 14a-8(i)(10) allows a company to exclude a shareholder proposal from its
proxy materials "if the company has already substantially implemented the
proposal." In applying this standard, the Commission has indicated that the
proposal need not be "fully effected" by the company, as long as it has been
"substantially implemented." SEC Release No. 34-20091 (August 16, 1983).
The Proposal effectively requests independent oversight of the Committee. The
Supporting Statement asserts, "a special committee of independent directors
should oversee...[the Committee] review of company-wide sales practices." To the
extent the Proposal is concerned with independent oversight of the Committee on
a prospective basis, the proposal has been substantially implemented. Indeed,
pursuant to the terms of the "Policy and Procedures Memorandum," the Committee
is expected to submit written reports on its activities to the Audit Committee,
which consists entirely of independent directors. In addition, an independent
consultant will be (i) monitoring the work of the Committee to ensure the
Company's implementation of and compliance with the policies and procedures
adopted by the Committee and (ii) reporting to both the Commission and the Audit
Committee as to the implementation of and compliance with such policies and
procedures.
Accordingly, the Company believes that two sufficiently independent oversight
mechanisms have been arranged for the Committee and that an additional,
overlapping layer of oversight is unnecessary and duplicative.
For the foregoing reason, the Company believes that it may omit the Proposal
from the Proxy Materials under Rule 14a-8(i)(10).
Conclusion
In accordance with Rule 14a-8(j), the Company is contemporaneously notifying the
Proponent, by copy of this letter including Annex A and Annex B (correspondence
between the Company and the Proponent with respect to the Proposal), of its
intention to omit the Proposal and Supporting Statement from its Proxy
Materials.
The Company anticipates that it will mail its definitive Proxy Materials to
shareholders on or about April 5, 2004.
The Company hereby respectfully requests that the Staff indicate that it will
not recommend enforcement action to the Commission if the Proposal and
Supporting Statement are excluded from the Company's Proxy Materials for the
reasons set forth above. If you have any questions regarding this request, or
need any additional information, please telephone the undersigned at (212)
770-5123 or, in my absence, Eric N. Litzky at (212) 770-6918.
Please acknowledge receipt of this letter and the enclosed materials by stamping
the enclosed copy of the letter and returning it in the enclosed self-addressed,
stamped envelope.
Very truly yours,
/s/
Kathleen E. Shannon
(Enclosures)
cc: Daniel Pedrotty
[INQUIRY LETTER]
December 6, 2004
By Facsimile and UPS Next Day Air
Kathleen E. Shannon
Secretary
American International Group, Inc.
70 Pine Street
New York, N.Y. 10270
Dear Ms. Shannon:
On behalf of the AFL-CIO Reserve Fund (the "Fund"), I write to give notice that
pursuant to the 2004 proxy statement of the American Intemational Group, Inc.
(the "Company"), the Fund intends to present the attached proposal (the
"Proposal") at the 2005 annual meeting of shareholders (the "Ammal Meeting").
The Fund requests that the Company include the Proposal in the Company's proxy
statement for the Annual Meeting. The Fund is the beneficial owner of 1,600
shares of voting common stock (the "Shares") of the Company, and has held the
Shares for over one year. In addition, the Fund intends to hold the Shares
through the date on which the Annual Meeting is held.
The Proposal is attached. I represent that the Fund or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal. I
declare that the Fund has no "material interest" other than that believed to be
shared by stockholders of the Company generally. Please direct all questions or
correspondence regarding the Proposal to Daniel Pedrotty at (202) 637-5379.
Sincerely,
/s/
William B. Patterson
Director, Office of Investment
Enclosure
[APPENDIX 1]
Shareholder Proposal
Resolved, that the shareholders of American International Group (the "Company"
or "AIG") urge a special committee of independent directors to oversee the
recently appointed transaction review committee (the "Committee") in examining
the Company's sales practices, including its use of contingent commissions,
recent revelations of bid rigging and price fixing in association with Marsh and
McLennan ("Marsh") and sale of finite risk insurance. Such committee shall make
available to shareholders at reasonable cost a comprehensive, company-wide
report of its findings and recommendations.
