Company Name: CBS Corp.
Public Availability Date: March 16, 2006
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
VIA AIRBORNE EXPRESS
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: CBS Corporation (f/k/a Viacom Inc.)Shareholder Proposal Excludable under
Rules 14a-8(i)(3)
Ladies and Gentlemen:
CBS Corporation, a Delaware corporation (the "Company"), is filing this letter
pursuant to Rule 14a-8(j) of the Securities Exchange Act of 1934, as amended, to
notify the Securities and Exchange Commission (the "Commission") of the
Company's intention to exclude a shareholder proposal (the "Proposal") that was
submitted by Mr. Chi-Ming Liu ("Mr. Liu"), which Proposal was submitted for
inclusion in the proxy statement and form of proxy (together, the "Proxy
Materials") to be distributed to the Company's stockholders in connection with
its 2006 annual meeting of stockholders (the "Annual Meeting"). A copy of the
Proposal, as well as the correspondence with Mr. Liu, is attached hereto as
Exhibit A. The Company respectfully requests the advice of the Division of
Corporation Finance (the "Staff") that it will not recommend to the Commission
that enforcement action be taken if the Company excludes the Proposal from its
Proxy Materials for the reasons set forth below.
The Company intends to file its definitive Proxy Materials for the Annual
Meeting with the Commission on or about April 14, 2006, and the Company's Annual
Meeting is scheduled to occur on May 25, 2006.
The Proposal
The resolution and supporting statement in the Proposal are as follows:
"RESOLVED: The stockholder requests that the Board or [sic] Directors take [sic]
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.
Supporting Statement:
Viacom [sic] capital structure give [sic] Sumner M. Redstone and his family a
disproportionate and nondilutable percentage of the stockholder vote. In
contrast, Viacom class B common had [sic] no vote.
We believe that this disproportionate voting power presents a significant danger
to the stockholders.
As Louis Lowenstein has observed, dual-class voting stocks reduce accountability
for corporate officers and insiders. They eliminate 'checks or balances, excepy
[sic] for fiduciary duty rules that reach only the most egrgious [sic] sort of
behavior.' 1989 Columbia Law Review 979, 108. The danger of such
disproportionate power is illustrated, in my view, by the charge of fraud that
[sic] brought against the top executives of Adelphia Communications and
Hollinger International. Like Viacom each of those media companies had a capital
structure that gave disproportionate voting powers to one or more insiders. We
believe those capital structures were a factor that contributed to the alleged
frauds by reducing accountability.
Morgan Stanley equity strategist Henry Mcvey evaluted [sic] returns of
family-steered companies for outside holders. He found those with dual-share
classes that guarantee family voting control were the worst performance [sic].
Their stocks 'consistently underperformed both the broader group of family
companies and the S&P 500,' Mcvey notes!"
The Company requests that the Staff concur with its view that the Proposal may
properly be omitted from its Proxy Materials pursuant to Rule 14a-8(i)(3), as
the Proposal is contrary to the Commission's proxy rules, namely because (i) the
Proposal violates Rule 14a-9's prohibition on including materially false and
misleading statements in proxy solicitation materials and (ii) the resolution
contained in the Proposal is inherently vague and indefinite.
Background
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides, in relevant part, that, except as otherwise provided by
the Certificate or required by law:
'[W]ith respect to all matters upon which stockholders are entitled to vote, the
holders of the outstanding shares of Class A Common Stock shall vote together
with the holders of any other outstanding shares of capital stock of the
Corporation entitled to vote ..., and every holder of outstanding shares of
Class A Common Stock shall be entitled to cast thereon one vote ... for each
share of Class A Common Stock.... Except as otherwise required by law, the
holders of outstanding shares of Class B Common Stock shall not be entitled to
any votes upon any questions presented to stockholders of the Corporation...."
With respect to other voting rights, the Certificate also provides that
preferred stock holders will not have the ability to elect a majority of the
board of directors unless such ability is approved by the majority vote of
outstanding shares of Class A Common Stock. Further, a majority vote of the
outstanding shares of Class A Common Stock as a class is required to approve any
consolidations or mergers involving the Company.
