Company Name: Bank of New York Co., Inc.
Public Availability Date: February 28, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Securities Exchange Act of 1934 - Rule 14a-8 Shareholder Proposal submitted
by American Federation of State, County and Municipal Employees
Ladies and Gentlemen:
In accordance with Rule 14a-8(j) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), The Bank of New York Company, Inc. (the "Company")
hereby requests your concurrence that the Company may exclude from its proxy
statement (the "Proxy Statement") for its 2006 annual meeting of shareholders,
the shareholder proposal (the "Proposal") and the statement supporting the
proposal (the "Supporting Statement") submitted to the Company by American
Federation of State, County and Municipal Employees (the "Proponent"). The
Proposal seeks to have the board amend the Company's by-laws to "provide
procedures for the reimbursement of ...expenses... incurred by a shareholder or
group of shareholders... in a contested election of directors [even if the
insurgent nominee looses the election]." A copy of the Proposal and Supporting
Statement is attached as Annex A hereto.
Five additional copies of this letter, including the Proposal and Supporting
Statement, are enclosed herewith in accordance with Rule 14a-8(j).
Grounds for Excluding the Proposal Pursuant to Rule 14a-8(i)(3)
Rule 14a-8(i)(3) states that a registrant may omit a shareholder proposal from
its proxy materials "[i]f the proposal or a supporting statement is contrary to
any of the Commission's proxy rules..."
Rule 14a-7(e) of the Commission's proxy rules requires security holders
soliciting proxies to fund their own solicitation by either reimbursing a
registrant where the registrant mails a solicitation to shareholders on behalf
of the security holder or paying for their own mailing where the registrant
elects to provide its shareholder list to the soliciting security holder. Rule
14a-8 does not require a registrant to fund an opposition slate. See Loss &
Seligman, Securities Regulation Vol. IV, P.1926, Footnote 28.
The Proposal is contrary to the Commission's proxy rules because it would use
14a-8 to require the Company, rather than the insurgent, to fund opposition
candidates for the board.
For all of the above reasons, the Company believes that the Proposal is
excludable pursuant to Rule 14a-8(i)(3).
Grounds for Excluding the Proposal Pursuant to Rule 14a-8(i)(8)
Rule 14a-8(i)(8) states that a registrant may omit a shareholder proposal from
its proxy materials "[i]f the proposal relates to an election for membership on
the company's board of directors or analogous governing body."
The Commission has stated that the principal purpose of this rule "is to make
clear, with respect to corporate elections, that Rule 14a-8 is not the proper
means for conducting campaigns or effecting reforms in elections of that nature,
since the proxy rules, including [then existing] Rule 14a-11, are applicable."
Release No. 34-12598 (July 7, 1976) CCH Fed. Sec. L Rep. 1976-1977 Transfer
Binder 80,634.
The Staff has consistently permitted exclusion of shareholder proposals that
would, as would the Proposal, establish procedures that would make election
contests more likely. Most recently, in American International Group, Inc.
(February 14, 2005) and Sears, Roebuck and Co. (February 28, 2003), the Staff
granted each registrant a no-action letter request to exclude a proposal that
would have forced each registrant to amend its bylaws to require management to
include the name, along with certain disclosures and statements, of any person
nominated by a shareholder holding 3% or more of the registrant's stock. The
Staff stated, in pertinent part, "that the proposal, rather than establishing
procedures for nomination or qualification generally, would establish a
procedure that may result in contested elections of directors." See also
Citigroup Inc. (April 14, 2003); Eastman Kodak Co. (February 28, 2003); and AOL Time Warner (February 28, 2003) (all permitting exclusion of a proposal to amend
the bylaws to require that the company include the name, along with certain
disclosures and statements, of any person nominated for election to the board by
a shareholder who beneficially owns 3% or more of the company's outstanding
stock). See also Alaska Airways Group, Inc. (February 18, 2004) (Commission
granted a no-action letter allowing the registrant to exclude a proposal to
amend the by-laws to require management to include information regarding
nominees of shareholders owning $2,000 of company stock for one year to be
included in the proxy statement and on ballot cards); and Storage Technology
Corporation (March 22, 2002) and General Motors Corporation (March 22, 2001)
(both permitting exclusion of shareholder proposals requiring the registrant to
publish the name of all nominees for director in its proxy statement because
these proposals "would establish a procedure that may result in contested
elections of directors").