Supporting Statement
AIG has recently agreed to pay $126 million in penalties and restitution in a
settlement with federal regulators concerning the Company's sale of finite risk
policies. According to the Wall Street Journal, in the "insurance at issue, the
risk of loss to the insurer selling the policy is limited and sometimes even
eliminatedpartly because, in these policies' simplest form, the premiums are so
high; other times, the loss already has occurred." As part of the settlement,
AIG also appointed a chief compliance officer and a new internal review unit
which "will help assure that no product we market ... is sold to assist a
counterparty or an insured to misrepresent either its income statement or
balance sheet." In addition to already reporting to the CEO and Andit committee,
a special committee of independent directors should oversee and make available
to shareholders a Committee review of company-wide sales practices which
continue to leave stockholders at risk.
The scope of the Committee's work should also extend to a review of the charges
levied by Attorney General Spitzer ("Attorney General" or "Spitzer"). The
Attorney General has implicated our Company in filing suit against insurance
broker Marsh & McLennan, alleging that Marsh steered clients to insurers with
which it had lucrative payoff agreements and solicited rigged bids for insurance
contracts. Two AIG employees pled guilty to misdemeanor charges related to the
probe.
The Attorney General's complaint alleges that "beginning in or around 2001 until
at least the summer of 2004," Marsh's Global Broking Group and AIG's Home Excess
Casualty division "engaged in systematic bid manipulation." Spitzer testified in
front of the Senate Committee on Governmental Affairs that "we found evidence of
direct bid rigging in excess casualty insurance markets where Marsh arranged for
the submission of fictitious or artificially inflated bids in order to create
the illusion of competition among insurance carriers and mask the direct
steering of insurance business to a favored insurance carrier."
In our view, an examination by the newly created transaction review committee of
our Company's business practices will enhance investor faith in Hartford's
willingness to reform. In our Company's Employee Code of Conduct it emphasizes
that "throughout AIG's history, we have made integrity the foundation of our
professional relationshipswith customers, shareholders, business partners and
employees." In our opinion, our Company's reputation for integrity depends in
part on its compliance with applicable laws and regulations that govern the sale
and distribution of insurance.
For the above reasons, please vote FOR this proposal.
[INQUIRY LETTER]
December 13, 2004
By Facsimile and UPS Next Day Air
Kathleen E. Shannon
Secretary
American International Group, Inc.
70 Pine Street
New York, N.Y. 10270
Dear Ms. Shannon:
The AFL-CIO Reserve Fund submitted a shareholder proposal on December 6, 2004 to
the American International Group, Inc. for inclusion in its 2005 proxy
statement. The Proposal as previously submitted contained a typographical error
in the supporting statement. The first sentence of the fourth paragraph of the
supporting statement should read "will enhance investor faith in AIG's
willingness to reform." Please accept the attached revised shareholder
resolution and direct all questions or correspondence regarding the Proposal and
this correction to Daniel Pedrotty at (202) 637-5379.
Sincerely,
/s/
William B. Patterson
Director, Office of Investment
Enclosure
[APPENDIX 2]
Revised Shareholder Proposal
Resolved, that the shareholders of American International Group (the "Company"
or "AIG") urge a special committee of independent directors to oversee the
recently appointed transaction review committee (the "Committee") in examining
the Company's sales practices, including its use of contingent commissions,
recent revelations of bid rigging and price fixing in association with Marsh and
McLcnnan ("Marsh") and sale of finite risk insurance. Such committee shall make
available to shareholders at reasonable cost a comprehensive, company-wide
report of its findings and recommendations.
Supporting Statement
AIG has recently agreed to pay $126 million in penalties and restitution in a
settlement with federal regulators concerning the Company's sale of finite risk
policies. According to the Wall Street Journal, in the "insurance at issue, the
risk of loss to the insurer selling the policy is limited and sometimes even
eliminatedpartly because, in these policies' simplest form, the premiums are so
high; other times, the loss already has occurred." As part of the settlement,
AIG also appointed a chief compliance officer and a new internal review unit
which "will help assure that no product we market ... is sold to assist a
counterparty or an insured to misrepresent either its income statement or
balance sheet." In addition to already reporting to the CEO and Audit committee,
a special committee of independent directors should oversee and make available
to shareholders a Committee review of company-wide sales practices which
continue to leave stockholders at risk.
The scope of the Committee's work should extend to a review of the charges
levied by Attorney General Spitzer ("Attorney General" or "Spitzer"). The
Attorney General has implicated our Company in filing suit against insurance
broker Marsh & McLcnnan, alleging that Marsh steered clients to insurers with
which it had lucrative payoff agreements and solicited rigged bids for insurance
contracts. Two AIG employees pled guilty to misdemeanor charges related to the
probe.