The Company is authorized to issue a total of 5.4 billion shares of capital
stock, of which 375 million shares are allocated for Class A Common Stock, 5
billion shares for Class B Common Stock, and 25 million shares for Preferred
Stock. Of these authorized shares, over 66 million shares of Class A Common
Stock are issued and outstanding, over 686 million shares of Class B Common
Stock are issued and outstanding and no shares of Preferred Stock are issued and
outstanding.
Discussion
Rule 14a-8(i) sets forth grounds on which a company may rely to exclude a
shareholder proposal if such proposal otherwise complies with the eligibility
and procedural requirements of Rule 14a-8. One of these grounds, Rule
14a-8(i)(3), provides that shareholder proposals may be properly excluded if the
proposal or supporting statement is contrary to the Commission's proxy rules,
including Rule 14a-9 which prohibits false and misleading statements in proxy
statements. In Staff Legal Bulletin No. 14B (September 15, 2004)("SLB 14B"), the
Staff recently clarified its position with respect to the exclusion of
shareholder proposals in reliance on Rule 14a-8(i)(3). Of particular relevance
to the Proposal, the Staff highlighted four situations when exclusion or
modification of a proposal may be appropriate:
statements directly or indirectly impugn character, integrity or personal
reputation, or directly or indirectly make charges concerning improper, illegal,
or immoral conduct or association, without factual foundation;
the company demonstrates objectively that a factual statement is materially
false or misleading;
the resolution contained in the proposal is so inherently vague or indefinite
that neither the stockholders voting on the proposal, nor the company in
implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires; and
substantial portions of the supporting statement are irrelevant to a
consideration of the subject matter of the proposal, such that there is a strong
likelihood that a reasonable shareholder would be uncertain as to the matter on
which she is being asked to vote.
The Proposal is excludable under Rule 14a-8(i)(3) because the Proposal includes
all of the excludable events identified above. First, the supporting statements
in the Proposal (i) are materially false or misleading, (ii) impugn the
integrity of the Company's principal stockholder and his family, and indirectly,
the Company's executive officers and board of directors, without factual
foundation, and (iii) are irrelevant to a consideration of the subject matter of
the proposal. Secondly, the resolution contained within the Proposal is
inherently vague and indefinite.
A. A significant portion of the supporting statements in the Proposal are
materially false or misleading.
The Company believes that the Proposal may be omitted from the Proxy Materials
pursuant to Rule 14a-8(i)(3) because the supporting statement for the Proposal
contains materially false and misleading statements. The Staff has also
indicated that, when a proposal and supporting statement "have obvious
deficiencies in terms of accuracy, clarity or relevance" and "will require
detailed and extensive editing in order to bring them into compliance with the
proxy rules," the Staff may find it appropriate for companies to "exclude the
entire proposal, supporting statement, or both, as materially false or
misleading." Division of Corporation Finance: Staff Legal Bulletin No. 14 (July
13, 2001). As discussed below, all of the statements in the supporting statement
must be omitted or substantially revised and, therefore, the Proposal in its
entirety is false and misleading and should be excluded. In the alternative, if
the Staff is unable to concur with our conclusion that the entire Proposal
should be excluded, we respectfully request that the Staff recommend exclusion
of the supporting statement in its entirety or exclusion or the statements
discussed below.
Specific False and Misleading Statements:
The following are specific examples of statements in the supporting statement in
the Proposal that the Company believes are false and misleading within the
meaning of Rules 14a-8(i)(3) and 14a-9:
1. "Viacom [sic] capital structure give [sic] Sumner M. Redstone and his family
a disproportionate and nondilutable percentage of the stockholder vote. In
contrast, Viacom class B common had [sic] no vote. We believe that this
disproportionate voting power presents a significant danger to the
stockholders."
These statements are factually incorrect and thus inherently misleading to
stockholders in violation of Rules 14a-8(i)(3) and 14a-9. Shares of Class A
Common Stock held directly and beneficially by Mr. Redstone and other family
members do not have a disproportionate percentage of the stockholder vote. The
shares of Class A Common Stock they hold carry the voting power of one vote per
share, as does every other share of Class A Common Stock. The statements above
falsely suggest that the voting power he and his family hold is disproportionate
to the number of shares owned. The only interpretation that would render the
"disproportionate" voting right accusation meaningful would be to infer that the
shares of Class A Common Stock held by Mr. Redstone and his family, and no one
else, have characteristics of a class of common stock carrying "super-voting"
rights, e.g., more than one vote per share. It is this kind of
"disproportionate" voting power, which does not exist in fact, that Mr. Liu uses
as his primary argument on the "danger" to stockholders and as a common theme
throughout the supporting statement.