In this case, if the Proposal is adopted, it would establish a procedure
relating to the election of directors that is calculated to result in contested
elections of directors and would be contrary to Rule 14a-8(i)(8) and its
interpretation by the Commission. The Proponent's Supporting Statement clearly
states that "[t]he unavailability of reimbursement for director election
campaign expenses for... 'short-slates' ...contributes to the scarcity of such
contests." Accordingly, by the Proponent's own admission, it is seeking to
establish a procedure to make contested elections of directors more likely by
forcing the Company to reimburse even unsuccessful candidates for its board.
As the staff explained in United Park City Mines Co. (avail. LEXIS June 30,
1983) the Commission will allow the exclusion of proposals that relate "to the
election of a particular person to the board of directors." In this case, the
Proposal is an attempt to circumvent this prohibition. The Proponent could not
use 14a-8 to nominate a person but is attempting to use it to require the
Company to fund a future solicitation by the Proponent's nominee. As a policy
matter, the Proponent should not be permitted to do indirectly what it may not
do directly.
For all of the above reasons, the Company believes that the Proposal is
excludable pursuant to Rule 14a-8(i)(8).
Grounds for Excluding the Proposal Pursuant to Rule 14a-8(i)(7)
Rule 14a-8(i)(7) states that a registrant may omit a shareholder proposal from
its proxy materials if it "deals with a matter relating to the company's
ordinary business operations."
The Company is a New York corporation. Section 701 of the New York Business
Corporation Law provides that in the absence of a specific provision in a
company's certificate of incorporation giving the power directly to the
shareholders, a New York corporation's business and affairs are to be managed
under the direction of its board of directors. The Company's Certificate of
Incorporation does not contain such a provision.
Requiring the Company to fund opposition candidates for the Company's board
would usurp management's discretion as to how to allocate the Company's
resources. To require the Company to fund even unsuccessful opposition
candidates for its board would encourage contested elections that would serve no
purpose other than to harass management and waste Company assets. The Commission
raised this concern in: Staff Report on Corporate Accountability: A
Re-examination of Rules Relating to Shareholder Communications, Shareholder
Participation in the Corporate Electoral Process and Corporate Governance
Generally, Senate Comm. on Banking, Hous. & Urban Affairs, 96thCong., 2d Sess.
98-127 (Comm. Print 1980).
For all of the above reasons, the Company believes that the Proposal is
excludable pursuant to Rule 14a-8(i)(7).
If the Staff disagrees with the foregoing analysis and conclusions regarding the
exclusion of the Proposal and Supporting Statement, or if additional information
is desired in support of the Company's position, I would appreciate an
opportunity to speak with you by telephone prior to the issuance of a written
response. You may contact me by telephone at (212) 635-1075 or by e-mail at
pimmerman@bankofny.com.
Very truly yours,
/s/
Paul A. Immerman
Senior Counsel
The Bank of New York
cc: Gerald W. McEntee, Chairman
American Federation of State, County and Municipal Employees
[INQUIRY LETTER]
November 23, 2005
VIA Overnight Mail and Telecopier (212) 635-1799
The Bank of New York Company, Inc.
One Wall Street
New York, NY 10286
Attention: John M. Liftin, Vice Chairman, General Counsel and Corporate
Secretary
Dear Mr. Liftin:
On behalf of the AFSCME Employees Pension Plan (the "Plan"), I write to give
notice that pursuant to the 2005 proxy statement of The Bank of New York
Company, Inc. (the "Company") and Rule 14a-8 under the Securities Exchange Act
of 1934, the Plan intends to present the attached proposal (the "Proposal") at
the 2006 annual meeting of shareholders (the "Annual Meeting"). The Plan is the
beneficial owner of shares of voting common stock (the "Shares") of the Company
in excess of $2,000, and has held the Shares for over one year. In addition, the
Plan intends to hold the Shares through the date on which the Annual Meeting is
held. A copy of our proof of ownership will be forthcoming within seven days.
The Proposal is attached. I represent that the Plan or its agent intends to
appear in person or by proxy at the Annual Meeting to present the Proposal. I
declare that the Plan 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 Charles Jurgonis at (202) 429-1007.