The Attorney General's complaint alleges that "beginning in or around 2001 until
at least the summer of 2004," Marsh's Global Broking Group and AIG's Home Excess
Casualty division "engaged in systematic bid manipulation." Spitzer testified in
front of the Senate Committee on Governmental Affairs that "we found evidence of
direct bid rigging in excess casualty insurance markets where Marsh arranged for
the submission of fictitious or artificially inflated bids in order to create
the illusion of competition among insurance carriers and mask the direct
steering of insurance business to a favored insurance carrier."
In our view, an examination by the newly created transaction review committee of
our Company's business practices will enhance investor faith in AIG's
willingness to reform. In our Company's Employee Code of Conduct it emphasizes
that "throughout AIG's history, we have made integrity the foundation of our
professional relationshipswith customers, shareholders, business partners and
employees." In our opinion, our Company's reputation for integrity depends in
part on its compliance with applicable laws and regulations that govern the sale
and distribution of insurance.
For the above reasons, please vote FOR this proposal.
[INQUIRY LETTER]
February 4, 2005
VIA COURIER
Office of Chief Counsel
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Request by American International Group to omit shareholder proposal
submitted by AFL-CIO Reserve Fund
Dear Sir/Madam:
I. Introduction
This letter is submitted in response to the claim of American International
Group, Inc. ("AIG" or the "Company") by letter dated January 13, 2005, that it
may exclude the shareholder proposal of the AFL-CIO Reserve Fund from its 2005
proxy materials. The Proposal urges
a special committee of independent directors to oversee the recently appointed
transaction review committee (the "Committee") in examining the Company's sales
practices, including its use of contingent commissions, recent revelations of
bid rigging and price fixing in association with Marsh and McLennan ("Marsh")
and sale of finite risk insurance. Such committee shall make available to
shareholders at reasonable cost a comprehensive, company-wide report of its
findings and recommendations. (See Exhibit 1).
AIG argues that the Proposal is excludable under Rule 14a-8(i)(3) because the
Proposal and Supporting Statement are false and misleading, Rule 14a-8(i)(7)
because the Proposal relates to the Company's ordinary business operations, and
Rule 14a-8(i)(10) because the "Company has substantially implemented the [sic]
Proposals." In relying on 14a-8(i)(3), the Company has mistakenly construed the
Proposal. In addition, the Proposal relates to a matter of widespread public
debate and the Company has failed to substantially implement the Proposal.
II. There Is Not Merit to AIG's Claim That the Proposal May Be Excluded Under
Rule 14a-8(i)(3)
Under Rule 14a-8(g), "the burden is on the company to demonstrate that it is
entitled to exclude a proposal." We submit that AIG has failed to meet this
burden because there is no merit to its claims and neither the Proposal nor the
Supporting Statement is based on false or misleading statements. Rule
14a-8(i)(3) permits a company to exclude a shareholder proposal from its proxy
materials if "the proposal or supporting statement is contrary to any of the
Commission's proxy rules, including 240.14a-9, which prohibits materially false
or misleading statements in proxy soliciting materials."
The Company asserts that "almost every single one of the Proponent's assertions"
in the Proposal is wrong based on their fundamentally mistaken reading of the
Proposal. The Company further argues that the Proponent incorrectly asserts that
the transaction review committee (the "Committee") is reviewing sales practices.
The Company's flawed interpretation of the Proposal arises from their assumption
that the AFL-CIO Reserve Fund is representing that the Committee has already
taken up such action when it urges the Committee to review AIG's sales practices
with outside director oversight. The Proponent makes no such representation in
either the Proposal or Supporting Statement, as a careful reading of each
proves.
Despite the Company's argument to the contrary, the Proponent clearly set out
that any review undertaken by the Committee would be prospective in nature and
was not already underway. In separate parts of the Supporting Statement, the
Proponent recommends that "the scope of the Committee's work should extend to a
review of the charges levied by Attorney General Spitzer," (emphasis added) and
later "in our view, an examination by the newly created transaction review
committee of our Company's business practices will enhance investor faith in
AIG's willingness to reform." (emphasis added).