Further, the assertions above suggest that the percentage interest in the
Company held by Mr. Redstone and his family is "nondilutable", which is also
factually incorrect. No holder of any outstanding shares of Class A or Class B
Common Stock, including Mr. Redstone and his family, are entitled to any
preemptive right enabling such holder to subscribe for or receive share of
capital stock in the Company to ensure their ownership percentage in the
Company. Further, subject to the New York Stock Exchange Rules, the CBS Board of
Directors is empowered, without further shareholder action, to issue shares of
authorized but as yet unissued capital stock of the Company, including preferred
stock, any issuance of which would have a dilutive effect upon each holder of
capital stock, including Mr. Redstone and his family.
The assertions above are misleading in that they falsely imply that Mr. Redstone
and his family have more voting power than they are entitled to as a holder of
Class A Common Stock and that there are no dilutive events possible that could
decrease their voting percentage in the Company. For the above reasons, if the
Staff disagrees that the Proposal in its entirety or the supporting statement in
its entirety may be excluded, then the above-quoted passage should be deleted.
2. "As Louis Lowenstein has observed, dual-class voting stocks reduce
accountability for corporate officers and insiders. They eliminate 'checks or
balances, excepy [sic] for fiduciary duty rules that reach only the most
egrgious [sic] sort of behavior.' 1989 Columbia Law Review 979,108. The danger
of such disproportionate power is illustrated, in my view, by the charge of
fraud that [sic] brought against the top executives of Adelphia Communications
and Hollinger International. Like Viacom each of those media companies had a
capital structure that gave disproportionate voting powers to one or more
insiders. We believe those capital structures were a factor that contributed to
the alleged frauds by reducing accountability."
These statements are misleading and impugn the character and integrity of Mr.
Redstone and his family by indirectly charging that that their stock ownership
is a breeding ground for fraud and lack of accountability, all without factual
foundation. Specifically, these statements assert that the exercise by Mr.
Redstone and his family of their voting power (again incorrectly characterized
as disproportionate) has the potential to lead to the same charges of fraud
brought against executives at Adelphia and Hollinger. Mr. Liu provides no basis
for these allegations of potential fraud stemming from the activities of Mr.
Redstone and his family. In addition, these statements indirectly also impugn
the character and integrity of the Board of Directors, again without factual
foundation, by positing a scenario in which the Board of Directors will not
fulfill its fiduciary obligations to the Company and its stockholders in the
face of the implied abuse by Mr. Redstone and his family of their
"disproportionate [voting] power".
The Staff has agreed that a statement impugning the integrity of a company is
false and misleading when there is no evidence offered to support it, and the
statement is therefore excludable. See PG&E Corporation (Feb. 28, 2002); The
Chase Manhattan Corporation (March 30, 2000). For the above reasons, if the
staff disagrees that the Proposal in its entirety or the supporting statement in
its entirety may be excluded, then the above-quoted passage should be deleted.
3. "Morgan Stanley equity strategist Henry Mcvey evaluted [sic] returns of
family- steered companies for outside holders. He found those with dual-share
classes that guarantee family voting control were the worst performance [sic].
Their stocks 'consistently underperformed both the broader group of family
companies and the S&P 500,' Mcvey notes."
The statements above are misleading and unrelated to the primary subject of the
Proposal in that they merely recite a general statistic on stock performance
without connecting how the adoption of the Proposal would address the implied
stock performance concerns. In addition, the statistic is quoted from an analyst
without identifying the source of the quote's publication so that stockholders
can verify the assertions. There are numerous precedents that allow the
exclusion of supporting statements (or portions thereof) that are unrelated to
the primary subject of the proposal. See Sara Lee Corporation (March 11,
2004)(entire supporting statement excluded as unrelated to proposal on
charitable contributions); Dominion Resources, Inc. (January 24, 2002)(proponent
instructed to delete discussion of concerns on relocation of company
headquarters in supporting statement for proposal relating to poison pills); and
R.J. Reynolds Tobacco Holdings, Inc. (January 23, 2001)(Staff permitted the
exclusion of statements unrelated to the proposal to compensate directors solely
in stock). If the Staff disagrees that the Proposal in its entirety or the
supporting statement in its entirety may be excluded, then the above-quoted
passage should be deleted.