Sincerely,
/s/
GERALD W. McENTEE
Chairman
Enclosure
RESOLVED, that shareholders of Bank of New York Company, Inc. ("BONY") urge the
board of directors (the "Board") to amend the bylaws to provide procedures for
the reimbursement of the reasonable expenses, including but not limited to
legal, advertising, solicitation, printing and mailing costs (collectively,
"Expenses"), incurred by a shareholder or group of shareholders (in each case, a
"Nominator") in a contested election of directors, provided that:
(a) the election of fewer than 50% of the directors to be elected is contested;
(b) the amount of the reimbursement shall not exceed the amount determined by
the following formula: (i) if any candidate nominated by the Nominator is
elected to the Board, 100% of the Nominator's Expenses shall be reimbursed; (ii)
if no such candidate is elected, the Reimbursable Percentage shall be determined
by (A) dividing the highest number of votes received by an unelected candidate
nominated by the Nominator by the lowest number of votes received by an elected
candidate, and (B) multiplying the Reimbursable Percentage by the Expenses;
provided, however, that if the Reimbursable Percentage is less than 30%, no
Expenses shall be reimbursed.
(c) the bylaw shall not apply if shareholders are permitted to cumulate their
votes for directors; and
(d) the bylaw shall apply only to contested elections commenced after the
bylaw's adoption.
SUPPORTING STATEMENT
In our opinion, the power of shareholders to elect directors is the most
important mechanism for ensuring that corporations are managed in shareholders'
interests. Some corporate law scholars posit that this power is supposed to act
as a safety valve that justifies giving the board substantial discretion to
manage the corporation's business and affairs.
The safety valve is ineffective, however, unless there is a meaningful threat of
director replacement. We do not believe such a threat currently exists at most
U.S. public companies, including BONY. Harvard Law School professor Lucian
Bebchuk has estimated that there were only about 80 contested elections at U.S.
public companies from 1996 through 2002 that did not seek to change control of
the corporation.
The unavailability of reimbursement for director election campaign expenses for
so-called "short slates" slates of director candidates that would not comprise
a majority of the board, if electedcontributes to the scarcity of such
contests. (Because the board approves payment of such expenses, as a practical
matter they are reimbursed only when a majority of directors have been elected
in a contest.) This proposal would provide reimbursement for reasonable expenses
incurred in successful short slate effortsbut not contests aimed at ousting a
majority or more of the boardwith success defined as the election of at least
one member of the short slate. The proposal would also provide proportional
reimbursement for contests in which no short slate candidates were elected, but
only if the most successful short slate candidate received at least 30% of the
vote received by the elected director with the lowest number of "for" votes.
We urge shareholders to vote for this proposal.
[INQUIRY LETTER]
January 19, 2006
VIA HAND DELIVERY
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, NE
Washington, DC 20549
Re: Shareholder proposal of AFSCME Employees Pension Plan; no-action request by
The Bank of New York Company, Inc.
Dear Sir/Madam:
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the "Rule"),
the AFSCME Employees Pension Plan (the "Plan") submitted to The Bank of New York
Company, Inc. ("BONY" or the "Company") a shareholder proposal (the "Proposal")
urging the board of directors to amend the Company's bylaws to provide
procedures for the reimbursement of reasonable expensesincluding legal,
advertising, solicitation, printing and mailing costs (collectively, the
"Expenses")incurred by a shareholder or group of shareholders in connection
with the nomination of one or more persons for election to BONY's board. The
Proposal suggests that reimbursement be conditioned on obtaining a threshold
level of shareholder support, and that the percentage of Expenses reimbursed
vary depending on the extent of such support.
In a letter to the Commission dated December 23, 2005, BONY stated that it
intends to omit the Proposal from its proxy materials being prepared for the
2006 annual meeting of shareholders. BONY argues that it is entitled to exclude
the Proposal in reliance on (i) Rule 14a-8(i)(3), on the ground that the
Proposal violates Rule 14a-7; (ii) Rule 14a-8(i)(8), as relating to the election
of directors; and (iii) Rule 14a-8(i)(7), as dealing with the Company's ordinary
business operations. As discussed more fully below, BONY has not met its burden
of showing it is entitled to rely on any of the three exclusions to omit the
Proposal.
Rule 14a-7
Rule 14a-8(i)(3) permits a registrant to exclude a proposal if it violates any
of the Commission's other proxy rules. BONY contends that the Proposal can be
omitted because it would violate Rule 14a-7. Rule 14a-7 requires a registrant,
upon the request of any security holder, to (1) provide the security holder with
a list of holders of the registrant's securities or (2) mail the security
holder's soliciting material to other security holder's at the soliciting
security holder's expense. The registrant has the power to decide between these
two options.