The Staff recently clarified their views under this rule after company's
objections and the staff's consideration of those objections caused the process
to "evolve well beyond its original intent." Staff Legal Bulletin No. 14B (CF)
(September 15, 2004). The Staff wrote that "because the shareholder proponent,
and not the company, is responsible for the content of a proposal and its
supporting statement, we do not believe that exclusion or modification under
rule 14a-8(i)(3) is appropriate for much of the language in supporting
statements to which companies have objected." SLB No. 14B (CF) (Sept. 15, 2004).
The Company's mistaken reading of the Proposal and Supporting Statement, despite
clear and unambiguous language to the contrary, does not create a situation
whereby the "company has demonstrated objectively that the proposal or statement
is materially false or misleading." SLB No.14B(CF) (September 14, 2004)
(emphasis in original).
III. The Resolution Does Not Require Reporting on Litigation, but Instead
Addresses Major Public Issues Facing the Company
The Company asserts that it may omit the Proposal under the ordinary business
exclusion because "it relates to the subject matter of litigation in which the
Company has been named as a defendant." In support, AIG argues that a
comprehensive, company-wide report is excludable when the "subject matter of the
proposal is the same or similar to that which is at the heart of litigation in
which a registrant is then involved." However, an examination of both the prior
letters and the Proposal demonstrate that those letters do not apply to the
Proposal.
The Proposal in no way dictates or directs the Company in their legal strategy.
Unlike the letters cited by AIG, the Proposal does not touch on litigation
strategy by requiring the Company to sue certain individuals, request immediate
payment of settlements, forgo appellate rights or voluntarily implement federal
regulations. The resolution urges the Company's independent directors and the
Committee to prepare a report addressing the sales practices, among others,
which led to the imminent appointment of a Justice Department monitor to examine
the Company's past sale of finite insurance products.
As the Proponent asserted in The Dow Chemical Company (February 11, 2004), and
the Commission implicitly accepted in refusing the no-action request, "to decide
that the existence of litigation on the subject matter would be enough to bar
resolutions would mean that the most substantial issues facing corporations
would not be discussable in shareholder resolutions. This would be a flawed
response to the major policy issues that confront corporations." The Dow
Chemical decision builds on prior letters which did not allow the exclusion of a
proposal under litigation strategy and the ordinary business exclusion. See,
e.g., Philip Morris (Feb. 14, 2000) (proposal calling for management to develop
a report for shareholders describing how company intends to address "sicknesses"
caused by the company's products not excludable after proponent argued that the
proposal neither requests information about litigation nor tells the company how
to handle the litigation); Bristol-Meyers (Feb. 21, 2000) (proposal which called
for implementation of a policy of price restraint on pharmaceutical products for
individual customers and institutional purchasers not excludable due to the
large policy issues at stake).
The Dow Chemical decision also rejected the same argument which AIG makes,
namely that the shareholder proposal would interfere with the Company's
litigation strategy. In Dow, the company argued the proposal was inappropriate
"when there is a pending lawsuit involving the company ... on the very issues
that form the basis for the proposal." Dow cited each of the same decisions
which AIG references in their brief. R.J. Reynolds Tobacco Holdings, Inc. (March
6, 2003); Philip Morris Companies Inc. (February 22, 1999). In finding that the
proposal did not interfere with Dow's litigation strategy, the Staff wrote "we
are unable to concur in your view that Dow may exclude the proposal under rule
14a-8(i)(7)." Similar to Dow, and unlike R.J. Reynolds, the AFL-CIO Reserve Fund
Proposal primarily address a major policy issue confronting AIG and not the
litigation strategy of the Company.
While the Commission has stated in Exchange Act Release No. 40018 (May 21, 1998)
that a central consideration under the ordinary business exclusion is whether
the proposal probes too deeply into the questions at hand, the Proposal does not
cross the line into that level of depth. As the court explained in Roosevelt vs.
E.I. DuPont de Nemours & Company, 958 F.2d 416, (DC Cir. 1992), a proposal which
has "significant policy, economic or other implications" may not be excluded
under 14a-8(i)(7). The court also spoke of actions which are "extraordinary,
i.e., one involving `fundamental business strategy' or `long term goals' in
interpreting that standard."