B. The resolution contained in the Proposal is inherently vague and indefinite.
The Staff's clarification in SLB 14B is consistent with positions in a long line
of no-action letters that a company may exclude a proposal pursuant to Rule
14a-8(i)(3) if the proposal is vague and indefinite, and therefore, potentially
misleading. See Philadelphia Electric Co. (July 30, 1992)(proposal relating to
the election of a shareholder committee to consider and present plans to the
board of directors was excludable on the basis that the proposal was so
inherently vague and indefinite that neither the Company's shareholders nor its
board or management would be able to determine exactly what actions or measures
would be required in the event the proposal was adopted); IDACORP, Inc.
(September 10, 2001) (shareholder proposal seeking to amend the company's
certificate of incorporation to provide a shareholder right of recall was
excluded as vague and indefinite); and ConAgra Foods, Inc. (July 1,
2004)(proposal requesting preparation of GRI-based sustainability reports was
excludable on the basis that the proposal was vague and indefinite under Rule
14a-8(i)(3)). In arguments to the Staff seeking to exclude the proposals,
ConAgra Foods pointed out that 'the proposal does not inform stockholders of
what the company would be required to do if the proposal were approved'; and
IDACORP argued that the meaning and application of terms or the standards under
the proposal "may be subject to differing interpretations."
As with the proposals referenced above, the Proposal is vague and indefinite and
is properly excluded under Rule 14a-8(i)(3). The Proposal requests that the
Board "take the steps that may be necessary" to adopt a recapitalization plan,
but does not specify with reasonable certainty what actions or measures the
Proposal would require to create or implement the plan. For example, the
Proposal seeks approval for voting rights equal to "one vote per share" without
specifying to what matters those voting rights would apply. Keeping in mind the
current voting rights set forth in the Certificate, the Proposal does not
indicate (i) whether these proposed voting rights would apply to all matters
upon which stockholders are entitled to vote or (ii) how the proposed voting
rights affect, or should apply to, current voting rights applicable only to
certain classes of stockholders. It is unclear, for instance, whether the "one
vote per share" proposal, if approved, would mean that the current right to vote
on Company consolidations or mergers, held solely by Class A Common
Stockholders, would be effectively replaced by a right to vote by all holders of
capital stock. It is likewise unclear how the "one vote per share" proposal
would be applied to the Class A Common Stockholder's current right to approve
preferred stockholders' voting rights on director elections. Secondly, since the
resolution in the Proposal refers only to voting rights for "outstanding stock,"
the Proposal is vague as to whether the proposed voting rights would apply to
(i) only the currently outstanding Class A Common Stock and Class B Common
Stock, (ii) all of the Company's capital stock, including any preferred stock or
other derivative securities and future issuances of any class of common stock,
or (iii) any combination thereof. Therefore, if the Proposal were to be adopted,
neither the Board nor the Company's stockholders could determine what additional
actions, if any, would be required in connection with its implementation. See
General Electric Company (January 23, 2003) (Staff permitted exclusion of a
proposal where General Electric argued that the proposal was vague and
indefinite because it failed to define critical terms or otherwise provide
guidance on implementation); and Eastman Kodak Company (March 3, 2003) (Staff
permitted exclusion of a proposal that failed "to provide guidance on how it
should be implemented").
Because of this lack of guidance as to the scope of the proposed
recapitalization, and the many different interpretations of the Proposal, the
Company believes that the Proposal is vague and indefinite within the guidelines
set forth in SLB 14B and thus is excludable under Rule 14a-8(i)(3).
Conclusion
For the reasons set forth above, the Company respectfully requests the
concurrence by the Staff in its conclusions that the Company may exclude the
Proposal from the Company's 2006 Proxy Materials in reliance on Rule
14a-8(i)(3). The Company respectfully requests that the Staff indicate that it
will not recommend enforcement action to the Commission if the Company excludes
the Proposal. In the alternative, if the Staff does not concur in the Company's
view that it may exclude the Proposal, the Company requests that the Staff
recommend exclusion of the supporting statement in its entirety or exclusion of
any of the statements identified as false and misleading herein.