The flaw in BONY's argument is that Rule 14a-7 is not the exclusive mechanism
for soliciting shareholders to learn the identities of their fellow shareholders
and distribute soliciting material to them. Indeed, because Rule 14a-7 gives the
company the option of mailing soliciting material without giving the soliciting
shareholder the contact information needed to follow up by mail or phone, it is
not often used by soliciting shareholders. See Randall Thomas, "Improving
Shareholder Monitoring and Corporate Management by Expanding Statutory Access to
Information," 38 Arizona L. R. 331, 361 (1996). Instead, shareholders turn to
state inspection statutes, such as section 220 of the Delaware General
Corporation Law, that give shareholders the right to demand a shareholder list.
The Commission has recognized that state inspection statutes supplement, and in
many cases supplant, Rule 14a-7. In Exchange Act Release No. 29315, which
proposed changes to Rule 14a-7, among other rules, the Commission stated, "Since
the choice of whether to produce a list or mail under current Rule 14a-7 resides
exclusively with the registrant, those securityholders who wish to employ the
list to conduct a personal solicitation normally must pursue in the courts any
state statutory or common-law rights thereto."
It is thus clear that the Commission does not intend for Rule 14a-7 to serve as
the sole means by which shareholders can distribute soliciting material.
Accordingly, the fact that Rule 14a-7 imposes the cost of such distribution on
the soliciting shareholder does not preclude companies from adopting a different
cost allocationsuch as the one urged in the Proposalif they believe it would
be beneficial.
Election of Directors
Rule 14a-8(i)(8) (the "Election Exclusion") allows omission of a proposal if it
"relates to an election for membership on the company's board of directors or
analogous governing body." The Election Exclusion does not elaborate on the
meaning of "relates to." A literal reading of the Election Exclusion as allowing
omission of any proposal with a connection to director elections is not
consistent with the Staff's determinations over the past several decades, which
have declined to allow exclusion of proposals dealing with board
declassification, cumulative voting, director qualifications (including
independence and stock ownership requirements), director term limits, mandatory
director retirement ages, and the nomination of two candidates for each open
board seat. All of these proposals bear a substantial relationship to director
elections.
The Plan is aware that the Staff has permitted registrants to exclude proposals
seeking the establishment of a shareholder right of access to the company proxy
statement for the purpose of nominating directors, on the basis that such
proposals "would establish a procedure that may result in contested elections of
directors." BONY argues that the Proposal is also excludable on this basis.
The Plan has argued both to the Staff and Commission, as well as in litigation
against American International Group, that this "contested elections" gloss on
the Election Exclusion has no basis in the exclusion's text or history. The Plan
believes that the most sensible interpretation of the Election Exclusion is that
it prohibits shareholders from using the Rule to nominate particular candidates
or remove an incumbent director from the board, but does not allow exclusion of
generic proposals that establish general ground rules for director elections.
It is not necessary, however, to debate the contested elections gloss here,
because the Proposal differs so much from the shareholder proxy access proposals
to which that reasoning has been applied. Specifically, the Proposal would not
give shareholders access to BONY's proxy statement; rather, it would leave
completely intact the current system for mounting director election contests,
which requires a nominating shareholder to file its own proxy materials with the
Commission, distribute those materials to shareholders and collect and tabulate
votes on a separate proxy card bearing the names of the dissident nominees. For
that reason, the Proposal does not implicate the same concerns over the
applicability of the Commission's other proxy rulesespecially Rule 14a-12,
which governs contested solicitationsthat may have led the Staff to permit
exclusion of the shareholder proxy access proposals.
The Proposal only addresses the availability of reimbursement for director
election contests after they have been conducted in accordance with the
Commission's rules for contested solicitations. Although contested elections may
be more likely if reimbursement is possible, as the Proposal's supporting
statement suggests, the Proposal itself does not facilitate a contest or
establish a mechanism through which one can be carried out. Many of the
proposals the Staff has deemed not to be excludable under the Election Exclusion
could be viewed as tipping the balance in the direction of more director
contests, especially proposals seeking the establishment of cumulative voting,
which significantly enhances the power of minority shareholders in director
elections. That indirect effect, however, is not sufficient to warrant
exclusion.
Ordinary Business
BONY urges that the Proposal may be omitted in reliance on Rule 14a-8(i)(7),
which permits exclusion of proposals that relate to a registrant's ordinary
business operations. BONY claims that the Proposal would infringe on the board's
power, conferred by state law, to manage the business and affairs of the
Company. Specifically, BONY complains that the Proposal would "usurp
management's discretion as to how to allocate the Company's resources."