The Proposal at issue should not be excluded under Rule 14a-8(i)(7) because of
its focus on a major policy issue which confronts insurance companies and
brokers. Most of the incidents implicated in the Proposal arose in October of
2004, when New York Attorney General Eliot Spitzer implicated AIG in his lawsuit
against insurance broker Marsh & McLennan. Mr. Spitzer alleged that Marsh
solicited rigged bids for insurance contracts from AIG and other insurers with
which it had lucrative payoff agreements. Also, on November 30, 2004, AIG agreed
to pay $126 million to settle charges leveled by the Justice Department and the
Securities and Exchange Commission in connection with sales of "finite
insurance" products to PNC Financial Services Group and Brightpoint Inc. The
settlement included the later appointment of an independent monitor by the
Justice Department who will comb through the Company's books for the last five
years.
Despite the current litigation pending against the Company, the resolution does
not ask for responses to any of these civil matters. Instead, the Company is
asked primarily to report on new "recommendations" to resolve the major public
controversy facing AIG. In urging recommendations after an examination of these
sales practices, the Proposal address important corporate governance policies
involving matters of widespread public debate. (See Exhibit 2).
IV. AIG Has Failed to Demonstrate that the Proposal Has Been Substantially
Implemented
Despite the Company's emphasis in its no-action request that the current
investigative framework includes no examination of "(1) the Company's sales
practices, (2) the Company's use of contingent commissions, or (3) recent
revelations of bid riggings and price fixing in association with Marsh &
McLennan," it insists that sufficient oversight mechanisms have been arranged
and the Proposal has been substantially implemented.
In the Proposal, shareholders urge a special committee of independent directors
to examine the very same sales practices outlined above which the Company
concedes it will not examine. By the Company's own admission it has not taken up
any review of the subject matter at issue in the Proposal. While the Committee
will be reviewing "complex structured finance transactions," its decision to not
examine the sales practices outlined in the Proposal undermines the Company's
claim that it has substantially implemented the resolution.
V. Conclusion
For the reasons set forth above, we submit that AIG has failed to meet its
burden of demonstrating "that it is entitled" to exclude the Proposal from its
proxy materials (See Rule 14a-8 (g). The request for a no-action letter should
be denied.
If you have any questions or need additional information, please do not hesitate
to call me at (202) 637-5379. I have enclosed six copies of this letter for the
staff, and am sending copies to counsel for the Company.
Very truly yours,
/s/
Daniel F. Pedrotty
Financial Initiatives Counsel
cc: Kathleen E. Shannon, AIG
Justin G. Hamill, Paul, Weiss, Rifkind, Wharton & Garrison LLP
[APPENDIX 3]
Shareholder Proposal
Resolved, that the shareholders of American International Group (the "Company"
or "AIG") urge a special committee of independent directors to oversee the
recently appointed transaction review committee (the "Committee") in examining
the Company's sales practices, including its use of contingent commissions,
recent revelations of bid rigging and price fixing in association with Marsh and
McLennan ("Marsh") and sale of finite risk insurance. Such committee shall make
available to shareholders at reasonable cost a comprehensive, company-wide
report of its findings and recommendations.
Supporting Statement
AIG has recently agreed to pay $126 million in penalties and restitution in a
settlement with federal regulators concerning the Company's sale of finite risk
policies. According to the Wall Street Journal, in the "insurance at issue, the
risk of loss to the insurer selling the policy is limited and sometimes even
eliminatedpartly because, in these policies' simplest form, the premiums are so
high; other times, the loss already has occurred." As part of the settlement,
AIG also appointed a chief compliance officer and a new internal review unit
which "will help assure that no product we market... is sold to assist a
counterparty or an insured to misrepresent either its income statement or
balance sheet." In addition to already reporting to the CEO and Audit committee,
a special committee of independent directors should oversee and make available
to shareholders a Committee review of company-wide sales practices which
continue to leave stockholders at risk.
The scope of the Committee's work should extend to a review of the charges
levied by Attorney General Spitzer ("Attorney General" or "Spitzer"). The
Attorney General has implicated our Company in filing suit against insurance
broker Marsh & McLennan, alleging that Marsh steered clients to insurers with
which it had lucrative payoff agreements and solicited rigged bids for insurance
contracts. Two AIG employees pled guilty to misdemeanor charges related to the
probe.