In accordance with Rule 14a-8(j), six copies of this letter, including Exhibit
A, are enclosed, and a copy of this letter is being sent to Mr. Liu.
If you have any questions regarding this request or require additional
information, please contact the undersigned at telephone (212) 846-6479 or fax
(212) 846-1960. If the Staff is unable to concur with the Company's conclusions
with respect to the excludability of the Proposal or the supporting statements
contained therein, the Company respectfully requests the opportunity to discuss
the Proposal with members of the Staff prior to the issuance of any written
response to this letter.
Very truly yours,
/s/
Angeline C. Straka
Senior Vice President,
Deputy General Counsel and Secretary
[APPENDIX]
BY: CHI-MING LIU 56-17 205 STREET FLUSHING, NY 11364
HE holds 401 shares class A, and 1646 shares class B.
RESOLVED: The stockhoder requests that the Board or Directors take the steps
that may necessary to adopt a recapitalization plan that would provide for all
of the Company's outstanding stock to have one vote per share.
Supporting Statement:
Viacom capital structure give Sumner M. Restone and his family a
disproportionate and condilutable percentage of the stockholder vote. In
contrast, Viacom class B common had no vote.
We believe this disproportionate voting power presents a significant danger to
the tockholders. As Louis Lowenstein has observed, dual-class voting stocks
reduce accountablity for corporate officers and insiders. They eliminate "checks
or balances, excepy for fiduciary duty rules that reach only the most egrgious
sort of behavior." 1989 Columbia Law Review 979,108.
The danger of such disproportionate power is illustrated , in my view, by the
charge of fruad that brought against the top exectives of Adelphia
Communications and Hollinger International. Like Viacom each of those media
companies had a capital structure that gave disproportionate voting powers to
one or more insiders. We believe those capital structures were a factor that
contributed to the alleged frauds by reducing accountabilty.
Morgan Stanley equity strategist Henry Mcvey evaluted returns of family-steered
companies for outside holders. He found those with dual-share classes that
guarantee family voting control were the worst performance. Their stocks"
consistently underperformed both the broader group of family companies and the
S&P 500," Mcvey notes.
[INQUIRY LETTER]
November 23, 2005
Mr. Chi-Ming Liu
56-17 205th Street
Flushing, NY 11364
Re: Stockholder Proposal
Dear Mr. Liu:
We have received the shareholder proposal that you have submitted to Viacom Inc.
under SEC Rule 14a-8.
Rule 14a-8 provides that you must have continuously held at least $2,000 in
market value, or 1%, of the company's securities entitled to be voted on the
proposal at the meeting for at least one year by the date you submit your
proposal and that you must provide the company with a written statement that you
intend to continue to hold the securities through the date of the meeting of
shareholders. I have enclosed a copy of the relevant portion of Rule 14a-8 for
your reference. We did not receive the written statement of intent outlined
above.
I am writing to request that you provide, within 14 days of receiving this
letter, a written statement that you intend to continue to hold your Viacom
Class A securities through the date of the 2006 meeting of stockholders. Please
direct the statement of intent to my attention. If you do not provide the
required statement in a timely manner, then the proposal is not eligible to be
presented at our stockholders meeting, and we respectfully request that you
withdraw the proposal.
We appreciate your interest in Viacom.
/s/
Angeline C. Straka
Vice President, Associate General Counsel
November 23, 2005
cc: Michael D. Fricklas
Allison S. Gray
[STAFF REPLY LETTER]
March 16, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: CBS Corporation
Incoming letter dated January 23, 2006
The proposal requests that CBS's board of directors take steps that may be
necessary to adopt a recapitalization plan to provide for all of CBS's
outstanding stock to have one vote per share.
We are unable to concur in your view that CBS may exclude the proposal or
portions of the supporting statement under rule 14a-8(i)(3). Accordingly, we do
not believe that CBS may omit the proposal or portions of the supporting
statement from its proxy materials in reliance on rule 14a-8(i)(3).
Sincerely,
/s/
Gregory Belliston
Attorney-Adviser
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