As an initial matter, it is worth noting that a wide variety of shareholder
proposals, from those advocating board declassification to those asking for
corporate responsibility reporting, could increase costs to companies and would
specify how corporate resources would be allocated. But this is not the
criterion used by the Commission in analyzing excludability on ordinary business
grounds. Instead, the Staff looks to whether a proposal (i) deals with tasks
that 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"; or (ii) "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." Exchange Act
Release No. 40018 (May 21, 1998) (the "1998 Release").
Both of the analyses set forth in the 1998 Release favor inclusion of the
Proposal. It is beyond dispute that proxy contests are not part of the
day-to-day management of any company, even the most troubled. Absent a special
meeting or action by written consent in lieu of a meeting, the most frequently
director elections occur is once a year. Contested elections could be expected
to take place even less often.
Moreover, reimbursement of proxy contest expenses is not the kind of complex
business subject on which shareholders are unable to make an informed judgment.
Unlike other matters which the Staff has deemed ordinary business, such as
appropriate safety technologies, see WPS Resources Corp. (available Feb. 16,
2001), non-senior-executive employee benefits, see United Technologies
Corporation (available Feb. 20, 2001), the selection of markets for the
company's products or services, see Allstate Corp. (available Feb. 19, 2002) and
customer relations, see Wal-Mart Stores Inc. (available Mar. 27, 2001), the
standard for reimbursing expenses is a corporate governance ground rule of the
type shareholders customarily approve. Indeed, companies sometimes ask
shareholders to approve proxy contest reimbursements in order to insulate those
reimbursements from subsequent legal challenge. It is thus illogical to believe
that shareholders would be unable to make an informed judgment on the Proposal.
* * * *
If you have any questions or need additional information, please do not hesitate
to call me at (202) 429-1007. The Plan appreciates the opportunity to be of
assistance to the Staff in this matter.
Very truly yours,
/s/
Charles Jurgonis
Plan Secretary
cc: Paul A. Immerman
Senior Counsel, The Bank of New York
Fax (212) 635-1665
[INQUIRY LETTER]
January 30, 2006
VIA OVERNIGHT DELIVERY
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: No-Action Request by The Bank of New York Company, Inc. Shareholder Proposal
submitted by American Federation of State, County and Municipal Employees
Ladies and Gentlemen:
This is in response to the letter dated January 19, 2006 submitted to the
Commission by American Federation of State, County and Municipal Employees (the
"Proponent").
Rule 14a-7
The Proponent's reading of Rule 14a-7 is too narrow. The issue is not access to
the Company's shareholder lists. The issue is the payment of the costs of a
contested election. Under Rule 14a-7 the opposition candidate is required to
bear its own costs of solicitation. Proponent's proposal would require the
Company to pay those expenses.
Election of Directors
The proponent's argument under Rule 14a-8(i)(8) ignores the practical effect of
the proposal. By the proponent's own admission, in its letter, "contested
elections may be more likely if reimbursement is possible...." This clearly
contravenes the Commission's view that proposals are excludable if such
proposals "would establish a procedure that may result in contested elections of
directors."
Ordinary Business
Finally, the proponent claims that "companies sometimes ask shareholders to
approve proxy contest reimbursements...." The proposal would not establish a
procedure to ask shareholders to approve proxy contest expenses. Rather it would
automatically disburse corporate assets to unsuccessful candidates for the
board. The majority of shareholders, who voted against a candidate, would be
forced to pay the solicitation expenses of the unsuccessful candidate.
For all of these reasons, we continue to believe that the proposal may be
excluded.
Should you have any questions or require anything further, please contact me by
telephone at (212) 635-1075 or by e-mail at pimmerman@bankofny.com. Thank you
for your consideration.
Very truly yours,
/s/
Paul A. Immerman
Senior Counsel
The Bank of New York
cc: Charles Jurgonis, Plan Secretary
American Federation of State, County and Municipal Employees
[STAFF REPLY LETTER]
February 28, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Bank of New York Company, Inc. Incoming letter dated December 23, 2005
The proposal urges the board to amend the bylaws to provide procedures for
reimbursement of reasonable expenses incurred by a shareholder or group of
shareholders in a contested election of directors in specified circumstances.
We are unable to concur in your view that the Bank of New York may exclude the
proposal under rule 14a-8(i)(8). Accordingly, we do not believe that the Bank of
New York may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(8).
We are unable to concur in your view that the Bank of New York may exclude the
proposal under rule 14a-8(i)(3). Accordingly, we do not believe the Bank of New
York 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 the Bank of New York may exclude the
proposal under rule 14a-8(i)(7). Accordingly, we do not believe that the Bank of
New York may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(7).
Sincerely,
/s/
Ted Yu
Special Counsel
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