The Attorney General's complaint alleges that "beginning in or around 2001 until
at least the summer of 2004," Marsh's Global Broking Group and AIG's Home Excess
Casualty division "engaged in systematic bid manipulation." Spitzer testified in
front of the Senate Committee on Governmental Affairs that "we found evidence of
direct bid rigging in excess casualty insurance markets where Marsh arranged for
the submission of fictitious or artificially inflated bids in order to create
the illusion of competition among insurance carriers and mask the direct
steering of insurance business to a favored insurance carrier."
In our view, an examination by the newly created transaction review committee of
our Company's business practices will enhance investor faith in AIG's
willingness to reform. In our Company's Employee Code of Conduct it emphasizes
that "throughout AIG's history, we have made integrity the foundation of our
professional relationshipswith customers, shareholders, business partners and
employees." In our opinion, our Company's reputation for integrity depends in
part on its compliance with applicable laws and regulations that govern the sale
and distribution of insurance.
For the above reasons, please vote FOR this proposal.
[INQUIRY LETTER]
February 22, 2005
Securities and Exchange Commission,
Division of Corporation Finance,
Office of Chief Counsel,
450 Fifth Street, N.W.,
Washington, D.C. 20549
Re: American International Group, Inc. - Response to Letter from AFL-CIO Reserve
Fund Regarding Omission of Shareholder Proposal Pursuant to Rule 14a-8
Ladies and Gentleman:
This letter is submitted by American International Group, Inc. (the "Company")
in response to a letter, dated February 4, 2005, from the American Federation of
Labor and Congress of Industrial Organizations Reserve Fund (the "Proponent"),
to the staff of the Division of Corporation Finance (the "Staff") of the
Securities and Exchange Commission (the "Commission"), with respect to the
Proponent's proposal and statement in support thereof (the "Proposal"), dated
December 6, 2004, submitted for inclusion in the Company's proxy materials (the
"Proxy Materials") for its 2005 annual meeting of shareholders.
The Proposal states:
"RESOLVED, that the shareholders of American International Group (the "Company"
or "AIG") urge a special committee of independent directors to oversee the
recently appointed transaction review committee (the "Committee") in examining
the Company's sales practices, including its use of contingent commissions,
recent revelations of bid rigging and price fixing in association with Marsh and
McLennan ("Marsh") and sale of finite risk insurance. Such committee shall make
available to shareholders at reasonable cost a comprehensive, company-wide
report of its findings and recommendations."
As stated in the Company's letter to the Staff, dated January 13, 2005, the
Company believes that the Proposal should be omitted from the Proxy Materials
for the following reasons:
1. the Proposal is false and misleading;
2. the Proposal relates to the Company's ordinary business operations; and
3. the Company has substantially implemented the Proposal, to the extent the
Proposal requests independent oversight of the Complex Structured Finance
Transaction Committee (the "Transaction Review Committee").
In its letter of February 4, 2005, the Proponent claims (1) the Proposal may not
be excluded under Rule 14a-8(i)(3) because it is not false or misleading, (2)
the Proposal does not require reporting on litigation and does not relate to
ordinary business operations and (3) the Company has failed to demonstrate that
the Proposal has been substantially implemented.
1. The Proposal and Supporting Statement are false and misleading (Rule
14a-8(i)(3))
In its letter dated February 4, 2005, the Proponent continues to confuse the
question of the scope of the duties of the Transaction Review Committee, further
evidencing the misleading and inaccurate nature of the Proposal. For example,
the February 4, 2005 letter states that, "the Proponent clearly set out that any
review undertaken by the [Transaction Review] Committee would be prospective in
nature." However, the Proposal itself refers to past incidents, practices and
allegations dating to the year 2001, a review of which is necessarily
retrospective. The Proponent's letter of February 4, 2005 thus only serves to
further obfuscate the true intent of its Proposal.
The Proposal does not urge the establishment of a Transaction Review Committee
nor does it propose an expansion in the mandate of the Transaction Review
Committee. Instead, the Proposal urges independent director oversight of the
"recently appointed transaction review committee in examining" a variety of
matters that are not within the purview of the Transaction Review Committee's
responsibilities. As stated in the Company's letter of January 13, 2005, "[t]he
[Transaction Review] Committee... will not be examining (1) the Company's sales
practices, (2) the Company's use of contingent commissions, or (3) recent
revelations of bid rigging and price fixing in association with Marsh &
McLennan."
The Proposal makes reference to these matters in a manner that implies that they
are currently under review by the Transaction Review Committee. This implication
is false and misleading because it suggests that the Company has already made a
determination that these historical matters should be reviewed by the
Transaction Review Committee and that the Proponent merely urges independent
director oversight of such review. As such, the Proposal erroneously recasts an
issue about the proper substantive scope of the duties of the Transaction Review
Committee into one of mere procedural oversight. Despite the Proponent's
assertions to the contrary, there is nothing "clear and unambiguous" about this
strategy.
Accordingly, we respectfully submit that the Proposal violates the proxy rules,
including Rule 14a-9, because it is materially false and misleading.
For the foregoing reason, the Company continues to believes that it may omit the
Proposal from the Proxy Materials under Rule 14a-8(i)(3).
2. The Proposal relates to the Company's ordinary business operations (Rule
14a-8(i)(7))
A proposal may be omitted under Rule 14a-8(i)(7) if it "deals with a matter
relating to the company's ordinary business operations." The Staff has
previously acknowledged that a shareholder proposal is properly excludable under
the "ordinary course of business" exception contained in 14a-8(i)(7) when the
subject matter of the proposal is the same or similar to that which is at the
heart of litigation in which a registrant is then involved. The Company believes
that it may omit the Proposal under Rule 14a-8(i)(7) because it relates to the
subject matter of litigation in which the Company has been named as a defendant.
As stated in the Company's letter of January 13, 2005, the Company currently is
involved in various legal actions relating to its sales practices. The Proposal
requests the Transaction Review Committee to make "available to shareholders at
reasonable cost a comprehensive, company-wide report of its findings"... "in
examining the Company's sales practices" (emphasis added). A public,
comprehensive report on findings related to on-going litigation would interfere
significantly with the Company's current litigation strategy in these actions.
The Proponent also asserts that "the Company is asked primarily to report on
`new recommendations' to resolve the major public controversy facing AIG." The
Proponent fails to mention however that the Proposal explicitly requests a
comprehensive report on findings as well as recommendations. It is reasonably
likely that the Company's litigation strategy would be compromised in a variety
of ways by the public disclosure of both findings (which could result in the
compelled disclosure of otherwise privileged information) or recommendations
(which could be used against the Company as admissions of fault).
Furthermore, the Proponent's attempt to rely on The Dow Chemical decision
(February 11, 2004) ("Dow Chemical") is misplaced. The proposal in Dow Chemical
requested "management to prepare a report to Shareholders ... at reasonable cost
and excluding confidential information, describing new initiatives by the
management" (emphasis added). Unlike the Proposal, the Dow Chemical proposal was
limited to new initiatives, not investigative findings on a subject matter at
the heart of on-going litigation.
For the foregoing reason, the Company continues to believe that it may omit the
Proposal from the Proxy Materials under Rule 14a-8(i)(7).
Conclusion
The Company respectfully requests that the Staff indicate that it will not
recommend enforcement action to the Commission if the Proposal is excluded from
the Company's Proxy Materials.
Pursuant to Rule 14a-8(j), enclosed herewith are six (6) copies of this letter.
Also, in accordance with Rule 14a-8(j), a copy of this letter is being mailed
contemporaneously to the Proponent. If you have any questions regarding this
request, or need any additional information, please telephone the undersigned at
(212) 770-5123 or, in my absence, Eric N. Litzky at (212) 770-6918.
Please acknowledge receipt of this letter and the enclosed materials by stamping
the enclosed copy of the letter and returning it in the enclosed self-addressed
envelope.
Very truly yours,
/s/
Kathleen E. Shannon
(Enclosures)
cc: Daniel Pedrotty
[STAFF REPLY LETTER]
March 14, 2005
Response of the Office of Chief Counsel Division of Corporation Finance
Re: American International Group, Inc. Incoming letter dated January 13, 2005
The proposal urges a committee of independent directors to oversee the
transaction review committee in examining AIG's sales practices, including
matters specified in the proposal, and report to shareholders its findings and
recommendations.
We are unable to concur in your view that AIG may exclude the proposal under
rule 14a-8(i)(3). Accordingly, we do not believe that AIG 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 AIG may exclude the proposal under
rule 14a-8(i)(7). Accordingly, we do not believe that AIG may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(7).
We are unable to concur in your view that AIG may exclude the proposal under
rule 14a-8(i)(10). Accordingly, we do not believe that AIG may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(10).
Sincerely,
/s/
Daniel Greenspan
Attorney-Advisor
|
